By Bob Nieman | Sep 29, 2009
After washers, dryers, folding tables and bill changers, perhaps the most commonly found pieces of equipment in almost every self-service laundry are vending machines.
After all, who can handle facing a week’s worth of dirty laundry without first fortifying oneself with a Diet Coke and bag of Peanut M&Ms?
In fact, according to recent Coin Laundry Association statistics, 75 percent of laundry owners offer vended snacks and beverages to their customers.
However, as the economy continues to drag along and competition for your customers’ disposable income tightens, simply plugging in a used pop machine and a half-filled candy vendor in the nearest empty corner of your laundry may no longer be the surefire path to vending riches it once was.
Here’s at look at today’s changing vending industry – as well as how to maximize your store’s vending operation:
Vending Industry Snapshot
Vending, or automatic merchandising, which never fully recovered from the “dotcom” implosion of the late 1990s, suffered heftier doses of worksite downsizing, rising costs, consumer resistance to higher prices and limited growth opportunities last year. The “mortgage meltdown” that struck in September 2008 chipped the financial foundations of hundreds of thousands of businesses, spurring layoffs in almost all industries.
As a result, vending revenues slid 5 percent in 2008, ending a four-year growth trend and returning to the 2003 level of $22.05 billion, according to the 2009 Automatic Merchandiser State of the Vending Industry Report, which is based on an online survey. The biggest losses came in the second half of 2008, as the unemployment gradually rose.
Vending industry losses were largely due to worksite downsizing, which vending operators themselves were forced to do in their own operations to protect their profitability.
Here is some additional vending industry data from the American Merchandiser report:
• Vending operators unanimously agreed they faced a price barrier with 20-ounce bottles in 2008 and were unable to match the price points being charged by competing retail outlets. While operators did make progress raising bottle prices, many complained that the increase did not match the higher costs that suppliers were charging.
• The most notable change in the cold beverage segment in 2008 was the gain in cans’ share of sales, despite the fact that can prices remained flat. This marked the first market share gain for cans and the first decline for bottles in four years. The return to cans was more common among smaller vending operators, like laundry owners, who have less buying clout with product suppliers.
• For the first time ever, the total number of cold drink machines declined in 2008, reflecting operators’ efforts to protect profitability by eliminating unprofitable accounts. The decline in the number of machines, while not radical, contributed to the category’s negative growth in 2008.
• Growth slowed in the once fast-growing single-serve bottled water business in 2008, accounting for 19.7 percent of liquid refreshment volume, compared to 19.3 percent in 2007, according to Beverage Digest.
• Teas, juice drinks, sports drinks and shelf-stable dairy drinks were essentially flat over 2007, rising a collective 0.1 percentage point. Even energy drinks, a small category that posted a 54.1 percentage point growth in 2007, rose only 4 points in 2008. Energy drinks are among the highest-priced beverages that vending operators offer, commanding price points in excess of $2. That high price point is believed to have contributed to its slowdown in the current recession.
• The candy, snack and confection segment posted the biggest price increases among all vend product segments in 2008, driven by manufacturer price hikes. This segment nonetheless fared little better than vending as a whole in revenue performance, due to account downsizing, elimination of accounts and a move by many operators to replace certain items with lower priced products.
• Last year marked the third straight year that candy sales declined at the expense of snacks, based on data provided by Management Science Associates, Inc. Candy sales declined 8.78 points in 2008, following a 1.39-point drop in 2007 and a 0.09-point drop in 2006.
• Ice cream, one of the smallest product segments in terms of sales volume, took the biggest hit of all categories measured in 2008. It was the only segment to post a double-digit sales drop. The loss was largely driven by the reduction in frozen food machines, the first year this occurred since frozen food machines were introduced in the mid-1990s.
Although coin laundry owners typically stick to vending basics in their businesses, such as soda and snacks, one of the positive vending trends in recent years is toward improved technology in the existing, traditional vending machine, as well as the revolutionary technology now available in new styles of machines.
The latest advancements include microchip computers in vendors, which allow for multi-level pricing. For example, you could have one machine that dispenses two sizes of cups for coffee (nine ounces and 12 ounces), or no cup at all, for those who bring their own cups. In addition, the machine has the ability to serve regular, decaf or even premium coffees (regular strength, light or heavy, with cream, sugar, black or any combination). At a third price level, the same machine also offers cappuccino or espresso. Without the microchip computer, this tiered level pricing wouldn’t be possible from a vending machine.
Electronic data retrieval is also a relatively new technological advancement that’s hitting the vending industry. Basically, the system enables the vending machine owner to hold a mini-handheld computer up to the vending unit, to retrieve such data as income, what items are selling, what needs to be restocked, etc.
Foods with long shelf life have been vended for years. And vending machines with refrigerated carousels have been on the market for several years as well. However, relatively new technology has now made it possible to vend hot foods (including pizza and fries), as well as frozen foods. Again, new technology can be thanked for opening new doors in the vending industry, with the introduction of vending machines that remain at zero degrees.
