It sounds like a cliché to say the vending industry stands at a crossroad. But every veteran vending operator has to admit the times have never been so challenging.
Some have gone a step further and recognized that in addition to being challenging, times have never been as promising.
Southern Refreshment Services in Tucker, Ga. has recognized the opportunities and is charging into the future — cashless solutions, remote machine monitoring, coupon dispensers and video screens — aggressively. Not a small move for a company that posted its first annual sales loss in its entire history in 2009.
Launched in 1979 by Dan Hart and the late Alan Plaisted, Southern Refreshment Services became a leader in the Atlanta, Ga. market by investing in new products, equipment and staff, and taking an active role in industry trade organizations.
Like other progressive operations, the company has been shaken by the recession but has developed a strategy to position itself for the future by incorporating technology that will drive profitability.
Under the leadership of Hart and Plaisted, the company managed to build a strong management team that supported continuous growth over the years.
It stands as a testament to Plaisted’s and Hart’s vision that the company continues to move forward as the vending industry faces its most difficult period.
Multi-pronged technology rollout
Southern Refreshment Services, a Canteen franchisee with more than 50 routes, is in the midst of a multi-pronged technology rollout. The company is moving forward with cashless solutions, remote machine monitoring (RMM), and the SPIO network.
Hart and his team believe that technology promises a great future for vending. “Technology will drive our profitability and growth in the future,” he said.
With same store sales taking a 7 percent hit in 2009, Southern found DEX technology helpful in evaluating account profitability and allowing it to make changes to improve its bottom line.
While sales declined in 2009, Hart noted the company was able to improve profitability. The location profitability tools that his Streamware software provided proved to be important.
The benefits of vending software confirmed the need to continue to invest in technology. Hence, the company has increased its investment in technology at a time when same location sales have been stagnant.
Investment in technology represents a big challenge for any company, but for a large player, the stakes are higher since the investment is proportionately larger.
A history of leadership
Southern has a history of leadership. Plaisted, who passed away last year, began his career in vending in 1976 with Tom’s Foods in Atlanta, Ga. In 1979, he teamed with Hart and launched North Atlanta Vending, working from their homes.
This was a fortuitous time for committed vending entrepreneurs. The industry was growing with the advent of glassfront snack machines and bill validators. Even the recession of the early 1980s did not halt the rising popularity of glassfront machines in the U.S. work place, which remained primarily heavy manufacturing.
The company’s strongest growth came in the 1990s as employment levels remained healthy. Plaisted was active in industry organizations. He served as president of the Georgia Automatic Merchandising Council and various committees of the National Automatic Merchandising Association (NAMA). He served on Automatic Merchandiser’s editorial advisory board and was honored as the NAMA Industry Person of the Year in 2006. He also attended the NAMA executive development program in 2003 at Michigan State University.
Acquisition fuels growth
North Atlanta Vending made its third acquisition in 1999 when it bought the six Atlanta vending routes from New Orleans, La.-based Standard Coffee Service Inc. Standard Coffee Service chose to exit the vending business to focus on OCS. At around this time, North Atlanta Vending moved into its current 55,000 square-foot building.
In 2001, the company made its first major acquisition when it acquired the Canteen Vending Service’s 15 Atlanta routes, doubling its size to 30 routes. The company became a Canteen franchise and changed its name to Southern Refreshment Services.
In 2008, Southern made its second major acquisition when it bought 15 routes in Stone Mountain, Ga. from Chattanooga, Tenn.-based Five Star Food Service.
The company first introduced a management software system in 1991 — a MS DOS system for managing inventory and receivables. The company reviewed other systems as they were introduced.
Southern recognized that vending software was critical to profitability. In 2002, it switched to Streamware’s VendMax software. This involved educating drivers to use DEX handheld computers.
As DEX technology evolved, Southern recognized the benefits it would bring, namely in the areas of evaluating account profitability, improving route accountability and more efficient routing. With thousands of machines in the field, upgrading machines to DEX reporting was a big task.
The goal was to manage all machines using DEX. This has been a long-term project, especially as the company acquired other vending companies over the years. With every acquisition, more machines had to be upgraded to DEX reporting.
