Hot Can Vending Initiatives Emerge in the U.S.

Will Starbucks perform the same miracle for hot beverage vending that it has for the U.S. coffee industry in general?

Last year, Starbucks, in partnership with PepsiCo Inc., announced a Starbucks branded machine that dispenses cans of ready-to-drink hot beverages. The machine uses proprietary, heat-on-demand technology and was presented at a Pepsi bottler meeting in San Diego, Calif. last year, as reported in the November 2006 Automatic Merchandiser.

Starbucks claims that units will begin testing this summer and will continue through the fall.

"We anticipate rolling out this new beverage option broadly in winter 2007/2008," the company said in a prepared statement. The technology within the vending unit heats each sealed, 9.5-ounce beverage to approximately 140 degrees in less than one minute. Proprietary sealed packaging insulates the beverage, making it portable and convenient.

Beverage options include Italian Roast Coffee with milk and sugar, caffe latte, caffe mocha light, caramel latte and hot chocolate. The Italian roast coffee will be offered at a suggested retail price of $2, while the espresso-inspired beverages and hot cocoa will be offered at a suggested retail price of $2.50.

Starbucks takes the lead
Starbucks' joint venture with PespiCo, called the North American Coffee Partnership, has taken the lead in developing packaged hot beverages, which offers great promise for hot drink vending.

Prepackaged, single-serve hot beverage vending has never found a place in the U.S. For a variety of reasons, hot beverage vending in the U.S. evolved in cup machines. While cold beverage vending switched from cup machines to bottle and can machines in the 1960s, coffee has remained strictly a cup machine business.

In recent years, however, the cost of hot beverage machines has increased while the market has dwindled, due to the downsizing of large accounts needed to justify hot beverage machines. The Automatic Merchandiser State of the Vending Industry Report has reported consistent declines in the number of hot beverage machines.

While the economics of hot beverage vending has become increasingly difficult, packaging and heating technology has evolved, creating new possibilities for hot beverage vending.

Over the years, beverage industry observers have contemplated duplicating the success that hot can beverage vending has experienced in Japan, where hot can beverage machines are common. Attempts to introduce hot can beverage machines have been made in the U.S. over the years, but these efforts never came to fruition.

With the decline in hot cup vending, new package heating technology and the support of a major coffee brand, a new day may be dawning for hot beverage vending in the U.S.

Pepsi bottlers test Starbucks machines
According to reports from the field, the Starbucks/Pepsi partnership has already tested the Starbucks branded machine in several locations. The machines were placed and serviced by Pepsi bottling companies.

According to reports, the company is in the process of making some changes to the program based on these tests.
The machines, made by Dixie Narco Inc., accept both cash and credit cards.

Starbucks machines encourage Some vending operators
Steve Marx, owner of Royal Vending Inc. in Maple Grove, Minn., said a Starbucks vending machine was tested at a college he serviced last year. The machine was serviced by a Pepsi bottler. Marx said the products were priced at $3.00. He noted that the machine did not cannibalize his coffee machine sales at the college.

Marx is encouraged. "I think that these machines will revolutionize the industry," he said. "It would be great to eliminate (traditional) hot drink machines altogether. People are not cheap about Starbucks," Marx said.

Jimmy Lee III, CEO of Buffalo Rock Co., a Birmingham, Ala.-based Pepsi-Cola bottler that has a full-line vending division, saw the initial prototype at the bottler meeting in San Diego last year, but he has not seen or heard much about it since then. "It's a pretty impressive piece of equipment," Lee said.

Lee admitted that it will be unusual for Pepsi bottlers to place and service a hot beverage machine. He thinks that it will make more sense for companies such as his, that have full-line vending operations.

Proprietary heating technology
Unlike hot can drink machines in Japan, the Starbucks machine does not keep the steel cans heated. Instead, the container heats after the customer makes a selection.

Andy Tershak, vice president of engineering and quality at The Wittern Group, said based on his reading of what little information has been made public about the Starbucks machine, he believes the machine uses induction heating. He said a lot of progress has been made in this technology over the years.

Tershak said U.S. equipment manufacturers experimented with hot can machines several years ago, but faced condensation issues. The new Starbucks machine uses a can that is insulated on the exterior.

