Aware of the Benefits, Vend Technology Executive Starts His Own Vending Business

Mike Lawlor knows more than most people about vending technology. As the former senior vice president of sales for the largest provider of cashless vending, remote machine monitoring and energy management technology, he had a "bird's-eye" view of the evolution of these innovations.

A vending technology pioneer

Lawlor, who began his vending career at Pepsi Bottling Group in Dallas, Texas, played a developmental role in what are now some of the fastest growing technology products in the industry: the e-Port® and the VendingMiser®. Helping bring these technologies to market was exciting for the energetic Lawlor, to say the least. But as invigorating as it was, he was no less anxious to put these benefits to use in his own vending business.

In his role as a corporate marketer, he realized the opportunity was going unmet in the field, big time.

In June 2003, Lawlor left his position as senior vice president of sales at USA Technologies Inc. to go into the vending business for himself. His company, Apex Vending Services in Paoli, Pa., is now one of the fastest growing independents in Greater Philadelphia. Thanks in no small measure to vending technology, like e-Port?, the VendingMiser?, and his own personal commitment to customer service.

A need in mid-tier accounts

Some might wonder why someone would quit a company that was setting sales records year after year. In his role at USA Technologies, Lawlor noticed that it was mostly the larger locations taking advantage of new vending technology. He saw an opportunity to apply these benefits to "mid-tier" accounts.

Apex Vending Service's point of difference -- technology -- has proven an effective selling tool. In less than one year of operations, the company has placed about 65 machines in 25 locations. Lawlor is well on his way to reaching his three-year goal of $1 million in revenue and his five-year goal of $2 million.

Originally focused on a corporate career

Lawlor never intended to go into business for himself when he was studying marketing at the University of Texas in Arlington. "I was very much corporate oriented," he said.

After working for the university's foodservice operation while in school, he joined Pepsi Bottling Group (PBG) in Dallas upon graduating.

It was in his years at PBG that Lawlor became familiar with the vending industry and emerging vending technologies.

In the 1980s, he witnessed the growth in bill validators. In the early 1990s, remote machine monitoring systems were being introduced, and larger vending organizations such as PBG were the first to test them in the field.

One of Lawlor's fellow Pepsi executives, Steve Herbert, moved to USA Technologies shortly after that company was formed in 1994. At the time, most of the technology was still in its infancy.

In 1996, Herbert asked Lawlor to join him as director of sales for USA Technologies' Western division. "I always had a lot of interest in technology," Lawlor said.

At the time, remote machine monitoring was much more expensive than it is today. In addition, vending machine manufacturers had not fully developed uniform data transfer standards, known as DEX, to support the transfer of data from machines to data collection software.

Nonetheless, Lawlor and other industry observers knew that the vending industry was destined for change.

When he first joined USA Technologies, the company was mainly focusing on the hospitality industry on a self-serve business center known as BusinessExpress®. Lawlor sold business centers that allowed hotels to provide business services to their guests, 24/7, with the swipe of their credit or debit card.

The e-Port® debuts

Lawlor was among the team that developed the e-Port? cashless transaction solution for vending, which the company first demonstrated at the NAMA National convention in 1998. The e-Port? enabled the vending machine to remotely report sales data and enabled vending purchases with a credit and debit card.

Credit card readers were almost unheard of in vending machines. Cashless vending was almost completely confined to "closed" systems that required prepayment of funds. The e-Port? was the first product that allowed an "open" system, where the customer simply swiped his card at the card reader and the purchase was charged to his card account.

In 1998, the transmission costs were still high for credit card authorization, the hardware costs were still high, and the business model still needed to be proven. "We knew that would be one of the huge challenges," Lawlor said. "But we knew that long term, it was going to be there."

Moving up through the ranks

In 1999, Lawlor was promoted to senior vice president of sales and marketing and moved to the corporate office in the Philadelphia, Pa. area.

Lawlor spent most of his time introducing the e-Port® to coin mech and dollar bill validator manufacturers, machine manufacturers, distributors and operators. He also worked with software providers to make sure the credit card data could be compatible with vending accounting systems.

A key component was a package USA Technologies developed that settled credit card processing for the vending operators to go in concert with the hardware. "That was the real key piece in processing the micro transactions," Lawlor said. "The business model was improving all the time. Over time, it has proven itself."

Sales of e-Port®s increased every month through 2001, 2002 and 2003. Lawlor noticed that most of the sales were to large vending operators, who were placing them in larger accounts. He saw a need to offer the credit card readers in mid-size accounts.

The large vending operators naturally saw more opportunity in the larger accounts, he noted, and the smaller operators were reluctant to expand into cashless vending. "A lot of them just don't want to get involved in the technology," he said of small operators in general.

