A STUDY OF “E'H’E POTENTMLS O'F VENDING MACHiNES IN THE HELD OF REAR. FQOD D§$?RiBUT10N Thai; for tho 909m cf M. A. MECHGAN $?ATE UNEVERSETY Thames F. Barrett 1958 '1 . $E‘E’US LIBRARY Michigan State University A STUDY OF THE POTENTIALS OF VENDING MACHINES IN THE FIELD OF RETAIL FOOD DISTRIBUTION by Thomas P. Barrett AN ABSTRACT Submitted to the College of Business and Public Service of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MASTER OF ARTS Department of Marketing and Transportation Administration Curriculum in Food Distribution an A1958 Approvedz/QJ W a 2 THOMAS P. BARRETT . ABSTRACT This thesis is a study of the use of vending machines in the retail food field. Experiments with venders con- ducted by several leading chains are analyzed. This analysis in combination with background information on the nature of vending, and the vending industry, presents what the author believes is an accurate appraisal of the status and potentials of vending in the retail food business today. "— A vending machine is a coin operated device which dispenses a good or a service. Although vending machines were first used over two thousand years ago, the modern era of vending began with the invention of the cigarette vender in 1925. Grocery vending was initiated in 1956 when the Grand Union Company installed a bank of eight vending machines in front of its headquarters store at East Patterson, New Jersey. Soon Grand Union's move into the vending field was followed by similar moves by A&P, Colonial, National Tea, Kroger, and others. The food chains apparently saw in vending a potential medium for providing convenient around the clock shopping facilities for "fill—in" items. I The hoped for success in vending did not materialize however. Mechanical failures of the machines and poor sales results caused most of the chains to discontinue using_ venders. Grand Union, the pioneer in the field, and the ~— ‘s . ...v.n. H 7... .U. ‘4 c .V . uVu O: A \P. AV 3 i Ad ”I! a Auv Nth; V?“ KEV ‘r $4 3.; bv NW 8 .L a a p h.. Lv On» 3‘“ 2‘“ MAM 8 \.A Q l . q ¢ 0.; \P . l _ no A J,“ a TI“ TH “H | a» NE W h... A U 2w v o .h .. . r.“ ;v . u w . S .5 Au V a. AU «1 n1 .. . ab an“ n h... . Q.» 1; n “PA .5 V *IV 1 A a! A e fit A pa 3 e n M.\.. ‘i It 1 ‘ NF» 2 n t “.1 I. « lNIV "J 3 in . u Am ‘ . i n e .3 3. h P re e "V b... +9 a .3 C C. n. .v 3 r. 3 p- .. . f .3 a n n 0 .7. 0 V .U. l. n a; H” fit 1.; e e v Ii. ..... . h A dwh ‘. -s 2v « nu rs. -. . «.U Rois n... n. I . u :w . - 2w J. . U 1.. IN‘ A» A.» ALJ u w t 3 P95 H. t AWN 1* V n; Amuv 0 AW *1.“ .1 his huh: .4 A A .t fin. .u .1 in.” e 1.. Ad -n. Md A... A}. Au P -n- DI». . .u M! Ah; w a. Pu nu. . a. .. at “.1 -A A t a s v .FJ AV 3... Li: I. o... a v 1 1x . I . _ 3 THOMAS P. BARRETT ABSTRACT company with the largest vending installation, is the only chain still experimenting with venders. Industry sources report that sales at Grand Union's venders are satisfactory. Although Grand Unionts venders appear to be successful, difficulties of location, servicing, and products combined to render the results of the other experiments inconclusive. As a result of th §”study, the author believes that there is a definite potential for convenience-type distri- bution of products which have a mass market; the challenge of the vending industry is sufficient to Justify careful consideration of the opportunities in grocery vending by the food chains; improved machines are vital to further growth and development in vending; recent developments in the areas of change making, legislation, and industry devel- opment indicate that a new breakthrough in vending is imminent. ‘ The author recommends that: l. Vending machine manufacturers concentrate on improving or perfecting the mechanical features of their vending machines. I 2. Food chains, vending machine operating companies, and others interested in vending gather more information on the various vending problems from all possible sources including their installations. The areas of site selection, product vendability, et cetera, need more research. a THOMAS P. BARRETT ABSTRACT u. If and when the food Chains again experiment with venders, professional servicemen should be hired on a con- tract basis. After the machines have been proven successful the task of training servicemen should be undertaken by the food chains. The Curriculum in Food Distribution at Michigan State University is under the sponsor- ship of the National Association of Food Chains. A STUDY OF THE POTENTIALS OF VENDING MACHINES IN THE FIELD OF RETAIL FOOD DISTRIBUTION by Thomas P. Barrett A THESIS Submitted to the College of Business and Public Service of Michigan State University of Agriculture and Applied Science in partial fulfillment of the requirements for the degree of MAS TER OF ARTS Department of Marketing and Transportation Administration Curriculum in Food Distribution 1958 an a; ‘u .C a. A: .g at xx 3. r“ .v r4 nv "V w“ h. pa n» e a l S a .1 a v 9* .. l o. .0” Vi w. nu 4. mu m. PP n l e «T. G O U a U .l a Cu. .Hu 0 LIV «3 L J p .v P» e e e W . 9v Liv Ev fl . d an.— hl :3 P4. 