Retailers Want Your Business: How to Fight Them

We live in a marketing intensive world today. Everywhere we go, we are deluged with messages to buy. According to USA Today, on average, we are exposed to 3,500 to 5,000 marketing messages a day – up from 500 to 2,000 in the 1970s. It's not just television ads. Now retailers have become very active with in-store merchandising to influence shoppers to buy. What's more, they are using leading-edge technology to make these messages stronger.

Most of us know these messages are having an impact on our customers. The convenience stores are luring them in for coffee on the way to work. The drug stores are offering them sandwiches for lunch as they stop in to pick up their prescriptions.

We know that we need to respond to these competing channels. And it's a tough challenge.

It helps to keep in mind that your primary focus never changes: your customer. After all, it does no good to outsmart the competition if you don't make the sale to serve your customer.

But it just so happens that some of our retail competitors are doing a better job of serving our customers than we are.

What is it that Starbucks, Dunkin' Donuts and McDonald's offer that keeps the customer coming back? Is the quality of their products so much better? Is the price value so much better? For many of you, the answer is "no."

But what these companies have done is they've conditioned the customer to expect a certain shopping experience, if not necessarily a certain product.

A guaranteed shopping experience
There is no better example of this than Starbucks, a company that has had major influence on the coffee industry. It wasn't long ago that coffee was a dying business. How did one company turn around an entire industry? By creating a new experience.

Howard Schultz, chairman of Starbucks, has noted that an important mission for a retailer is to improve the customer's experience. His company has taken many measures to do this over the years. To paraphrase Schultz at last year's Starbucks' shareholders meeting, "The Starbucks brand … has been developed quintessentially by (the customer) experience."

Is there anything special, unique and memorable about the vend purchasing experience? It's fast, it's easy, and it's a good value. But according to the Harris Interactive consumer survey released at the recent National Automatic Merchandising Association Expo, most of our customers aren't seeing it that way. There is a lot of work to be done to make the vend purchasing experience more appreciated.

Retail: survival of the fittest
Our industry isn't alone in facing this challenge. Supermarkets are losing customers to club stores, drug stores, fast feeders, c-stores and specialty retailers – the retail formats that make shopping easier – and deliver a better experience for the shopper.

Peter Lynch, CEO of Winn Dixie, recently observed that consumers don't shop the center aisles like they used to in the supermarkets. Because the aisles haven't changed in 30 years. There's a message here for the vending industry.

Has the vending bank changed dramatically in the last 20 years? Those of us in the industry might think our offerings have changed, but do our customers think so?

What are successful retailers doing that the less successful ones are not doing? Visit a Wegmans Food Markets or a Whole Foods Market. They don't have the lowest supermarket prices, but they do have high quality meal solutions and produce, and their in-store merchandising displays are outstanding.

It really is an interesting shopping experience at Wegmans or Whole Foods. Your senses – sight, smell and taste – are all stimulated while you walk through the store. It's like there's a new discovery around every corner – every time you shop there.

How do you think your customers feel about your vending bank?

Is there anything memorable about vending merchandise and the way it's merchandised? As a vending operator, are you focused primarily on getting the best deal you can from your suppliers? Perhaps your customers will be better served if you press suppliers to come up with new and improved products and more interesting merchandising ideas. That might be the way to get past the need to worry as much about price.

C-stores upgrade foodservice programs
If you watch what c-stores are doing, the innovative companies are emphasizing upgraded foodservice programs featuring fresh food and creative ways to merchandise their hot and cold drink categories. That includes excellent c-store operators like Wawa, QuikTrip and Sheetz.

Two new entrants are opening stores on the West Coast – from Japan there is Famima – and coming soon from England it's Tesco. Having just visited the Famima store at Highland Avenue and Hollywood Boulevard in Los Angeles, I can say it is a fun place to shop. They describe the store as "the premium experience." On their Website, it's called a convenience store, a premium grocery store and a quick service restaurant.

From my experience there, they deliver 100 percent on their promise.

Your value proposition
Let's start from the beginning. What exactly do you, as the vending operator, bring to the table? Your machines offer a convenience. Vending is the most convenient shopping alternative. This gives you a leg up over other retailers. But is this your only advantage? If so, then that convenience had better be of monumental importance to the customer.