As equipment manufacturers improved the reliability of DEX reporting, Lawlor also realized that remote machine polling was going to offer new efficiencies in vending. Drivers would be able to download column level sales from the machine, either at the machine using a handheld, or from the truck or even from a remote office.

Technology changes vending

With all of the new technology available, Lawlor reasoned, a new day was dawning for vending. And he wanted to be on the front lines introducing it to customers.

"I just knew there would be a huge opportunity," he said. "I knew there was enough consumer acceptance that, if marketed correctly, you could do very well. I think there is an opportunity to take that (technology) to the mid level (account)."

He believed that cashless transactions and faster reporting of machine functions would result in a higher level of customer satisfaction. In return, Lawlor reasoned, the customer would be willing to pay higher prices for products, as part of a more comprehensive vending solution.

After leaving USA Technologies, Lawlor wrote a strategic business plan for his company and launched the company in 2004. He rented some warehouse space, designed a sales brochure, and began seeking clients. "It's quality service combined with the user benefits of using technology that makes vending a much more enjoyable type of scenario," Lawlor explained.

Starting a vending business

Lawlor was able to get some customers through his own networking; he has been active in coaching sports and in the local chamber of commerce. Most of his leads have come from locator services. In his sales presentations, Lawlor emphasizes the fact that vending technology today offers more customer benefits.

A common pitch is: "There's a lot more out in the vending world today than you're probably familiar with. "

Credit increases the operator's options

He credits the technology, more than his salesmanship, to his high closing rate. He usually makes two sales trips to an account. During the first trip, he asks them what they want and explains his services. He then goes back to his office, prepares a PowerPoint proposal and presents it in person in a second visit.

One account Lawlor was pitching had just asked its utility company to send a specialist out and see if they could reduce their energy consumption. They immediately responded to Lawlor's offer for a VendingMiser®.

The VendingMiser® has a motion detector that automatically shuts off the machine power when there is no one in the vicinity. It can reduce a machine's energy consumption by as much as 50 percent.

In his brochure, Lawlor notes the device saves customers an average $240 per year in electrical costs, although savings will vary by location based on the number of machines and hours of operation.

Lawlor places a VendingMiser? on his beverage machines at no extra cost to the customer.

Another account he was pitched was having a problem with its existing vending machines not taking dollar coins. When Lawlor offered a credit card reader in addition to dollar coin acceptance, the account manager was sold. This account has two glassfront beverage machines and a snack machine with a slave frozen food machine. The prices are higher than average and there is no commission.

Next step: back-end software

Lawlor has not set up a "back-end" software system yet. His first step has been to offer technology that directly benefits the customer. The next phase is setting up internal operating systems that will allow his company to grow. This will include management software, including the implementation of DEX handhelds.

Once the "back-end" software is set up, Lawlor will also begin monitoring machines via telemetry, which will allow him to poll line-item sales and machine malfunctions in real time from a remote computer. Lawlor believes that his company will download information from its machines using both remote monitoring and handheld computers.

Remote data retrieval coming soon

One of the most important customer benefits that remote monitoring has offered to date has been the ability to allow customers to view the sales information themselves over a password protected website. In his brochure, Lawlor cites sales data retrieval via remote networking as one of his company's benefits.

In the meantime, Lawlor's business partner, Gayla Stevens, has handled the office administration and bookkeeping portions of the business.

By placing only new equipment, Lawlor has been able to minimize service calls. With 65 machines on location, he has not had to hire a dedicated service tech. He has made ample use of manufacturer financing and bottler-loaned beverage machines.

In exchange for offering new equipment, cashless payment and in some cases, energy reduction, Lawlor asks customers to sign a 1-year contract. Most of them have no problem with this, as they realize Lawlor is investing more than most vending operators in the location.

"If you're going to invest in your customer, the customer has to give you a commitment," he said. "They understand we all have to make money. I don't sell on price."

Technology gives leverage with clients

He also has little problem getting customers to agree to higher-than-average prices. Most of his 20-ounce beverages, for instance are $1.10 to $1.50. His premium ice cream bars are $2.25, and frozen food entr?es $3.50, all in line with area convenience stores.

Lawlor has noticed that credit and bank debit card purchases often start out slowly. The customers are leery since they've never seen a card reader on a vending machine before. But once they realize there is no extra charge for using it, sales pick up.

A preference for land lines

To enable card readers, Lawlor asks most of his accounts to run a land line to the machine card reader. Most accommodate him. The card reader is hardwired to the land line. Lawlor uses wireless connections in some cases, but he prefers to use land lines.

