$1 plus profit per vend? It's a reality!

Vending operators can successfully place “premium products” in snack vending machines to generate $1 plus in profit for each vend after cost-of-goods (COG), commissions and applicable sales taxes, a recent test has proven. Product suppliers such as Kraft/Cadbury have the information for vending operators to develop a premium product placement program to achieve such profits.

Last year, I wrote two articles in Automatic Merchandiser advocating the placement of higher priced products vending at $1.50 in both snack and beverage machines to increase weekly sales. Since then, Vending Consultants Co. (VCC) has conducted a test with several vending operators sponsored by Kraft/Cadbury to determine the efficacy of placing premium products for sale at vend prices from $1.75 to $5.

The objective of the test was to generate at least a $1 in profit per vend after COG, commission and applicable sales tax. Simply put, if you had a choice, would you place a product that produces a vend profit of $1 in your snack machines instead of $0.30, or even $0.50 for each vend?

Furthermore, what are the long-term benefits of educating your customers to use a $5 bill to buy a product vending at $2 or $3.50 in your machines? Vending operators should not apologize for selling higher priced products in their machines, especially if the products provide value and sell at similar prices in other channels.

VCC initially considered placing 16 different premium products. The size of the premium products ranged from 3.5 ounces to 6 ounces. The COG of the premium products varied from $0.60 per unit up to a premium chocolate product with a $2.25 unit COG.

Every product was tested to assure that the package size would vend. Vend price points were selected in the range of $1.75 to $5.

Locations were limited for the test to snack machines that had at least a $5 bill acceptor and/or credit card reader. The test locations at hospitals, colleges, and offices were qualified by sales of at least 600 units each month.

VCC developed a beta test to track the vends of the different premium products on a daily basis using remote machine monitoring. The beta test provided critical information as to the placing of the premium products in the machines and the acceptance of the vend price by the consumer.

For example, the sales of the premium chocolate product with a COG of $2.25 per unit and vend prices of $4 to $5 were too low to warrant continuing this product in the second phase of the test.

Other products did not attract sufficient sales to also continue in the second phase.

Point of sale (POS) materials were not used either in the beta test or the second phase of test.

Both vending operators and Kraft/Cadbury thought that with POS, an opportunity may exist in the future to promote premium products with vend prices in the $4 to $5 price range.

Phase 2: 100 machines

In the second phase of the test involving around 100 snack machines, premium products having COG from $0.60 to $1.20 were placed with vend prices in the $1.75 to $3.50 range. The operators had different vend price points for the premium products driven by the different commissions paid to the various locations to maintain the basic objective of $1 profit for each vend.

To analyze the results, the vending operator must employ a machine level stock keeping unit (SKU) profitability report.

In the article, “Technology based reports are vital to increasing profitability,” in Automatic Merchandiser, March 2011, experts stated how DEX has revolutionized the way vending operators can do business and increase profitability by cash reconciliation, product merchandising and route efficiency. Essential to this revolution is that DEX data must be collected at the SKU level in each machine.

Results: Premium Products Work

In reviewing the results from the second phase of the premium product test, VCC used SKU machine level sales reports. For example, in one 40-spiral snack machine, 1,089 unit sales produced $1,302 for the month of February.