Convenience is an important factor, to be sure. But by itself, it won't generate consistent traffic from a large number of shoppers. Besides convenience, you also need to offer good price value, good quality, sufficient variety, and some sort of memorable buying experience.

Minimize your disadvantage
Your "value package" has to trump the competition in some area(s). You can't match the convenience store on variety, just as they can't match you on convenience. You can, however, minimize this disadvantage by having the best possible variety.

In most cases, it's as simple as having the top selling products. Here is where you need to have market research; you need to know what the best selling products are in the product segments you market.

Look at the fast feeders. They don't have the variety that the supermarkets or c-stores have, either. But they've got the right selections to cover what most consumers need, and they do a good job in price value. The successful ones also create a memorable meal or snack experience.

Fast feeders have redesigned their stores and introduced more comfortable seating; better ambience, including more visual stimulation such as video screens broadcasting cable TV; enhanced rapport by training employees to be more personable; and faster transactions via credit and debit cards.

Optimize your visual presentation
Vending operators can make the vend purchase more enjoyable by improving the visual design of the vending banks. Oftentimes, the site manager will be able to assist in this area, particularly if they are told that it is in their own interest to do so.

The competition is doing everything it can to minimize your trump card – convenience – by improving their own customer convenience. Obvious examples are credit card acceptance for small transactions and self-serve ordering kiosks. Some less obvious examples include changing their menus to cover more needs as consumers are eating and drinking around the clock.

There is no reason the vending operator needs to surrender anything in the area meeting consumer needs. The vending product manufacturers now offer just about everything that any retailer offers. The challenge is having the right mix, and having it available when it's needed. That means that out of stocks must be minimized – if possible, eliminated entirely. You cannot be out of stock on best sellers in convenience retailing.

Vending operators need to understand consumer needs
The c-stores have made a big play for coffee in the last few years. But not only coffee. They're also investing a lot in sandwiches for both the morning and afternoon. The fast feeders are fighting like mad to keep this franchise, and the c-stores aren't about to surrender it to them.

Coffee and sandwiches are two areas where vending operators need to offer better quality and value. Same old, same old won't win the sale as the competition keeps getting better.

Why is Coca-Cola getting into foodservice coffee with its Far Coast Café? They are responding to the market. The Far Coast Café has been described as a demonstration store for Coca-Cola customers.

Why has Coca-Cola developed a new barista machine? Because soft drink sales to younger customers are down. Coffee is seen as the leading competitive threat. Young people apparently want their caffeine – and many are shifting to coffee to get it.

McDonald's is taking a big step in testing the sale of bottled beverages. They recognize that consumers have learned bottles are more convenient than cups, and they are adding coolers to their stores to provide them.

As for sandwiches, that business seems to be taking a lesson from Starbucks in finding its gourmet appeal. Burgers aren't where the growth is as much as paninis, calzones, quesadillas, burritos, fajitas, and brioches.

The old triangle sandwiches are fading away – and that's good news. Food in vending has been upgraded. But as we make progress, the competition is moving even faster with new breads and creative sandwich ingredients.

And don't forget Subway – they have taken the position of fresh-made sandwiches plus being a healthier alternative with a selection of sandwiches with 6 grams of fat or less.

Coffee and food are the most capital intensive areas we have to deal with, but they also offer the most opportunity. The big c-store chains have recognized the importance of these categories and they believe that excellence in these areas gives them the chance to dispel the notion that convenience compromises quality.

To quote one executive, Mike Thornburgh, manager of public and government affairs at QuikTrip: "We're going to change the stereotype that convenience stores can't have fresh, high-quality foods."

Consider Health and wellness
Vending product and equipment has gotten better, so the tools are available to improve quality and value for your customers.

Health and wellness are also part of the value equation and becoming more so. Consumers are paying attention to it. Nutrition labeling is important.

Keep in mind that the pressures you are facing on this front aren't yours alone. Your competitors are facing the heat just like you are, and in some cases, they are feeling it more. The so called "food police" are looking at more than vending operators.

Point-of-sale communication is more important than ever today, and it's not just because of health and wellness. We now live in a marketing intensive society in which we are bombarded with advertising everywhere we go. People have learned to "tune out" anything they don't consider immediately relevant to their needs.

When they're out shopping, they have a good idea what they are looking for. As a retailer, you're job is to make it easier for them to find it, fast.

