Dispensing with Limitations

Call them automated retail stores or product dispensing centers, but please don’t call them vending machines. This latest generation of self-contained selling is popping up all over the retail landscape, stationed inside stores to vend high-ticket, security-intensive items like personal electronics or occupying off-site locations to extend branding and take advantage of the reduced labor costs, a small real estate footprint and 24/7 operating capability.

Global Industry Analysts of San Jose, Calif., predicts vending networks will be a $1.2 billion industry within five years; Boston-based Aberdeen Group says 36 percent of retailers it recently surveyed plan to use varied self-service tools and systems within the next 12 months.

Michael L. Kasavana uses the term “v-commerce” to describe this latest iteration of product vending. Kasavana, the National Automatic Merchandising Association endowed professor at Michigan State University’s School of Hospitality Business, says the marriage of vending machines and bricks-and-mortar retailing could work well “as non-traditional product purchases at higher vend prices tend to resonate more reliably and securely with consumers when they have an actual business to contact for reconciliation or remediation of a problem.”

Those who continue to equate vending machines with snacks, beverages, inexpensive toys and plush items have long held there was a ceiling holding down what consumers would spend in an automated environment, but “early speculation that price would be the barrier has proven only half true,” says Ben Ball, a consumer product and customer development senior vice president with consultant Dechert-Hampe. “Consumers comfortable with buying an iPod without assistance are just as happy to give their $50 for a 1GB Nano to a vending machine as they are to Wal-Mart.”

The real barrier, Ball says, appears to be “high-touch categories” — products that consumers prefer to handle and examine prior to purchase. Wal-Mart dipped its toe into automated retailing earlier this year with machines selling small electronics that are difficult to secure on shelves or in merchandise displays. The pilot project included approximately 35 Sam’s Clubs that had been remodeled to accommodate the product dispensing centers.

Macy’s beat Wal-Mart to the punch two years ago when it partnered with ZoomSystems to install vending machines in some 400 department stores. Labeled “eSpot” while also carrying the Macy’s logo, the “automated shops” have enabled the retailer to get back into the business of selling small consumer electronics — iPods, GPS units, digital cameras, headphones — at prices up to $350.

Unlimited possibilities
Aside from download kiosks (like those branded Blockbuster Express but operated by NCR) and the seemingly ubiquitous Redbox locations, Best Buy has cut as wide a swath as any retailer in the use of branded vending machines. In a variation on a familiar tactic, J.C. Penney has an automated “store-within-a-store” with Sephora-branded cosmetics, skin care and fragrance dispensing machines in select locations.

Zoom Systems, which works with a number of retailers and manufacturers, is blazing a different trail with The Body Shop, placing branded units in select Kroger Marketplace stores, H-E-B locations in Texas, Stop & Shop stores in New England and Jewel Osco stores in and around Chicago. CEO Gower Smith boasts that his company’s ZoomShops can “deliver the highest sales-per-square-foot average in the retail environment.”

There are almost no limits to the retail application of automatic dispensing machines. Mark’s Work Wearhouse, a Calgary-based subsidiary of Canadian Tire, has put a vending machine in a hospital that sells operating room scrubs and loungewear, and another at a train station dispenses caps, gloves and umbrellas. The Pennsylvania Liquor Control Board plans to have machines that can hold 500 bottles of up to 50 varieties of wine operating in 100 supermarkets across the state this summer. Quiksilver has placed branded vending machines selling swimwear in poolside locations at Standard Hotels.

It seems virtually any type of merchandise can be vended by machine. Japanese sporting goods manufacturer Onitsuka Tiger placed a sneaker machine on London’s Carnaby Street; Nike has tested a unit in New York City that sold only soccer balls.

The proliferation of such machines, particularly in retail environments, doesn’t surprise Kasavana, who says the way was paved by increasing automation in virtually all aspects of consumers’ daily activities, from ATMs to pay-at-the-pump gas.

“The U.S. trend toward a self-service economy is more prevalent than ever, and with it is a return to the original form of self-service, i.e. vending,” he says. “Vending is finally starting to be recognized as a reliable and quality product alternative to long lines and distracted service staff.”

In addition to convenience and speed, Kasavana says, these machines offer other attributes that consumers find increasingly appealing: privacy, transaction control, reliability and product quality.

Off-site management
Also contributing to the proliferation of automated retailing is the improved capacity to remotely monitor and service the machines. Remote device management technology actually provides two discrete services: technical support and marketing data.

Asad Jobanputra, director of technology for Toronto-based remote monitoring software provider Esprida Corp., says his company’s service operates “like a back office management system.” The machines can “report” as frequently as every 10 minutes that they are operating properly — and send immediate alerts if something goes wrong. Many of those issues can be corrected remotely, as well, and signage and pricing can be managed from a central location.

And every time a customer touches the screen, “you’ve successfully invited them to engage in a dialogue,” Jobanputra says. As a result, the units can capture valuable data – what consumers will and won’t buy, how much they’ll pay and which promotions appeal to them.

“The life of every sales associate and marketing manager becomes easier if this information is timely and available in a comprehensive manner,” Jobanputra says.