The Case For Vending, Part 2: The case that has yet to be made.

The vending industry has commoditized itself. It has little understanding of what products customers want, and has made little effort to learn this. It has failed to use state-of-the-art equipment to make the purchase process user friendly. It has accepted the lowest possible prices in exchange for its products and sold its services for the lowest financial return, in the interest of maintaining survival profitability.

The price for its failing has been great. Many operators’ lives have been made miserable by facing the need to cut costs.

But the future offers new possibilities.

Last month, this series examined how consumers view vending in comparison to other channels, especially in light of the current recession. This month, the series examines what changes the industry must make in order to once again become relevant to consumers.

IN THE BEGINNING

Merchandise vending became an industry when equipment manufacturers introduced machines that could dispense consumable products at the work site. Delivery systems allowed machines to provide products in a cost efficient manner. Everybody won: the operator, the product manufacturer, the location manager and the end user. Remember those days?

In the years that followed, other retail formats emerged that competed for the consumer’s purchases.

The economy grew, and as it grew, more diverse lifestyles emerged. As consumer lifestyles changed, their tastes changed, resulting in more diverse products. Other retail formats were able to adapt to these changing tastes more effectively than vending.

While the world changed, vending equipment, product and technology manufacturers didn’t sleep. They developed new equipment, technologies and products to allow vending operators to compete against the convenience store, fast food restaurants, specialty stores and warehouse clubs.

Unfortunately, the vending industry failed to use many of these innovations. As a result, both the customer experience and operational efficiency have suffered. Had this not been the case, the vending industry would have been better able to withstand periodic economic downturns.

As the economy became less manufacturing dominated in the 1980s, profitability declined on a per location basis. But in the ensuing years, the economy experienced its ups and downs, there was enough growth for operators to ignore shortcomings in the value they provided.

INDUSTRY IDENTIFIES ITS CHALLENGES

In 1996, Frito Lay uncovered some fundamental problems in how customers perceived vending with its consumer survey, “The Winds of Change.” It reported 54 percent of consumers did not believe vending was a good value for the money and 63 percent believed convenience store prices were lower than vending prices.

The Frito Lay survey called on the industry to improve its value perception, capitalize on its convenience and improve the industry’s image.

Ten years later, the National Automatic Merchandising Association commissioned Harris Interactive to conduct another consumer survey, which confirmed the earlier study and identified serious perception issues among non users.

Automatic Merchandiser surveyed more than 1,200 worksite consumers nationwide this past fall and found that nearly a third (28 percent) do not buy from the vending machine. (See chart 1).

This past November, Automatic Merchandiser commissioned Leo J. Shapiro & Associates Inc. to survey consumers on vending purchases and purchases in other foodservice outlets. The Shapiro survey found that consumers are spending less in all foodservice outlets, not just vending.

Recession or no recession, consumers hold a distorted view of vending prices, and this affects their overall perception of the channel’s value.

The sensitivity increases when prices rise in the machine, which has happened in the last two years. In a vending machine, consumers see the price tags on every item, unlike in most retail stores.

One of the key benefits that new technology offers vending is the chance to reduce price awareness from the vend purchase.