Today's consumer knows value
Look at all of the retail outlets out there today. It's mind boggling. You would think with all the new stores opening up that people are shopping more, but in fact, the opposite is true. People are shopping less. They are visiting fewer stores. Thanks to a more educated consumer and new information tools such as the Internet, they know where to find what they want.

Customers today are more value conscious than ever. This does not mean they are looking for the lowest prices. They understand the price value relationship. Value today consists of quality, convenience, price, and an enjoyable and memorable buying experience. It's an environment the vending industry can compete in.

We must compete effectively to deliver a better shopping and dining experience. You cannot simply depend on the convenient location of your vending bank to capture the potential customers at the sites you serve.

Brands and value: Some tough questions
Because retailers need to get their message out faster and fuller, brands continue to play an important role. This is especially true in immediate consumption channels such as vending.

However, the increasing sophistication of consumers has somewhat diminished the power of brands. Consumers are looking for the best value they can get, and brands in and of themselves won't trump convenience, price and a memorable buying experience.

The value equation has become multi-faceted, and no one element trumps all others. Consumers will seek the brands they are familiar with, but not at the expense of convenience and price.

Different customers place more emphasis on one area than another. A retailer must know his audience. Some are more price sensitive than others. Retailers serving a diverse audience have a bigger challenge since they have more needs to meet.

The role of technology
Progressive retailers are also using new technology to improve customer convenience and to get a better handle on what shoppers want.
Self checkout is one of the latest trends in supermarkets. Is it faster? Maybe yes – maybe not. But the shoppers really like being in control of the checkout process instead of standing there staring into space.

What exactly is convenience? It's having what the customer expects when he or she wants it. Here is where technology is invaluable. It has given all types of retail establishments the ability to offer customers what they want when they want it.

Consumers are much less likely to find stores out of stock of the things they are looking for, and vending operators can't afford to be.

Here is an area where the vending operator has work to do. According to the Harris Interactive consumer survey, only a minority of consumers, 30 percent, believe vending machines allow them to get what they want when they want it. For a venue that counts convenience as a main selling point, that's a bad number.

Today's vending software allows vending operators to provide the products customers want. For vending operators, the machine monitoring systems are every bit as sophisticated as the supermarket scanning systems.

Operators need to weigh the need to be in stock against variety. This takes some work, seeing as shelf space is limited in vending.

Remember, vending is an immediate consumption format. The customer doesn't go to the vending machine to stock up on a week's worth of needs. Our job is easier than the convenience store's in this area. Today's category management software allows vending operators to meet customer expectations.

Know your customer
Technology also gives us the means to customize our offerings on a per-location basis. This is more important for vending operators than other retailers since vending banks serve smaller populations. Sales reporting software allows us to know what customers want more accurately.

"Heavy users" can impact a location's sales significantly. If a location has a heavy user, it makes sense to have that person's needs met, consistently.

The c-store industry has determined that one heavy user's sales will equal that of three medium users and 14 light users. That's the difference between about $1,400 annual purchases from a heavy user versus about $100 annual purchases from a light user.

The Harris Interactive consumer vending survey verified the existence of heavy users in vending: 9 percent of consumers use vending machines a few times a week or more. Are you keeping your heavy users happy? You can't afford to be out of stock on their favorite products.

Technology also gives us the means to lower the cost of managing our labor and our inventory. The new remote data transfer systems and dynamic scheduling are great examples.

Much of this technology is new, and the majority of operators have been reluctant to invest in it. But consider what inventory management technology has done for Wal-Mart.

Wal-Mart focused on technology that allowed it to maximize operating efficiencies. Wal-Mart has the lowest cost distribution system in retailing on a per-item basis. Making those big investments is what keeps their management way ahead of changes in what shoppers want. The savings allowed it to improve its value offerings.

Wal-Mart also adopted a pricing strategy that improved customer convenience: every day low pricing (EDLP). EDLP means every day value, which has proven more convenient than waiting for sales.

The biggest challenge facing the vending industry is that most consumers do not view vending as a good value, according to the Harris Interactive survey.

The competition never sleeps. The main force driving immediate consumption shoppers in refreshment services today is convenience.

About the Author

Paul Schlossberg is 28-year vending and foodservice veteran based in Goshen, N.Y. He can be reached at 972-887-2972 or via e-mail at: paul@dfwconsulting.net.

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