Considering self checkout? Variety and quality are paramount

Self checkout vending markets (SCVMs) continue to grow at a rapid rate. As challenged as our industry’s operating environment has become, these SCVMs are popping up nationwide and delivering outstanding sales.

Change is never easy. To offer a SCVM, the vending operator must invest in new equipment, learn how it works, invest in new products, and establish a new delivery system.

But progressive operators are finding these SCVMs allow them to provide consumers the values they want.

What do installations of SCVMs to date teach us?

The most dramatic difference over vending is the number of stock keeping units (SKUs) available to the consumers through SCVMs as compared to vending. Patrick Hagerty, president of Vistar Corp., told Automatic Merchandiser that when a SCVM replaced vending at Vistar’s headquarters, the SCVM offered about 300 SKUs, which is far more that the vending machines did. My research indicated that a SCVM carries an average of 272 SKUs.

However, just as important as the number is the quality of the SKUs available.

From my vantage point, operators are learning they must become true retail merchandisers to be successful with SCVMs. This isn’t to say the same thing isn’t true about vending. But with SCVMs, the stakes (and the potential benefits) are much higher.

The facts define the trend

According to BCC Research in Denver, Colo., in the next five years, sales volume through self checkout will grow at a compound annual growth rate of 9.3 percent compared to vending’s 3.2 percent. This 9.3 percent refers to all types of self checkout, including the systems used by traditional retailers. It’s safe to assume that the vending self checkout growth will be much faster.

If kiosk operators do not expand their product lines and merely replicate vend items, the consumers at the SCVM locations will soon become dissatisfied.

Recently I visited a location with multiple kiosks. The location manager was seeking to replace the SCVM operator because the product selection was merely replicating vending machines. The location manager eventually selected another kiosk operator who offered a wider diversity of products, especially fresh food selections.

Food selections are vital

Vending operators, who traditionally view fresh food as a burden, must become more innovative with food when introducing a kiosk and think of themselves as restaurant operators. Fresh food is not the only area where operators must think more critically about what products they use in SCVMs, but it is the most important category since it’s the area that allows an operator to distinguish himself or herself from the competition, and at the same time become a meal destination.

Have you seen what drug stores are doing with fresh food lately? I’m as picky as anyone when it comes to fresh food, and what I see at my local CVS store blows my mind. Supermarket News recently reported that drug stores are growing food sales faster than supermarkets.

Every vending operator should visit all types of retail food outlets; the changes are dramatic. They have lots of ideas that operators can use with kiosks.

Some vending operators have commented that the SCVM allows them to get back into the food business since the demise of the food machine began several years ago with the ebbing of big manufacturing accounts.

The operator must solicit food requests from the consumers. If an operator does not have a commissary, he should seek a local, well-known foodservice provider and work out a relationship.

If fresh food sales are less than 30 percent of the units and dollars, you may be in jeopardy of losing the account to a competitor.

Fresh food is not the only area where operators must carefully scrutinize their product sources for SCVMs.

Pastry must be fresh

Pastry also requires a new approach. Operators should look for a bakery to provide pastry and baked goods. Instead of just a wrapped muffin, how about a muffin with a pad of butter and jelly and plastic knife wrapped in a paper plate? Cupcakes are also a growing product line, such as seasonal cupcakes for Halloween, Christmas and St. Valentine’s Day.

Candy and snacks: More variety

Snack and candy products also present opportunities. An operator should meet with their snack and candy manufacturers to determine what additional single-serve products such as premium size products are available. The availability of such diverse single-serve products such as those sold in convenience stores will be critical to the success of the kiosk locations. Higher prices mean higher profits.

Cold drinks: more variety

Cold beverages constitute another 30 percent to 35 percent of unit and dollar kiosk sales. The first decision an operator must make is to provide a full range of beverages, not limited as in the case of many vending sites which rely on bottler equipment. Moreover, preliminary research shows that consumers are interested in purchasing non-carbonated and specialty beverages at higher price points and greater profitability, instead of the standard carbonated beverages.

Another important consideration: is it time to consider fountain beverage service at these locations? Those of you who have paid attention know there are some exciting fountain products that should be able to integrate with a kiosk.

Milk and ice cream are another area that demand attention. In every geographic area, there are well known local dairies that provide milk and ice cream.

