Vending machine business dishes out profits

When Greek mathematician Hero created a device that could dispense holy water in the temples of ancient Egypt, he most likely did not anticipate that his invention would survive time to become one of today’s most frequently used machines.

Hero’s concept has evolved over years, resulting to the now popular vending machines that are able to dispense anything from freshly brewed coffee, baked pizza, sandwiches and even gold coins and bars, to name a few.

More than 2,200 years after Hero’s idea came into fruition, vending machines have grown from mere huge metal boxes to an impressive multi-billion dollar industry in many countries worldwide.

According to a market study titled “The Value of Information for Managing Inventory in Vending Machines”, which was issued by a group of researchers at US’ Texas A&M University and Erasmus University in the Netherlands, the industry trade association National Automatic Merchandising Association (Nama) reported that there are about 5.4 million beverage, snack, and food vending machines in the United States alone. These machines dished out $20 billion in annual sales in 2010, the report noted.

Japan, considered by industry observers as the world leader in per capita vending machine consumption, has been witnessing annual revenue of around $58bn for its 5.6 million machines, the study added.

Citing statistics from the Brussels-based European Vending Association (EVA), a US based newspaper reported that Italy leads the region with more than 614,000 vending machines available nationwide, followed by France with 593,000 and the United Kingdom with 562,000.

Strong demand

“Vending is quite a specific business and it is an industry of its own,” says Catherine Piana, Director General of EVA.

“There are a few very large operators, like Selecta and Autobar, but their market share Europe-wide is still relatively low, although there is a strong consolidation trend. Most machines are run by the 10,000 operators in Europe, most of them small and medium-sized businesses,” she adds.

According to a recent media report, vending machines are considered by some as a less expensive way to eat out, and a far less expensive option than a white-tablecloth restaurant. These observations may prove to be favourable to some Europeans, especially in the light of the current debt crisis.

Despite the impressive demand on vending machines in Europe, the industry has not been immune to the gloomy economic climate.

“Sales of vending machines have dropped in certain markets during the recession,” Piana said in an exclusive interview with Alrroya Aleqtissadiya.

“Only recently have sales picked up again, and in a typically European way, i.e. different from one member country to another,” she added.

In coordination with Datamonitor, a premium business information and market analysis company based in the UK, EVA has collected figures for 21 countries across Europe, and found that there are 10,000 companies operating vending machines in Europe.

Sales of vending machines have reached 400,000 units in the past years. Experts believe that the European vending machine industry has grown significantly and now has annual sales of about €26bn, or $33bn, and there are hopes the trend will catch on, according to a media report.

But what about the Middle East?

An emerging industry

“I believe it is still early days for the vending industry in the UAE,” says Richard Jones, Managing Director of Coffee Planet, a self-serve ‘on the go’ coffee operator in the UAE and the Middle East with 150 locations that serves 10,000 cups a day.

“The market is in its early development phase. The choice and quality of products available are limited, so are locations,” he adds.

If the Middle East vending market plans to reach the same growth levels achieved in Europe and the USA, which Jones believe “are the models for vending growth”, Middle East consumers have to get used to the idea of self-serving machines, as the quality and range on offer grows and cashless systems (cash cards, mobile phone payment) become available.

“Perhaps demand and sales will increase and more locations will become available,” he adds optimistically.

While some believe that self-selling culture takes time to evolve in the Arabian Gulf consumer markets, Iyad Awad, Business Development Manager at the Vending Machine Co, a distributor of vending machines in the Kingdom of Saudi Arabia, believes that the growth rate of the vending industry is expected to increase throughout the Arabian region, because "profitability of vending machines is relatively high compared to lower operating expenses," he said.

Reflecting on when their company installed the first vending machine at one of Riyadh’s major hospitals in 2007, Awad said "the same machine is still operating." He beamed that the retail price of a single coffee or snacks vending machine ranges between Dh15,000 and Dh25,000 ($4,081 and $6,802), while a coffee vending machine designated for office could fetch between Dh5,000 and Dh10,000.

Modern designs

The vending machine market has become competitive over the years. In their endeavour to drive sales and attract a huge volume of investors, vending machine manufacturers are constantly developing new ideas – albeit bizarre sometimes – and adapting the latest technology.

Globally, vending machines can now be seen dispensing a wide variety of products such as skin creams, newspapers, books and DVDs. There are also machines that sell flowers, and others that dispense products such as ladies’ underwear, eggs and rice.

