Piedmont Vending Tries New Ideas

Necessity, according to the proverb, is the mother of invention.

In the automatic merchandising industry, veterans are realizing the need to adopt new tools and business models to address new business realities.

Many veteran operators are tired of hearing about these "new business realities" — fewer viable locations, more competition and rising costs — but some are actually doing some things about them.

Piedmont Vending, a large vending/foodservice/OCS operation based in Hickory, N.C., took a severe hit in 2000 when the textile, furniture and telecommunications employers accelerated their outsourcing to save costs. The local unemployment rate approached double digits, forcing the company to consolidate routes and reduce payroll.

The company, which traces its roots to 1945, had established itself as a market leader by mastering the basics of customer service, using the motto: "clean, merchandised and working." But as business conditions became increasingly difficult, management became less certain that the traditional strategies would guarantee future success.

Fortunately, a new and visionary leader was at the helm, with a keen eye on technology.

Technology provides hope

Like many people raised in vending families, Aaron Speagle wasn't sure that the industry offered him his best opportunity when he first considered his career choices in the early 1990s.

Then in his early 20s, Speagle had earned a degree in engineering and felt that other industries might be more promising than automatic merchandising.

But Speagle also realized from attending conventions and talking with other vending executives that emerging technologies offered exciting possibilities for the next generation of vending operators. He wanted to be a part of it.

The company started in 1945, when a group of investors including Paul Speagle, Aaron's grandfather, purchased the Spur Bottling Co. in Hickory, N.C. It expanded into full-line vending in the 1960s, and in 1967, sold its bottling operation and focused on vending in its 25,000-square-foot building in Hickory.

Paul Speagle Jr. ("Rick") and his brother, John, purchased the vending division of the North Wilkesboro Coca-Cola Bottling Co. in 1986 and the vending division of Dermox, Inc. in October 1992.

The company expanded into the Charlotte/Gastonia market with the purchase of Crown Vending Co. in 1995 and Crisp Vending in 1997. In 1998, Piedmont Vending purchased Charlotte Vending Service, which served the Charlotte/Mecklenburg area.

Aaron Speagle, now 36, is only sure about one thing: he never has a dull day. Keeping on top of new tools to improve customer service, providing new operating efficiencies and maintaining a capable team have proven to be more than a full-time job.

A dedicated student of technology

The soft spoken and reserved Speagle has emerged as one of the most knowledgeable operators on several new technologies that hold promise for automatic merchandising.

At the 2005 National Automatic Merchandising Association Expo in Atlanta, Ga., Speagle was on hand at the Freedom Shopping booth, fielding questions from operators who were intrigued by the self-serve kiosk that uses radio frequency identification (RFID) technology. As the first operator in the country to place the device, Speagle has consulted with operators all over the country about its capabilities.

The Freedom Shopping kiosk is only one of several technologies that have created new possibilities for automatic merchandising, however. Being open to new concepts has required an open mind and a willingness to take risks, not all of which have proved fruitful.

Coin-op retrofits offered the possibility of providing fountain beverage machines in locations not large enough to support manual foodservice. Fountain drink machines are still popular in many accounts, despite the beverage industry's aggressive stance with PET bottles.

Speagle invested in coin-op retrofits for fountain drink machines, and while these systems were popular with customers, he was unable to control the cups. In addition, parts and equipment became costly as the OEMs curtailed production of this equipment.

Technology emerges on different fronts

But there is no shortage of innovation in the vending industry, and Speagle is currently optimistic about several developments. While the Freedom Shopping kiosk tops his list, he is also hopeful about prepaid cashless vending, computer-managed small location machines, single-cup OCS brewers, point-of-use water coolers, handheld computers and remote machine monitoring.

Competing in the backyard of some of the nation's largest vending and foodservice operations, the company had no choice but to master the fresh food business early on in its development. The commissary continues to play an important role, Speagle noted. In retrospect, his understanding of commissary equipment helped strengthen his appreciation of the capabilities technology can offer.

Three years ago, the company invested in a nitrogen-flushing/self-labeling food packaging machine made by Ilapak, a Switzerland-based manufacturer. The reliability of this machine and its ability to guarantee freshness has proven a strong selling point.

The commissary operates on a two-week menu cycle and offers more than 170 different items. The fresh food is delivered in dedicated, refrigerated vehicles. Customer requests are used to determine the menu.

Professional marketing literature

Competition from national operators has also forced the company to develop top-quality marketing materials, all of which it produces in-house. Piedmont Vending's brochures are colorful, professional and highly informative. Marketing literature explains all of the company's services — vending, OCS, catering and cafeterias. The literature covers all of the HR manager's hot buttons: name brand products, state-of-the-art equipment, 24/7 response, etc.

The marketing literature also includes colorful pictures of custom-designed machine fronts and area treatments. Piedmont Vending works with local graphic companies to allow customers to incorporate their own logos and designs.

Piedmont Vending has offered Heart Smart and 500 Club options for years as part of its fresh food program. These are third-party nutrition labeling programs. Drivers attach channel markers on food machines to draw attention to products certified by these programs.

