Automated merchants

NEED A QUICK hot cup of coffee or snack to go? If there is one store that could satisfy such cravings minus the hassle of making your own, it would be the friendly vending machine.

Consumers’ benefits aside, the vending machine is an almost non-stop, labor-free retail business. All that is needed is an ideal location and the right combination of merchandise to get started.

A brief history

Vending machines date as far back as 215 B.C. when a holy water-dispensing device was identified in the temples of Egypt by Hero, an Alexandrian mathematician. Asia also had its vending machine prototypes: In China, for example, coin-operated pencil vendors had been recorded to have existed in 1076 B.C.

In the 1700’s, coin-operated tobacco sellers appeared in English taverns. Vending machines in the United States started in the late 1800s. In 1886, several patents for coin-operated dispensers were granted in the US, leading to the installation of Thomas Adams Company’s Tutti-Frutti machines on New York elevated train platforms in 1888.

Since then, more products were added to the shelves of vending machines. There were vending machines for stamps (circa 1905), commercial cigarette (1926), bottled soda machines (1930s), and even supposedly fresh foods like sandwiches and milkshakes (late 1950s). It has evolved to accommodate advances in technology, such as the addition of bill acceptors, microwave-oven furnished machines, glass-front machines, and even credit card devices.

In the Philippines, vending machines started in the 1960s with the introduction of automats or cafeterias where food was served from machines. It did not, however, proliferate until the 1970s as the coins back then were irregularly-shaped and could not fit into the coin slots of the imported vending machines.

Nevertheless, the creation of round coins marked the return of the vending machine business in the country, which was led by a Filipino entrepreneur who introduced gum-ball machines. Soft drink vending machines later proliferated. More recently, the introduction of bill-acceptors also led the way for more innovative vending machines in the country.

Vending categories

The National Automatic Merchandising Association (NAMA), a US-based trade association for vending machine business, defines four major categories in the industry. The most basic machines offer the so-called “4Cs” — an abbreviation for coffee, cup soda, candy, and cigarettes. From this basic definition emerge the four major categories:

“Full line” refers to operators selling food and refreshments other than the 4Cs, such as hot canned food, canned soda, refrigerated food, and the like.

“Specialty” is focused on one particular type of product. For example, OCS, or Office Coffee Service, provides equipment and kits that are all focused on coffee and coffee-related items. Bulk machines, a common sight in supermarkets, dispense unwrapped gums, candy, novelties, and the likes, which are a common sight in supermarkets.

“Music/game” refers to coin-operated amusement devices such as music machines and video games.

“Street” refers to the combination of specialty, full line, and music/games vending. It is more often used as a description of the place where the machines are installed; that is, public places such as restaurants, taverns, resorts, etc.

Vending in the Philippines

During its boom phase in the late 1990s, five players led the automated vending business: Sam’s Vendo Corp., Philippine Vending Corp., Vendo King, American Vending Machines Trading Systems, Inc., and Vending Specialists, Inc. These firms operate differently from one another. Sam’s Vendo, Vendo King, and American Vending sell the machines, while Philippine Vending operates automated machines instead of selling them and Vending Specialists is both into selling and operating bulk machines.

As of date, Philippine Vending Corporation is reportedly the leading player in the automated vending industry. Philippine Vending is the only full-line vending company that serves more than 100,000 consumers a day, operates more than 3,200 machines, and serves 600 establishments.

The company covers many regions in the country such as Central Luzon, National Capital Region (NCR), Southern Tagalog, and Cebu. Tri-East Philippines, Inc. is also an industry player involved in vending machine distribution.

Issues and prospects

There are several issues to note about this industry. For one, automated vending is a capital-intensive industry that exhibits economies of scale: that is, an entrepreneur can own and operate more than one or two machines to earn profit. This is the reason why Philippine Vending does not sell machines but rather operates them by itself. In 2000, Vending Specialists president Manuel E. Pangilinan said that this kind of business is all about numbers and building economies of scale.

Automated vending also has other advantages. Vending is an all-cash business; all sales transactions are in the form of cash and thereby provide liquidity. Vending machines, in general, also require low maintenance, and a prospective entrepreneur only needs to make sure that his installation location is vandal-free.

Vending machines also can work 24 hours a day, 7 days a week without the need to hire employees. Finally, minimal overhead costs allow the entrepreneur to sell the merchandise at competitive prices. (As a side note, vending machines can also serve as a channel for advertising. That is, a vending machine not only can dispense canned sodas but can also be a mini-billboard.)

Location is an important factor in this business. An entrepreneur should be able to find a feasible location for his machine to enjoy maximum profits. An area should have constant foot traffic, such as sidewalks or offices. It should also be safe from vandals. The most important consideration is that the machine should complement the market profile of the area. For instance, a coffee machine is best suitable in offices.

With the fast-paced lifestyle nowadays, more people find convenience in everything that is quick and almost hassle-free. As this kind of market profile grows, we can also expect automated merchants to expand further to cater to the demands of the fast-paced Filipino.