Package heating technology evolves
Blair Vance, vice president of global accounts at SIG Combibloc Inc., a Switzerland-based aseptic packaging company, was involved in several "heat-on-demand" package and delivery systems, primarily focused on hot beverage and liquid food dispensing, when he was global director for vending at Tetra Pak International's global foodservice group between 2001 and 2005.

In 2002, Vance worked with Coca-Cola Europe to see if Tetra Pak could produce a package with specific barrier properties that would endure the rigors of the microwave heating and vend through a prototype machine made by Vendo Italy.

"This has long been a challenge," Vance stated, "as confirmed in many independent consumer tests, that to achieve desired serving temperature, the properties of glass bottles and metal cans retain the high heat resulting in consumer handling and usage complaints. Many varieties of plastic packages tend to buckle or seals leak mainly due to the pressure change."

Coke and Nestlé test can machine in europe
Vance said Coke's initiative led to a 50-unit field test in Belgium and Switzerland in 2004 and the reported placement of 200 additional units in Germany in 2005.

Machines, co-branded with Nescafé and Coca-Cola brands, vended both cold sodas in PET and the multi-layered plastic bottles, hot or cold, in 200-ml. bottles in four flavors: mocha, vanilla, café au lait, and black with sugar.

Vance worked with heating specialists such as Enersyst (now Turbo Chef Technologies) and Heat Wave Engineering SaRL on proprietary heating modules and with machine manufacturers such as SandenVendo and Jofemar in Spain.

The modules and delivery mechanisms were successful in delivering a closed hot product, from payment to dispense, at a target serving temperature within less than 60 seconds.

"This is far beyond coffee; it's hot, healthy liquid food, convenient and portable," Vance said. "We were trying to develop it to bring it to the United States."

The project included extensive consumer research to determine the proper heat and serving time, Vance said.

The market research found that the hot pack machine would create more categories to be vended that meet the needs for consumers eating on the go.

Vance gives the Starbucks initiative a high chance for success. "It's going to appeal to the people who buy cappuccino and double shot espresso," he said.

John Arnold, owner of Arnold Vending Inc. in Tiffin, Ohio, is interested in learning more about the Starbucks machine. Arnold is one of a few operators in the U.S. that still has hot can food machines, but these machines do not vend hot beverages.

Richard Wyckoff, former president of Aramark Refreshment Services Inc. and now a consultant (W Strategic Consulting), is enthusiastic about the Starbucks machine. "You're marrying up a great brand with more convenience," he said.

Steve Errico, president of Dalton, Ga.-based Five Star Food Service Inc., said the Starbucks machine will be successful if the right marketing is done. "If it works in other cultures, there's always a chance it would work here," he said.

Will it work in the U.S.?
Several observers have noted that the success of hot can vending in other cultures is reason to be hopeful about it in the U.S., but there are differences.

Richard Arenshield, formerly vice president of cold drink markets for Coca-Cola Bottling Co. Consolidated, based in Charlotte, N.C., who now operates a beverage consultancy called New Horizons Consulting, noted that Japanese beverage manufacturers introduce thousands of new products every year, which does a lot to drive sales. This is only one of a few key differences between the Japanese and U.S. markets.

Another difference is the stronghold that vending has in Japan in general. Close to half of all sales of packaged beverages are in vending machines, compared to less than 10 percent in the U.S.

Arenshield also questions the U.S. vending industry's ability to deliver the same level of service that Japanese operators provide. "It takes a lot of focus in doing that correctly," he said.

Consumer appreciation of vending is also much stronger in Japan. "American consumers do not trust vending," Arenshield said.

Previous hot can vending attempts failed in the U.S.
Walter Reed, retired public relations director of the National Automatic Merchandising Association, said he tried to encourage U.S. coffee roasters and vending operators to develop hot can vending after he first visited Japan 28 years ago.

At the time, hot can food machines were common in the U.S. Hence, Reed felt it made perfect sense to include canned coffee in the machines.

Reed recognized the success the Japanese were having with can coffee. He also felt that single-serve packaging gave the product manufacturer more control over product quality, which at the time was a bigger issue for vended coffee in the U.S.

Reed brought back samples of the Japanese cans to show people in the U.S., but to no avail. "I couldn't get anybody interested," he said.
Reed is enthusiastic about Starbucks' chances for success with the new machine.

Previous attempts in the U.S. weren't serious
Cyrus Melikian, chairman of Automatic Brewers & Coffee Devices Inc. in Conshohocken, Pa., said coffee suppliers sporadically introduced can coffee at retail in the U.S. over the years, but none were sufficiently prepared to take it to market. He said one self-heating coffee can was tested by the U.S. military, but it encountered coding issues.