The healthy eating programs have proven particularly popular recently with schools. North Carolina has passed a law requiring a certain percent of healthy snacks in school vending machines. While schools are not a big part of the company's business, Speagle said this business enhances the company's reputation. "It gives us visibility in the market and credibility with customers when we're discussing healthy programs," he noted.

The commissary has allowed the company to provide freshly prepared meals to private secondary schools that aren't large enough to have their own cafeterias. This is a growing demand in the market the company serves.

Cashless payment technology

Prepaid cashless systems have proven particularly useful in these private schools, Speagle noted. Parents can credit a month's worth of funds on their child's data key, which the youngster then uses to purchase from the vending machines. The system enables Piedmont Vending to keep a database on each youngster's purchases.

The prepaid cashless system has proven popular with industrial accounts as well. It allows employers to offer financial rewards to employees with minimal administrative work. "We take the headaches away from them," Speagle said.

A pioneer in unattended kiosks

The technology he is most excited about is the Freedom Shopping kiosk. The RFID technology and video surveillance create theft deterrence and a speedy checkout. Kiosks that have been in operation since early 2005 produced a 50 percent to 100 percent increase in sales volume.

The kiosk consists of a checkout station where products are scanned by an RFID reader. Products in the immediate area are displayed in baskets, racks or in refrigerated or frozen compartments.

The customer selects his item and takes it to the checkout area. A centrally located sign instructs the customer to place the item beneath the touchscreen, where it scans the electronic product code. The transaction takes about 12 seconds.

Should the customer walk out of the immediate area with an unscanned product, the product's RFID tag signals the receiver, and the speakers automatically instruct the customer to pay for their purchase.

The kiosk sends the data every 10 to 12 minutes to a password protected website via a cable line, which also transmits the digital video images captured by the on-site surveillance cameras.

The location does not need a dedicated cable line for the kiosk if the location already has cable.

Should the customer have a question, he or she can press a button on the touchscreen and speak to a customer service rep at Piedmont Vending's headquarters. Customers pay with a credit card or debit card. A revaluation machine allows customers to replenish their debit cards with cash.

Website access to kiosk information

The kiosk's monitoring system gives the operator website access to pricing, sales, cash, inventory and product expiration dates.

This technology allows Piedmont Vending to immediately create and display consumer specials and sales and to instantaneously update a customer's account.

Unattended kiosk customers to date include a hotel, an insurance company and a high-tech company.

One benefit to the operator, Speagle noted, is that the system does not require any additional software. All of the activity is monitored over the Internet, and all of the reports are Web-based.

The reports include fill slips, which allow the company to "pre-kit" based on what has and has not sold. This is also known as dynamic scheduling.

Software provides Item-level tracking

Because the purchases are tracked individually, the system can indicate exactly what products are needed, allowing the operator to service the location as needed, maximizing his return on labor. The operator has the flexibility to adjust par levels.

The most heavily trafficked Freedom Shopping kiosk is being serviced twice a week, Speagle noted. Were it a traditional vending bank, the location would require daily service.

Cashless capability proves critical

So far, Speagle has noted that about 20 percent of the purchases are with credit cards, versus debit cards.

Piedmont Vending initially targeted low risk locations for this system, and to date, theft has not been a problem. "We have less loss to theft than with traditional vending," Speagle said. In one humorous incident, Piedmont helped a customer retrieve her cell phone which she mistakenly left in the kiosk area. The mistake was captured by the surveillance camera.

A 38-inch video screen in Piedmont Vending's reception area displays the hotel kiosk in real time. There are four views shown on the screen simultaneously, one for each surveillance camera. Company receptionist Lana Bailey doubles as the kiosk's customer service manager.

The kiosk holds more than twice the inventory of a traditional vending bank. Piedmont Vending has inventoried about 300 stock keeping units (SKUs), including many that would not normally be found in vending machines, such as alcoholic beverages.

One key benefit is the customer's ability to touch the product before deciding to purchase it, Speagle noted.

Flexible pricing

The top selling item in the hotel kiosk is 16-ounce Evian Spring water priced at $1.75. Other prices, taxes included, are: beer, $4.00; Ritter Sport, a gourmet chocolate, $3.49; Ben & Jerry's ice cream bars, $5.00; Hershey Swoops, $2.50; gourmet cheese snacks, $3.49.

While prices are always higher in public access locations, any veteran vendor can see that these items are higher priced than traditional vending products.

"Every product is just about a different price," Speagle said. "We do it just like a convenience store or grocery store would do it. We don't do it like a vending operation would. Some prices are higher and some are lower. You get your margin."

The hotel kiosk averages $600 gross sales per week.

Remote monitoring

The Web-based sales reports allow the company to determine the most profitable pricing. More importantly, they can change the price remotely, over the Internet or using a personal digital assistant. "Electronically, we control the price," Speagle said. "When candy went up, we changed prices that day." This feature allows him to reduce a price when it approaches its code date.

In the future, Speagle envisions developing individually tailored promotions based on customer purchase histories. "What I like about it is that it's instantaneous," Speagle said regarding the reports.