Combination units, featuring soda and snack item all in one machine, also are gaining in popularity, especially among space-starved coin laundries. What’s more, machines that will vend different sizes of containers all in one machine are also hot – for the very same reason.
“We’ve seen more cashless systems, where customers can pay for things with their debit card, credit card or a pay key,” said Jackie Clark, director of public relations for that National Automatic Merchandising Association (NAMA). “One of the reasons it is so important for vending is because it opens up a whole new level of products operators can dispense through the vending machine, because customers suddenly aren’t struggling to find nickels and quarters – now it’s just a quick swipe.”
Another trend in vending machines is energy conservation, according to Emily Jed, senior editor at Vending Times magazine.
“There is definitely a trend toward devices that turn the machines off when they’re not in use.”
Despite all the bells and whistles now available on many vending machines, the typical coin laundry operator is wise to keep things as simple as possible. Data storage, downloading capabilities and remote auditing sound exciting, but if you only own a few stores and they are attended, you can probably skip most of the cybernetics.
As for the food and drink trends, today’s customers appear to be most interested in:
• Candy, salty snacks and cookies.
• “New age” beverages, such as water, flavored coffees and juice drinks (including big bottles).
• No-fat, low-fat and reduced-fat products.
• Frozen foods and novelties.
• Large-sized snacks and confections.
Despite the economy, Gatorade, Red Bull and similar energy drinks, as well as bottled water, are still the biggest gainers in popularity among consumers today.
“The whole healthier movement has come and gone over the decades, but it seems to really be sticking a lot more across the board,” Jed noted. “More manufacturers are coming out with healthier options. Before, vending operators used to wait for requests for healthy choices, but now the majority of them are trying to be more proactive in showing that they have a balanced mix of products for all types of dietary preferences and demands.”
NAMA recognized this trend a couple of years ago when it launched its Balance for Life program. Part of that program is a nutrition rating system called Fit Pick, which is a turnkey nutrition labeling system. It features a set of products that meet specific nutritional guidelines, and vending operators simply indicate whatever percentage of these products they want in their machine. The program also includes Fit Pick stickers for the front of the machines, as well as point-of-sale materials to help educate consumers about what Fit Pick items.
“We launched the program in 2004, first with our members,” Clark explained. “Since then, due to demand, we’ve made it available nationwide for members and non-members. Hundreds of third-part organizations like universities and government agencies have embraced the system.
“Up until now, consumers have had a tendency to write off the vending machines: ‘There’s nothing there for me. I’m not even going to bother,’” she continued. “But once they realize there really are products that can fit into a balanced diet available in the vending machine, they give the vending machine a second look.”
Despite the trend toward healthier options, there’s no chance that granola bars will completely replace Snickers bars anytime soon.
“The Snickers bar has never ever not been the top-selling item since I’ve been in the vending industry,” Jed explained. “So, as much as there is a health movement, there will always be the top ‘core’ candy and chip items – Doritos and Snickers. As big as the health movement is, it’s still a small percentage in relation to the core top brands.
“Brands matter a lot in vending, and any vending operator will tell you that you have to have Snickers, M&Ms and Hershey’s,” she added. “Teas and waters a very big; vitamin waters and flavored waters are gaining momentum. But nothing has really replaced the core sodas, candies and chips as top sellers in any venue. Also, nut mixes and granola bars are gaining ground, but again they’re nowhere near putting a dent in the conventional snacks and candies.
“In vending, it needs to be a brand that customers recognize, even more so than with other retail channels, because they can’t really pick it up, manipulate it and look at the package. Branding is hugely important in vending.”
Find the Right Fit for Your Laundry
After deciding to get into the vending business at your coin laundry, the next decision is whether you’re going to purchase your own machines and handle the day-to-day maintenance – or turn all of those issues and potential headaches over to a vending operator, which is similar to a route operator in the laundry business.
The decision you make is going to depend on your particular business situation. How many stores are you looking to equip? Are they attended? What type of volume do you anticipate? Are you or one of your attendants hands-on when it comes to machine repairs? How much revenue are you looking to earn from your vending operation?
Blue Kangaroo – a 28-store laundry chain with locations in the Chicago area, as well as Wisconsin and Indiana – has its vending operation down to a science. And they keep things simple.
“We own most of our vending equipment,” said Neil Polifka, the company’s vice president. “We generally have three machines in each store. We have an ice cream machine. We have a soda machine that Pepsi owns; we buy the Pepsi products from them and they furnish the machines, do the upkeep and deliver to our stores. And we also have a snack machine, with five rows of salty snacks and two rows of candy.
“The ice cream machine does quite well and it’s something you don’t see in a lot of stores. However, we have a freezer in the backrooms, where we store the product. If you don’t have room for a freezer, you can probably forget offering ice cream.”
Although Blue Kangaroo operates on much a larger scale than most laundry owners, vending can work for almost any laundry operation.
“If you’re a smaller operator, you many want to buy a generic soda machine and take advantage of all the specials grocery stores have,” Polifka advised. “You can buy the soda yourself and make a good profit.
