The business we are in today is not the same business we will be come the year 2020. Our channels are up against competitors driving change and innovation at an accelerating pace. Instead of simply trying to catch up, the industry has no choice but to move aggressively. Jack Welch, formerly the CEO of General Electric, said, “If the change outside your business is happening faster than the change inside your business, you are going to be out of business.”
Don’t let that be your business. Plan for the future, even if it is as soon as five years down the road.
Millennials will cause the change
Perhaps you’ve heard about ‘disruptive technology or innovation.’ A great example is video rental stores. Blockbuster stores were relegated to history’s trash bin by Redbox and Netflix. Other brands following Blockbuster’s lead include Kodak, Radio Shack, Border’s Books, Linens ‘n’ Things, Circuit City and F.W. Woolworth Company.
The most disruptive event for vending right now is the people we are serving. They are changing. According to an article in Fast Company magazine, in 2015 Millennials (those born from 1981 to 1996) will be the majority of the workforce. They are remarkably different from their parents’ generation. Their eating habits, shopping behavior and high-rate of technology usage will force our industry to change. Already technology has taken hold in the U.S. at a faster rate than in recent history.
Although as an industry we are not very quick to innovate (it’s not a flaw, just a fact), there have been successful developments including: (A.) The BevMax bottle-drop machine, which allowed operators to expand product offerings as the cold drink category exploded with more product alternatives. (B.) Single-cup brewing, which gave OCS operators a way to compete more effectively against the coffee shops. (C.) Large-size single-serve snacks, which were all but instantly accepted at sandwich shops and on-site foodservice locations. They took years to gain traction in vending (spirals had to be changed out to accommodate the larger bags), but allowed the industry to compete with retail.
The forecast for the next 5 years:
Early each year there are predictions and forecasts exploring the trends for the next 12 months. Given the disruptive events and the technologies that did gain traction in vending, this is what the year 2020 might hold for us:
Beverages: We will be selling few if any 12-ounce cans or 20-ounce bottles. It will be individually customized beverages from equipment like the Coca-Cola Freestyle or the Pepsi Spire. There are also other innovative developments which will impact our cold drink sales such as the Keurig Kold™ system.
What does this mean for us? You can deliver far more variety and offer customized beverages at every location. You can do it with less space and without the need for vending machines or refrigerated cooler doors. Daily operations will change dramatically. No more hauling the weight and bulk of packaged cold drinks. That leads to smaller vehicles in your fleet. Service times will be much faster since bottles and cans won’t have to be merchandised in machines or on shelves. Route techs will be able to service more locations each day. If single-cup brewing revolutionized the hot beverage categories, imagine the impact of cold single-cup drinks in the $50 billion+ cold beverage business.
Cashless: Many, maybe all, locations will stop accepting bills and coins. Payments will be dominated by pay-by-phone or from other smart devices. Odds are that credit and debit card payments will have a much smaller share of transactions in all retail channels.
What does this mean for us? Daily operations and accountability will be simplified. Fewer bills and coins to handle — maybe none. Security and theft issues will be, hopefully, minimized (maybe eliminated). Daily transactions at locations might increase just because people can complete transactions faster than dealing with bills or coins. Again, route techs will be able to service locations at a much faster pace — meaning real productivity gains for operators.
Private label products: This is difficult for me, because all of my experience, insights and beliefs come from branded products. But, and it’s a tough one, the huge retail brands and the convenience retail brands are headed towards a greater emphasis on “own label” business models. These products will be much better than ‘cheap, poor-tasting products in drab packaging.’ Expect to see really good products and highly-appealing packaging.
What does this mean for us? Club store giants have successfully established their own brands across many product categories. Some convenience store chains are offering branded snacks and beverages in single-serve packages. Recent data from syndicated market tracking services shows that retail private label is increasing marketshare in many product categories. The real test in our industry will be in the cost/margin/value/taste framework. If operators can acquire credible products, they can offer these products at “lower” price points, a better value versus branded products. My advice? Watch the convenience store channel. What happens there will be a signal for what we should expect in the future.
Transparency: That means that shoppers get to see and know more about what they are buying. It is bigger than just food and beverages — but we will keep it to the categories we sell.
What does this mean for us? We must go beyond providing nutritional information and allergen details. It won’t be due to government regulations. People are really interested about the sourcing of the things they eat and drink. Part of it is about food safety. A newer angle is to know that what we consume has been responsibly sourced without ‘exploiting’ farmers or workers. If our industry doesn’t do this well, we risk turning off potential shoppers.
Food (And snacks too): Micro markets have helped us raise our horizons for food and snacks as part of our menu. We must address the complexity of offering variety, providing freshness, avoiding high stales costs while minimizing out-of-stocks and seeking ways to deliver on customized foods. That last point, customization or personalization, is a critical purchase decision factor among the shoppers we serve, especially Millennials, Gen X and Gen Y.
What does this mean for us? Convenience stores are ramping up their foodservice programs — especially made-to-order sandwiches, salads and more. This will be the most demanding and potentially profit-building (or maybe profit-draining) menu issue in the next five years.
Delivery: Here is something you’re not thinking about as a competitive threat. It is the “last mile” with a new ending. You’ve seen the news stories about drone delivery by Amazon (and other companies). Maybe it will be drones. Maybe not. It doesn’t matter. What they want to accomplish is same-day delivery — probably in less than two hours after the order is placed. People at locations we serve will be able to order beverages, snacks and possibly fresh food for delivery in two hours or less. They’ll see it as even better than brown-bagging. Why bring it from home if you can get it delivered (at prices comparable to what it would cost at a supermarket)?
What does this mean for us? These companies want to steal share from other channels of distribution. In a Fortune magazine article, Jeff Bezos, the Amazon CEO, said, “Your margin is my opportunity.” The companies pursuing home delivery will eventually realize that they can sell and ship to the people at the locations we service. You’re saying, “That will never happen.” It is happening now. People have packages shipped to them at work — because no one is at home to accept the package. Before we know it, those packages will include beverages, snacks and food.
This view of the future is meant to be thought-provoking. It is not an absolute prediction of the future. Our competition is far in front, but we can leapfrog ahead with very well-executed strategies and tactics. Don’t wait for tomorrow. Start right now.