The sales reports have alerted Speagle to the degree to which location preferences can vary. Some locations prefer Mountain Dew over all other drinks. Others prefer Diet Sunkist.

The most labor intensive part of the system is tagging products with RFID tags in the warehouse. Tags are provided by a dedicated RFID tag supplier. Piedmont Vending must assign each SKU an electronic product code (EPC), a wholesale price and a retail price. This information is then entered into their accounting system. The tag is then laminated onto the product.

The tags cost 15 cents apiece, which is included in the price of the product. Speagle noted this price has come down significantly in recent years, and he expects it will continue to decline.

The labor involved in preparing and attaching the tags is no different than tagging fresh food in the commissary, he noted. The extra labor needed for the RFID tags is minor compared to what he is saving in service and machine maintenance, Speagle said.

The system is not inexpensive, but compared to the investment required for a traditional vending bank, it's not out of the ball park. Based on his current sales, Speagle estimated the system recovers the investment in two to three years.

The kiosk has proven a highly successful selling tool. There are at least 15 prospective customers considering it. "The interest is huge. The way you sell it is, ‘Would you like a convenience store in your place of business?'," Speagle said.

All three of the kiosks the company presently operates are serviced by one part-time driver.

Speagle didn't come across the Freedom Shopping kiosk overnight. He began studying self-service retailing systems a few years ago when he noticed self-serve checkouts in supermarkets.

He began talking with a local software company, Dagosi LLC, whose principals educated him about RFID, which has been evolving in the retail world in recent years. Freedom Shopping is wholly owned by Dagosi LLC. "It was changing the (retail) paradigm," Speagle said.

Speagle was familiar with other automated retail systems, such as the Shop24 automated c-store being marketed by All Seasons Services Inc. and the automated gift shop marketed by Zoom Systems. He felt these systems were too costly, too complex and required too much space to have a lot of application in the locations he was serving.

A student of self-serve checkout

The advantages of dynamic scheduling that the Freedom Shopping system provided have encouraged Speagle to investigate similar possibilities his vending software can provide. While his software provider, CompuVend, offers this capability, Speagle has only recently begun examining remote machine monitoring and handheld computers.

The Freedom Shopping kiosk only makes sense for certain accounts, however, and Speagle is concerned about the diminishing number of large accounts while locations with fewer than 25 people are growing. Hence, he has also begun experimenting with small location vending machines. The company presently operates 11 Multi-max® prefilled cartridge and cassette vending machines that are designed for accounts with as few as 25 employees.

At present, these machines are in locations the company deems too small for regular venders, and are being serviced by his regular vending trucks. "We want to do more in small accounts," Speagle stated.

The Multi-max® offers multiple pricing and optional, computerized transaction tracking. The main advantage of preloaded, removable cartridges is that service time is reduced. The driver simply swaps the new cartridge for the old one, which is refilled back at the warehouse.

Another advantage is that customers are provided a magnetic card which they preload. Speagle said that to date, 80 percent of the purchases are made with the card.

Speagle is pleased with the results of the Multi-max® machines. His goal is to have these serviced by his OCS division, given the fact that office accounts currently comprise about half of all accounts.

Specialty coffee revives OCS

Specialty coffee has created new opportunities for OCS, Speagle noted. As a preferred Starbucks provider, the company has some of the Starbucks Interactive single-cup machines. This has proven to be a good selling tool in some accounts.

While the Southeast is not one of the strongest specialty coffee markets in the country, the market is growing. At the present time, OCS is the fastest growing part of the business for Piedmont Vending.

Speagle has been pleased with the success of the Flavia and Keurig portion pack systems. He also has an interest in the manual pod brewers, which he thinks give him an opportunity to increase his sales in accounts that are too small for the portion pack brewers.

The OCS division received a boost in 2001 when the company introduced the Pure 1 water filtration system. Speagle was initially attracted to the fact that the point-of-use cooler eliminated the liability that 5-gallon bottles incur, but at the same time created the impression of a 5-gallon bottle.

Future rests in small accounts

The biggest long-term challenge Speagle sees is servicing small accounts profitably. He thinks the company may have to revive cooperative service vending, whereby a location operates its own machine and the vending operator simply delivers product.

The company's current strategy is to improve profitability in the existing market. The local economy has improved in the past year as some of the telecommunications employers are beginning to expand again, noted John Speagle, executive vice president.

The company launched an informational website in 2001, but it does not look to the website as a marketing tool at this time.

Rick Speagle, president, said he thinks that growth opportunities through acquisition in the existing market are limited at the present time.

Focus on training

To strengthen profitability, the company is in the process of introducing the National Automatic Merchandising Association's route driver certification for its drivers. The first step, certifying the route supervisors, has already been completed.

The drivers have also been equipped with Blackberry personal digital assistants to be able to e-mail service issues to the service department. This will ensure rapid response to service issues. The drivers also have cellular phones.

As a third-generation operator, Aaron Speagle has recognized the importance of mastering the skills that established the company as a market leader, along with the importance of educating himself about new operating concepts. He recognizes that a dedicated staff is essential to providing high quality service, but at the same time he realizes that business conditions are requiring some new business models.