After a cashless purchase is completed, the modem in the e-Port® dials the information to USA Technologies' server, and USA Technologies authorizes the purchases after the fact and electronically credits Apex Vending Services.

Because the authorizations are done in the evening, there is no need for a dedicated phone line for the vending machine. The connection only requires an extension line.

Batch card authorizations

The purchases are authorized in batches, daily. "Batching" the authorizations after the sale allows for faster purchases. If the authorization were done in real time, the purchase process would take a bit longer.

Conducting authorizations after the fact does carry the risk of fraudulent purchases, Lawlor noted. But to date, this has not been a problem. He minimizes his exposure by programming the card reader to limit each card to $10 per purchase session. He also has the option of limiting the number of purchases per card.

The USA Technologies' password protected website allows Lawlor to review all of his sales over the Internet, and not just his cashless sales. He can compare cashless sales to cash sales by location and by machine. Every cashless transaction is listed in chronological order.

The same information is also available in the machine controller board in most new machines, he noted.

Because Lawlor has offered cashless from the beginning, he has no way to determine how much this benefit has lifted his sales. To date, more than 15 percent of his total sales in machines with e-Port® are cashless. His card readers accept both credit cards and bank debit cards.

Cashless benefits high ticket sales

Lawlor has noticed that customers tend to use cashless more in machines with higher price points. Cashless sales account for as much as half of his frozen food machine purchases. "The higher the price point, the higher the percentage of credit card sales," he noted.

In beverage machines, 15 percent of the sales are cashless if the bottles are priced at $1.50; if the price point is lower, the percentage of cashless sales are proportionately lower.

Because of the customer's tendency to use a credit or debit card to buy higher ticket items, Lawlor has emphasized the use of cards on food machines the most. He has also been more willing to offer food to "mid-tier" accounts than many operators. He uses both dedicated frozen food machines and slave frozen food machines.

Focus on frozen food

Lawlor has made ample use of frozen food "slave" machines from Automatic Products international, ltd. and U-Select-It Corp. These machines allow him to serve food and ice cream in accounts with as few as 100 people.

The slave arrangement also allows the customer to use the card reader for both the frozen machine and the snack machine. "That slave just works out very nicely," he said.

He has noticed that the "slave" in many cases does as much business as the larger snack machine. One reason is the card reader.

Lawlor has some dedicated frozen machines in larger accounts. He uses no dedicated, refrigerated food machines, but he is offering dual zone temperature machines that will offer both perishable food and ambient products.

So far, Lawlor is directly involved in the servicing himself. Visiting most accounts once a week, he spends four days a week servicing machines and the rest of the time selling. This part of the job reminds him of his early days at Pepsi, when he rode vending trucks to learn the business from the ground up.

Lawlor has been able to order his product online from Anpesil Distribution Services in Gibbstown, N.J.

Focus on national brands

Even though Lawlor is servicing a geographic area that is known for having a large number of regional brands -- in just about all product categories -- he sticks to national brands. "The more brand names you put in there, the closer you come to providing automated retailing," he said.

Lawlor reports more success than most operators vending milk in schools. The foodservice directors view the machines as a way to alleviate pressure on the manual lunch line.

Lawlor has had no trouble meeting nutrition rules in his school accounts. There are no carbonated beverages or candy bars allowed in the schools he serves. He credits his supplier, Anpesil, for keeping him informed about products that meet nutrition requirements. He plans to continue adding more schools.

Lawlor is also marketing the Paykey cashless system, which is compatible with the e-Port?. This allows employers to reward employees with funds to buy products from the machines.

In the near term, Lawlor is outsourcing many key functions, including accounting and marketing/graphic design, but with continued growth he will be bringing on full- and part-time personnel, in all functional areas. He is developing a direct mail piece. He is also in the process of finalizing an informational website.

Once he brings on a management software package, Lawlor expects he will use financial reports to enhance analysis of his most profitable products and planograms.

Growth through acquisition

In the long-term, he looks to grow through acquisition of other operating companies. He is looking at companies in his region that serve similar size customers.

While he loves technology, Lawlor doesn't miss the fast pace of the corporate world. "I enjoy the service industry as a whole," he said. "When you go in an account, people are happy to see you."

He also believes that the future is great for small operators who are willing to embrace technology. "I can't fathom anything other than moving data electronically," he said.


OPERATION PROFILE

Name: Apex Vending Services
Headquarters Location:Paoli, Pa.
Founded: 2004
Owner: Mike Lawlor
Number of accounts: 25
Number of routes: 1
Number of machines: 65
Full-time employees: 2 (including owner)
Annual sales: Not revealed

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