EVA’s Piana believes that there is no limitation to imagination.

“New designs include touch screens, cashless payment (including mobile phone payments), and many other technological options. With the younger generation, vending needs to be able to be as user friendly as their phones or tablets,” she says.

Some operators tend to offer fresh healthy products, such as fruits, and these machines are usually installed at schools and health centres. According to the market study “The Value of Information for Managing Inventory in Vending Machines”, a traditional snack vending machine holds approximately 40 products, whereas a cold beverage machine may contain anywhere between eight and 20 products. The number of machines at a client site can range from several to a few hundred. In current practice, groups of machines are visited and restocked on a cycle.

Perhaps among the trendiest, and unique, vending machines is “Let's Pizza”, which offers freshly produced pizzas. This machine gained fame in two of Italy’s major areas. According to the developer’s website, the machine uses infrared and other technologies developed at the University of Bologna in preparing the dough. The new pizza-making machine can add tomato sauce and other pizza ingredients on the dough and then bake it to perfection within three minutes.

Despite the fame and popularity of Let’s Pizza, some believe that the biggest challenge facing the spread of this type of machinery is how successful will the developer be in dealing with criticism from gourmet pizza lovers, who are used to traditional ways in preparing Italy’s number one dish.

In Japan, which has the largest number of vending machines, developers of tobacco-vending machines applied a technology that requires customers to use an ID card issued by the Tobacco Institute of Japan, in an attempt to prevent sales to under-age consumers.

Takashi Kurosaki, director-general of the Japan Vending Machine Manufacturers Association (JVMA), told a Japanese newspaper there are 5.51 million machines in Japan, taking a total of nearly 7 trillion yen (around $58bn) a year.

“In 2006, there were 565,200 tobacco-vending machines turning over about 2trn yen annually,” the newspaper writes.

To keep track of things, UAE-based Coffee Planet looks at technology as “an important aid to business efficiency and customer service”.

“Our coffee machines are wirelessly linked back to our head office and send us data daily,” says Jones.

“We are able to track sales by individual machine, by drink type, by hour, by day and can review consumption trends, as well as monitor individual machine performance for key parameters such as ‘uptime’ (what percentage of the day is it serving drinks – we look for 98.5 per cent), cleaning cycles, and even mechanical or software issues,” he added.

“GOLD to go”

In its commitment to introduce innovative and customer-friendly offerings, Al Hilal Bank, an Islamic bank owned by the Abu Dhabi Investment Council, has launched the first-ever bank-installed gold dispensing machine in the Middle East region.

Located at Al Hilal Bank’s Mall Branch in Abu Dhabi, the “GOLD to go” machine sells gold bars and coins 24 hours a day at prices that are updated every 10 minutes to match current market rates, said a statement from the bank.

“Buying high-quality gold 24/7 in our trusted banking environment is something new and exciting for our customers and I am sure they will highly appreciate our efforts to give them access to this kind of personal service,” remarked Mohamed Jamil Berro, CEO of Al Hilal Bank.

According to Ex Oriente Lux, the German developer of “GOLD to go”, the world’s first gold vending machine, the company has six gold dispending machines installed at some of the UAE’s most luxurious hotels and locations, such as Abu Dhabi’s Emirates Palace and Dubai’s Burj Khalifa, and plans to expand across the GCC region.

“Only the market decides the speed of our expansion in the different regions,” explains Thomas Geissler is the CEO of Ex Oriente Lux AG, in an interview with Alrroya Aleqtissadiya.

“We keep receiving dozens of applications from interesting locations all over the world every day. Where we are launching GOLD to go next, depends on the attractiveness of the applications,” he added.

Geissler confirms that “GOLD to go” are simple to use and equipped with state-of-the-art security features.

“Payment can be made in cash or by card. The (GOLD to go) machines accept cash payment in the form of bank notes in the currency of the country of operation. They are also equipped with a device that returns change in both coin and note form. All common credit cards and bank cards are also accepted (MasterCard, VISA, Eurocard, Girocard). A receipt is issued for every purchase.”

Despite the volatility of gold prices due to supply and demand, the “GOLD to go” vending machine is expected to witness a high turnout in light of the stability of gold as a commodity and its increasing role as an alternative and safe trading item and an effective solution to inflation.