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.

New ATM technology offered to rural banks

The country's largest independent automated teller machine provider is expanding its ATM network to 200 by the end of the year or early 2010, while making it affordable for small banks to become ATM card issuers using a new technology platform.

Electronic Network Cash Tellers Inc. (Encash), which currently has 126 ATMs deployed mostly in areas not attractive to regular banks, has also diversified its services by offering a new core banking solution called Savant.

The solution is a web-based suite of applications designed to provide rural banks a real, centralized, multibranch, online system with account balance updates performed in real time.

“Savant is getting good reaction. The application really fits the requirement of the rural banks,” Encash president Eric Severino said in an interview.

“We think of it as a vehicle where it would add more ATM transactions to our ATM business because it now allow rural banks to issue ATM cards and use this in our network as well as in other networks,” Encash director Mike Mapa added.

Four of the country’s leading rural banks have already signed up for this banking solution—GM Bank of Nueva Ecija, Bank of Florida of Pampanga, Bangko Kabayan of Batangas and 1st Valley Bank of Lanao del Norte.

ATM cards may soon be used to pay for MRT fares

Philippine banks may soon issue cash cards that can be used to pay for Metro Rail Transit (MRT) fares.

That is if talks between the Rizal Commercial Banking Corp. (RCBC) and BancNet, an electronic banking consortium, push through, an executive said on Monday.

Under the proposed partnership, BancNet members will be allowed to issue cards that can also be used to pay for MRT fares.

In turn, RCBC is expected to earn from settlement fees to be collected from BancNet lenders since it has an exclusive five-year agreement with the MRT’s ticket provider, Omniprime Marketing Inc.

“Bancnet would like to tie-up with us since we have the franchise," RCBC executive vice president Ismael R. Sandig said during the launch of its MyWallet-MRT Card.

Besides being a regular card for automated teller machines (ATMs), MyWallet-MRT Card can also be used to pay for MRT fares, the first such card in the industry.

“All banks are trying to find ways to duplicate us," he added. “If they will invest on system, it is a huge amount. The market is so huge. There is no way you should stop other banks from issuing. They just have to share some fees with us."

Settlement fees for the proposed arrangement are expected to contribute more than 20 percent to RCBC’s fee-based income for the next two to three years, Sandig said.

The RCBC MRT MyWallet is a prepaid stored value card that allows cardholders draw cash over the counter or ATM, pay bills via RCBC, make balance inquiries, among others.

It is a new variant of the RCBC MyWallet cash card that can be bought through any RCBC branch for disbursement requirements. Unlike a regular ATM account, there is no maintaining balance required.

By December, the RCBC MRT MyWallet will be used in the 13 stations from North Avenue in Quezon City to Taft Avenue in Pasay City, RCBC first vice president Remo M. Garrovillo Jr. said

When it was launched last month, the card was only available in North Ave. and Taft stations.

By 2010, the MRT is looking at a unified cashless and cardless ticketing system and the bank is “positioning for that," he said.

RCBC will be also be tapping universities as reloading stations.

Sandig said the bank would share earnings with them. This is better than entertaining a lot of people in the branches just to reload.

Light Rail Transit Authority wants to see the success of the MyWallet-MRT Card before RCBC can come in.

The tie-up is expected to increase RCBC customers by two million, said Sandig, who is responsible for creating 10 retail banking products in Philippine National Bank.

“This is more of a breakthrough. Most Filipinos cannot afford to maintain P2,000 or P5,000. The only way you can tell them to use the bank is lower the price of doing business with them. There is a big business for my wallet card with our affiliates," he said.