Shift to focus on sales
As operators migrate to “smart vending,” the focus shifts from minimizing costs to increasing sales. This shift will not only be magnificent, but also imperative to save the industry.
Without change, the industry cannot survive in an environment where consumers are shifting to cashless payments, demanding more information, and desiring choices. The single biggest issue is the problem of the $1 bill.
Cashless is changing the industry. Many of us realize this. What many of us don’t realize is that in order to allow this new tool to work to its full potential, we must stop thinking about our product offerings within the old cash dominated mindset. When a cashless reader is placed on a machine, the operator must understand that he is no longer restricted by the same rules that cash imposed on him.
This industry and some other industries are so dependent on the $1 bill that the design for the $1 bill has not changed since 1963 — almost 50 years! Every other denomination of U.S. currency has changed multiple times in just the past 10 years. This isn’t going to change any time soon for to political reasons.
Less than half of people today will have $2 cash in their pocket. Hence, every operator who installs a vending machine that only accepts bills and change can sell to only about half the people. The Gen X and Gen Y population with dollar bills is even lower, and these are often the targeted users of vending machines.
The dollar bill also limits items we put in the machines. There is a longstanding $1 price point barrier.
But once we start accepting cashless forms of payment, we can get really creative of what we stock in the vending machines. After all, the vending machine is simply a distribution channel.
For example, at a hospital my company services, we installed cashless acceptors. I decided to take two of the 40 items and convert to non-food items. I bought iPhone/iPod charger kits and headphones and placed them in two separate slots.
My thinking was that anyone who wanted a snack would still purchase from any of the other 38 slots. But at a hospital, people may often come and forget their headphone or charger.
We priced these two slots at $12.50 each. Again, I knew that no one would have purchased these items with cash. But with cashless, they can. I figured I could watch the sales of these two items, and at minimum, whatever they sold would be purely incremental sales.
These two items soon accounted for one-third of the machine’s sales by dollar volume! And even better, my margin on the items was significantly higher than on food items. I was paying $2.75 and selling for $12.50. Think about that! That price was almost five times cost.
Another account was a park. For that, I went to the dollar store and bought things I thought people could use during a picnic. We converted one entire shelf to items like water guns, sunscreen, hand wipes, etc. The water guns cost me 50 cents a piece (two per pack of $1.00, but we sold them individually), and I priced them at $2.50 each. I figured no parent would buy just one water gun, so I priced it at $2.50 so they could get two for $5. My cost is 50 cents, but I again am charging five times cost.
And we couldn’t keep them stocked.
The point is smart vending will open doors that we can’t even imagine today. Not only can we sell higher priced items, sell more items per person and have more frequent visits, but it opens the door to sell all kinds of things that can help improve operator profitability.
Operators who embrace smart vending will realize the opportunities to increase sales far exceed the opportunities to save costs. But it does take a bit of a leap. To justify investments in smart vending, operators will inevitably try to do a return on investment calculation.
That has inherent problems because the operator is trying to justify a future cost with historical sales. The two don’t match up. There is no accurate way to do the calculation. Any calculation will require unfounded assumptions. But astute operators who embrace smart vending technology will reap gains that simply cannot be calculated today.