In 2005, USA Technologies Inc. (USAT), a cashless vending provider, approached Southern about introducing cashless solutions. Southern was focusing on introducing DEX handhelds to its routes and global positioning systems to its service vehicles and did not want to assume another investment.
USAT was persistent
“We identified Southern Refreshment Services as an ideal partner,” said Jim Turner, vice president of deployment at USAT. “Southern is the largest full line operator in Atlanta.”
USAT partnered with MasterCard, which offered to assume the hardware costs for introducing 100 USAT ePort card readers. One of the key accounts was the Georgia World Congress Center in Atlanta, the site of the 2005 NAMA convention. USAT wanted to introduce its ePort cashless solution at the convention.
Southern agreed to launch ePort cashless in 100 locations, including six at the Georgia World Congress Center.
“We thought about it quite extensively,” Hart said.
The readers were capable of processing magnetic cards, contactless cards and near field communication (NFC) mobile phone payments.
USAT’s cashless program is a comprehensive one that includes the ePort devices, as well as the ePort Connect Service.
The bank charges the card holder’s account for the highest price in the machine for 24 hours after the purchase is made, after which the difference is credited back to the card holder’s account. Hence, if the machine’s highest price is $2.00 and a customer buys a 75-cent item, the card is charged $2.00 for 24 hours before $1.25 is credited.
Hart and Plaisted did not expect the cashless to be anything more than a temporary project. They were not convinced it would expand beyond the convention center.
The cashless readers accounted for about 20 percent of the total sales at the convention center, and total sales were up about 15 percent. Nonetheless, Hart and Plaisted were not convinced this would continue.
“We knew we were going to get some results in public locations,” said Tom Beals, Southern’s director of operations.
“There are so many things that have been introduced in our industry that don’t perform,” Hart added.
Cashless installations expand
They also installed the readers in hospitals, factories and colleges. In the first year, the machines posted an average of $734 a machine in credit transactions, which Plaisted and Hart considered good but not outstanding. They also noticed that the accounts liked having the cashless readers.
After the first year, they noticed total sales increased. It was hard to determine at first to what extent the cashless readers were responsible for the increase. In education and industrial accounts, it became evident that credit use increased over time. This was a positive indication for Southern.
“Once employees know that it’s there, there is more cashless use,” Beals said. This usually takes about two weeks in a closed location.
“Wherever we have card readers, it’s trending up,” he added.
Ninety percent of the cashless purchases were magnetic stripe cards as opposed to contactless or mobile payments.
In the next four years, Southern purchased about 50 additional ePorts and connected them to USAT’s service.
As the cashless rollout continued, market changes continued to support cashless. Younger consumers, who are more prone to paying with cards, increased in the work force. Vend prices continued to rise, and as they did, Hart and Beals noticed consumers were more inclined to pay for them with cards.
Client selection critical
USAT assisted Southern in determining where to implement cashless. USAT advised them that success depends on picking the right customer, looking for those with the highest machine sales, and those with the highest vend prices.
Secondly, USAT advised them that it is important to select the right machines within a location and choose broad deployment in high traffic areas. Southern is using cashless readers in its cold drink machines, snack machines, and some cold food machines.
Cashless sales rise over time
Not all operators who have installed “open” cashless have experienced 20 percent credit purchases. In Southern’s case, this figure was not achieved until after a full year, and the company was selective in which accounts to install ePort cashless payment capability.
Two of the most important observations about Southern’s experience with cashless are:
1) Cashless purchases require time. It takes time for consumers to become used to the cashless reader.
2) Operators need to be selective where they place cashless. Southern found colleges to be the most successful accounts, followed by travel hubs, hospitals and call centers.
While travel sites do not have the highest percent of cashless sales, the cashless reader encourages far more purchases of higher ticket items than in other locations with cashless readers, as indicated in the chart above.
“Our customers are becoming aware that cashless is available in vending,” Hart said.
Since 2005, the cashless sales at those same machines are now seeing an average of $1,816 per machine, per year, which is more than double the original amount. The top-performing machines do upwards of $2,249 per machine, a 300 percent increase in cashless sales since initial deployment five years ago.