Robert Hazelton, a retired Coca-Cola executive, said the question of introducing hot can coffee machines in the U.S. was raised periodically over the years, but nothing ever came of it. "Somebody would ask why this was going on in Japan, so why can't we do it here?" he said.

Roy Steeley, owner of Automated Merchandising Systems and former owner of Royal Vending, said that in his extensive career as an equipment manufacturer, very little consideration has ever been given to hot package beverage vending in the U.S.

Operators await Starbucks
Bill Buckholz, president of Goodman Vending Services Inc. in Reading, Pa., is encouraged by what Starbucks is doing. He visited Japan several years ago and was impressed by the coffee can vending machines, so much so that he keeps some of the cans in his office. He has always wondered why it hasn't been done in the U.S.

The fact that Starbucks is involved is a positive sign for Buckholz. "That's a good indication that it's worth a try here," he said.

Self-heating cans also arrive
Self-heating cans offer another opportunity that has made its way into vending recently. Water flows into a sealed inner cone filled with quicklime, which is mostly calcium oxide. A chemical reaction heats the coffee to 145 degrees in six to eight minutes.

OnTech Delaware LLC introduced a self-heating, single-serving coffee can in 2005 and displayed it at the 2006 NAMA Spring Expo in Las Vegas. The cans are available at a handful of Vistar Corp. vend product warehouses.

The self-heating cans have had a rocky start.

A rocky start for self-heating cans
WP Beverages, part of the Wolfgang Puck organization, discontinued a relationship with the OnTech products in 2006. Marc Miles, an attorney for WP Beverages, said both Wolfgang Puck Worldwide and the federal government recalled the cans after consumer complaints about heating, melting and other issues.

WP Beverages sued OnTech, the container designer, Sonoco Products Co., the container manufacturer, and Hillside Dairy, the beverage manufacturer.

"No more self-heating cans for Wolfgang Puck," Miller said. He said a Sept. 10 trial date is set in Orange County, Calif. Superior Court.

OnTech now sells Hillside self-heating beverages via QVC, select mass merchants, recreational/sporting goods stores and supermarkets.

"I think vending will be a great channel for us in the years to come," said Rick Bauman, vice president of sales and marketing at OnTech Delaware LLC. In the meantime, the company is focusing on retail to build brand awareness.

One issue is the retail price; the products are priced between $2 and $3.

U.S. operator tests self heating coffee cans
Gofer Vending Service in Vanderbergh, Ind. has been selling the Hillside Dairy self-heating cans in a snack machine in a prison, noted Mark Weatherwax, owner. He said the location wanted coffee but there is no water line available. He is using French vanilla, mocha latte and double shot latte, all priced at $3.50.

Weatherwax said heating takes five to eight minutes and is not always reliable.

Will consumers accept it?
Meanwhile, operators are anxious to see what the Pepsi/Starbucks project presents.

The Vend Marketing Institute (VMI), a group of regional vending companies that work together through joint marketing and purchasing programs, has been trying to get information about the Starbucks program.

"We're very interested in it," said Chris Stave, executive director of VMI. "We feel there is a tremendous amount of potential in it. The determining factor is one, the quality of the product. Does it come close to what a cup of quality taste like at a Starbucks?"

Second, Stave said, will it be a value to the consumer? And third, will it be profitable for the operator?

Stave said the fact that Starbucks has its name on the machine gives it a lot of credibility.

Stave has also seen the self-heating can from Hillside Dairy, but believes the cost is too high.

One obstacle any can coffee will face in the U.S. is competition from retail coffee outlets.

"You can get a great cup of coffee so many other places," noted Ken Shea, vice president of the division of field operations at Standard Coffee Service Inc., based in New Orleans, La.

But Shea is not about to dismiss the concept. The success of single-cup coffee surprised many U.S. observers.

Hy Der Bogosian, president of Kenoza Vending Co. in Merrimac, Mass., a 50-year vending industry veteran, is keeping an open mind about the Starbucks machine. The success of cartridge-based, single-cup machines has taught him that consumers will spend money for quality.

Few would argue that if any company can revive hot beverage vending, it would be Starbucks. If the Starbucks/Pepsi alliance proves successful, the U.S. vending industry will ultimately benefit.

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