“If you have somebody deliver it, there may be a minimum order and, if you order too much, the products might become outdated before they sell. In fact, we actually go to Sam’s Club for some of our stores to buy products for just that reason.”
If you decide to purchase your own machines, here’s what to look for in an equipment manufacturer, according to NAMA:
• Sells equipment at an established, uniform price.
• Has the ability to supply parts, service manuals, trouble-shooting tips and conversion kits.
• U.L.-listed equipment.
• Various approvals under local, state and national health codes.
• Willingness to demonstrate equipment (open houses, training sessions, etc.).
• Upgrading machinery, developing new types of machines and technology.
If you choose to turn your vending account over to an operator, here are a few provisions you should include in the contract:
• Exclusivity of service rights.
• Cleaning and maintenance duties.
• Specified equipment.
• Insurance provisions.
• Service and storage details.
• Licenses and taxes.
• Access rights.
• Financial arrangements.
• Term of agreement.
• Cancellation provision.
• Reporting requirements.
“Vending not only generates cash flow, but it also can generate a very substantial increase in the value of the business,” said Van Merrill of Sparklean Laundry Systems, based in Santa Fe Springs, Calif. “Let’s say you increase your vending by $1,000 a month; that’s $12,000 a year. The way laundries are sold you capitalize that income over a yearly basis and, typically, let’s say it’s five times the annual net. In that situation, it would be five times 12, so just by generating an additional $1,000 a month, your laundry is all of a sudden worth $60,000 more.
“It’s a huge impact on the bottom line that some owners don’t understand – not only on the cash flow side, but also on the resale value side. Vending can add so much.”
Pitfalls to Avoid
As with the self-service laundry business, the vending business is a relatively simple one. However, that doesn’t mean it’s foolproof. There are clearly some common mistakes that you’d be wise to avoid when adding vending to your laundry operation.
If you own and stock your own food and beverage vendors, one of the biggest mistakes is buying products on impulse.
All wholesale price clubs aren’t the same. You’ve got Sam’s Club, Costco and a host of others, but you have to price shop because they’re not all the same. Even your local supermarket can be very competitive.
Another mistake is buying machines that are too big. The bigger the better is not necessarily the way to go in vending. At times, vending operators will put larger machines into a location so that they don’t have to refill them as often. However, if you own the equipment and are at your laundry on a daily basis, it might be smarter to go with smaller machines.
However, it’s a fine balance. You don’t want to go too small with the size of your machines either.
Some laundry owners will shop for equipment based only on price, and later many wish they had gotten something larger, especially if they find that they’re filling the machines too often. For the amount of foot traffic they have, some store owners realize, after the fact, that they could actually be selling more products if they offered a bit more variety.
Two more crucial mistakes to sidestep when purchasing your own vending machines are: (1) buy equipment that has a warranty, and (2) be sure that the equipment is environmentally safe. For example, some used equipment still has freon in it – and you cannot legally get that recharged.
“I’ve seen store owners go cheap on buying vending machines, and it ends up being problematic,” Merrill said. “They don’t get the service support they need, or the machine just isn’t built well. It ends up being more trouble than it’s worth. Get a quality vending machine.”
As far as the types of products you offer, a common mistake is not selling what your customers truly want to buy. Perhaps survey your clientele as to what types of snacks and beverages they would prefer to see you carry, rather than guessing.
Choose the drinks and snacks according to your demographics, Merrill suggested. If you’re based in a heavily Hispanic neighborhood, take that into account. You certainly can load a vending machine by ethnic clientele and location.
“Everything about your laundry should try to cater to the people that you’re serving,” Merrill said. “You really have to listen to your customers. If you do, vending can be a fabulous addition.”
“It really has to be viewed as a retail store,” Jed added. “But many operators don’t pay enough attention to the importance of that small space to make sure that each item placed in there is going to be a seller. Convenience stores and supermarkets never do anything blindly; they know exactly what sells the most, what consumers are looking for. However, too many vending operators don’t recognize that a vending machine is really a mini-store and, to maximize your profit, especially in this economy, you need to look at the retail data and key in on what is selling, instead of randomly guessing.”
Machine placement within your store also can create problems. Clearly, the size and configuration of your coin laundry will strongly dictate where you place your machines. However, avoid placing your vending machines in an area where they will receive a lot of direct sunlight – that can raise the temperature of the products inside, and it can even disrupt the digital displays in the keypads of the vending equipment over time.
Lastly, as with your washers and dryers, keep your vending machines looking spotless and inviting. Whether or not you choose to let a vending operator handle this segment of your operation, be sure your attendants run a cloth over the machines when they’re busy cleaning the rest of the store.
“The most important thing is to make sure your machine is clean, filled and working,” Clark stressed. “Maintenance of the machine is so important, because it only takes one time for a consumer to come and see that the machine is empty or looks dirty, and you’ve essentially lost that customer for life.”
Clearly, vending machines are ideal for a coin laundry because you’ve got a captive audience that is going to be in your store for at least a couple of hours at a time, with little to do but wait.
So, give them something to do with their free time – and money – while they wait.