Cashless brings added benefits
Southern has recognized some additional benefits to having cashless.
When raising prices in the machines, the machines with cashless readers do not experience the same volume drop as a machine with cash only, Hart said. This can represent as much as a 15 percent volume differential.
Hart also noticed that consumers spend more in machines with cashless; up to 20 percent more, half on multiple vends and half in purchasing higher priced items.
Cashless rollout continues
This past year, USAT introduced its Jumpstart program — offering ePort readers at no cost when signing up for the ePort Connect Service. Southern has jumped on the program and has ordered ePorts for 500 more locations.
The processing and telemetry costs total about $225 per machine per year. This includes the $9.95 telemetry fee, and a transaction processing fee.
Even if the operator must assume the normal $200 hardware cost per machine and an additional $100 for installation labor, Hart said the costs can be recovered within a few months for locations that do close to $2,000 in credit sales per year.
Given the size of Southern’s cashless rollout, the company is hiring a dedicated card installer.
DEX rollout continues
In the meantime, Southern is pushing forward with DEX on all its routes, with about 50 percent of the routes complete. The route driver downloads the DEX data from the cashless reader while servicing the machine. Meter readings are reconciled with cash in the money room. Drivers enter meter readings both manually and via DEX downloads. The machine totals are matched against the totals generated by the cash counters.
Accounting for the cashless sales does represent an additional task.
The bank deposits the credit funds into Southern’s account weekly for all of the card readers via electronic transfer. The funds are added manually into the Streamware software by Stewart Moss, Southern’s controller. Moss said USAT provides very detailed reports on all credit transactions.
Moss said entering credit information for about 200 cashless readers takes about half an hour a week, but once all routes are DEXed, manual entry will be eliminated.
Southern’s next project is RMM. When most machines are reporting DEX, Southern will be in a position to implement pre-kitting and dynamic scheduling.
The company has already gained many benefits from DEX: location profitability reports, line item sales analysis and electronic cash accountability. Hart believes RMM will provide the DEX data faster and with greater accuracy.
With RMM, they will have more timely data to use to write orders for route deliveries. The orders will more accurately match location needs.
Hart believes RMM will also allow the company to battle dishonest sales reporting by competitors. Southern can get the information from DEX handhelds, but RMM will allow customers to access the sales information directly. “They (the customers) want to verify dollar volume so they can get a true commission rate of what’s going through the machine,” he said.
The company is in the process of evaluating which software provider to use for RMM.
Coupon dispensers and video screens
Southern has also introduced SPIO coupon dispensers and video screens to some of its machines. The SPIO Media Network is a recent program that allows consumer product manufacturers to promote offers through vending machines. The vending machines are retrofitted with a coupon device that dispenses a coupon when a consumer buys a product in the machine. The coupon can be used at a retail store.
Beals said SPIO has had mixed results. Success largely depends on the quality of the promotion. To date, he said Chick-Fil-A and Papa John promotions have been the most successful.
Technology: Key to the Future
Southern is one of many vending operations to recognize the need to introduce new technology to improve its operating efficiency and bring new benefits to customers. While declining sales have discouraged many operators from making these investments, Southern is among those that find declining sales all the more reason to invest in technology.
Hart believes technology holds the key to the industry’s future. “If they (the operators) don’t endorse it, it’s going to be a very difficult industry to survive in,” he said.
Southern Refreshment Services
Headquarters Location: Tucker, Ga.
Owner: Dan Hart
Number of routes: 50 vending, 5 OCS
Number of employees: 96
1995: Marietta Coffee Service, 1.5 OCS routes; 1997: Atlanta vending operation, 2 routes; 1999: Standard Coffee Service, 6 vending routes; 2001: Canteen Vending Service, 15 vending routes; 2007: one north Georgia vending route from out-of-state vendor; 2008: 15 vending routes in Stone Mountain Georgia from out-of-state vendor; 2010: 6 vending routes from Atlanta vendor.
Software supplier: Crane Streamware
Cashless provider: USA Technologies Inc.
Annual sales: Not revealed