Coffee: 25 to 40 percent of total

Finally, the SCVM system must track all OCS consumption or sales. OCS consumption/sales at a kiosk location can be in the range of  25 percent to 40 percent of kiosk sales of all other products.

SCVM operators must integrate their OCS brewer with the kiosk software. If coffee is provided free to the employees by the location, the kiosk system should be able to track consumption.

By tracking coffee consumption, the operator can send a quarterly email showing the value each employee receives from the location from free coffee. Beyond free coffee, the operator can also place units like the Tassimo that can offer premium coffee which the consumer can elect to pay for. Again, visit a convenience store. There are usually several coffee options available to the consumer.

More importantly, if the consumer pays for the coffee, the kiosk should integrate the sales from the coffee equipment to the kiosk application so payment can be made using a UPC label instead of by pushing icons on the video touch screen.

This has been a problem in some instances, but SCVM system providers have addressed it.

Sourcing brings challenges

By now, it is clear that product selection and sourcing becomes a major part of success with SCVMs. This can be viewed as a negative, a positive, or both. I view it as a positive since it allows the operator to seek the best possible values to provide the best possible service.

Rebates are an issue. There are many great products out there that may or may not qualify for manufacturer rebates.

Operators need to consider rebates, but I am in the camp that believes vending operators never should base their buying decisions on rebates. If operators want to be professional merchandisers, they must make product selections based on what consumers want.

On the positive side, some of the purchasing sources out there, such as convenience store product distributors, bring merchandising expertise to the table. If you’ve visited any convenience stores lately, you know what I mean.

As I stated in my previous article about SCVMs in June/July, it’s important for vending operators to realize that what’s happening in other retail outlets affects the consumers’ acceptance of self checkout.

Self checkout keeps growing

At grocery stores, 65 percent of U.S. consumers consider a self checkout kiosk important and a stunning 80 percent of consumers 18 to 24 years old view all technology as an important factor in their shopping experience.

Right now, grocery stores are doing more than any other retail channel to enhance self checkout’s capabilities, and it’s important for vending operators to know what they are doing. There is nothing that supermarkets are doing with self checkout that vending operators won’t be able to do. And they may even be able to do it better.

Grocery stores are concentrating on promotions to encourage consumers to increase their purchases. One approach to this “buy more strategy” is the promotion of “build-a-meal” – arranging a chicken breast, bagged salad, beverage and dessert for a $10 price. The New York Times ran an excellent article on this on July 17, 2011 titled, “At Stores, Making 5 for $5 a Bigger Draw that 1 for $1.”

The SCVM operator should follow the example of the grocery stores’ “build-a-meal” and combine fresh food, a snack, beverage, and dessert to increase the consumer transaction dollar.

More promotional opportunities

An operator can work with their pastry and coffee providers develop a promotional program such as offering a cup of coffee and pastry between 7 a.m. and 9 a.m. at a special price. Again, the theme is that you are no longer providing a vending service, but a sophisticated restaurant food and beverage service.

The kiosk system the operator selects should have the database for the operator to track the consumer/dollar/transaction and to develop loyalty programs to achieve this minimum $5 transaction level.

Recently, USA Technologies Inc. announced that consumers spent $1.50 per transaction using the credit card compared to $1.13 average cash transaction. The SCVM dollar transaction should be much higher, at least $5.

Another important aspect of SCVMs is that unlike vending machines, they all come with video screens. Elliot Maras, editor of this magazine, noted in his June July column that SCVMs encompass all of the promising new vending technology – video touch screens, remote monitoring, cashless – and because of this, SCVMs may educate vending operators about these technologies.

But I digress. The main point I want to make is that video display screens take our industry into the exciting, exploding world of electronic coupons. The Google Wallet is one of the better known tools that is making electronic coupons a reality. SCVMs will be introducing vending customers to electronic coupons sooner than most vending machines.

Electronic coupons and loyalty programs are fodder for another article. The point I want to make is the SCVM is bringing our industry into the future faster than anything else.

What vending operators are learning is they cannot run the SCVMs the same way they operate their vending machines.

In providing SCVMs to your locations, you should consider selecting a kiosk system you can work with to provide your consumers with a new experience. You can check on YouTube and observe the various kiosk systems in action. A list providers is included on this page.

To make the SCVMs work as a “restaurant,” not a vending machine, requires addressing the issues raised in this article.