5 y m e u . t V n a a I n II R J CU : ~ Q» .3" A CA . .. abetn, T’fh ‘ -L.g e 't haw} t “V 1 ng‘z "fin: L,_ “-G “a ACKNOWLEDGMENTS The author thanks his employer Stop & Shop, Inc., and the Thomas J. Lipton Company for making possible his year of study at Michigan State University. Grateful appreciation is extended to Dr. E. A. Brand, Director of the Curriculum in Food Distribution at Michigan State University for his assistance, guidance, and helpful suggestions which facilitated the preparation of this thesis. Thanks also are due to Ann Brown for her invaluable secretarial assistance. Special acknowledgment is due the author's wife Elizabeth, without whose encouragement, assistance, untiring effort and endless patience this thesis would not have been possible. TABLE OF CONTENTS CHAPTER I. INTRODUCTION. .’ . . . a. . . . . . Retailing institutions and Mrs. Consumer. Changes in Mrs. Consumer's wants . . . Purpose of the study . . . . . . The need for the study. ’. Scope and limitations of the study. Research methodology .. . . .- . . . Definition of terms. II. THE NATURE OF VENDING. . . . . . . Why vending . . . . : . . . . History of vending First known venders . - . . . . . European venders Venders come to the United States. The modern era of vending Economic aspects of vending Availability Personnel Capital requirements. The cost of selling through machine. The supplementary nature of vending. The potentials of vending. R) KO \0 O) 00 0\ O\ U1 U1 [\3 [—4 O 11 12 IA 14 15 l6 18 m w iv CHAPTER - PAGE III. THE VENDING INDUSTRY AS POTENTIAL SUPER- MARKET COMPETITION. . . . . . . . . 25 The vending industry . . .. . . . . 26 Present status. . . . V. . . . . 26 Composition of the industry . . .' . 28 The trade association . . . . . . 31 The trade Journal. . . . . . . . ,34 The form of pctential competition . . . 35 Apartment houses . . . . . . . . 35 Roadside venders . . . . . . . . 36 Gasoline stations. .. . . . . . . 38 Factories O. . . . .A . . . . . ‘38 IV. THE SUPERMAPKET'S EXPERIENCE IN VENDING.-‘. 40 Brief history of the supermarket's experience. . . . . . . . . . . #0 Grand Union breaks the ice. . .A . . 40 More firms qlimb an vending bandwagon . 41 Most firms abandon experiments . . . A2 Analysis of the supermarket‘s experience. 43 Limitations of the study . . . . . .u3 CharacterIEtics of the installations . '44 Method of operation . . . .' . . . 45 Operating results. . . . . . . . #5 Commentary on the'supermarket‘s experiments . . . . . . . . ‘. . 5O CHAPTER PAGE Length of experiments. . . . . . . 51 Vender location. . . . . . . . . 51 MerchandiSe selection. . . . . . . 52 Machine service. . . . . . . . . 53 V. OPERATING PROBLEMS . . . . . . . . . 5A. Consumeruacceptance . . . . . . .. . 54 Mechanical failures . . . . . . .‘ . 55 Location problems. . . . . . . . . 58 Change making problems . . . . . . . 58 Vandalism . .. . . . . . . . . . 59 Miscellaneous problems . . . I . . . 6O Slugs . . . . . . . . . . . . 60 Public relations . . . . . . . . 60 Lack of statistical data. . . . . . 61 VI. ‘FACTORS WHICH LIMIT VENDING . . . . . . 63 Product limitations . . . y. . . . . 63 Legislation. . . . . . . . . . . 64 Per machine taxes . . . . . . . . 6A Zoning laws . . . . . . . . . . 68 Price . . . . . . .- . . . . . 68 VII. RECENT DEVELOPMENTS IN VENDING . . . . . 70 Paper money changer . ~. . . . . . . 70 Proposed health ordinance . . . . . . 71 VIII. SUMMARY, CONCLUSIONS, AND RECOMMENDATIONS . 73 Summary . . . . .' . .. . . . . . 73 CHAPTER Conclusions. Recommendations BIBLIOGRAPHY . APPENDIX . vi PAGE 75 76 77 87 LIST OF FIGURES FIGURE . PAGE 1. Annual Dollar Sales Volume of Vending Machines in United States, 1946—1957 (in millions of dollars). . . . . . . . . . . . . 27 2. Analysis of 1957 Sales Volume of Vending Machines in the United States. . . . . . 29 TABLE II} III. IV. VI. LIST OF-TABLES , Recent News Releases. . . . . . . .. . Comparison of Average Operating Results of Vending Machine Operators and Food Chains Vital Statistics of Six Supermarket Vending Machine Installations. Some Grocery Items Which Are Stocked In Vending Machines . . . . . . . . . . Vari-Vend Kroger Installation Survey Taken In Northwood Detroit Shopping Center. . . . Current Summary of State Per Machine Taxation of Merchandise Vending Machines PAGE 22 A6. 47 56 66 CHAPTER I INTRODUCTION RetailinggInstitutions and Mrs. Consumer An important lesson to be learned from all historical studies of retailing institutions is that these institutions ‘"have been evolved and modified in response to changing environmental circumstances and that they have tended to decline and disappear when the conditions that favored their growth and development ceased to exist.“1 The retailing principles involved herein may be stated as follows: If an institution performs essential and productive services, it continues to exist as long as the con- ditions that favored its development remain in some degree . . . when the need for a new institution is apparent, it will be evolved.’2 The present status of the food distribution industry attests to the soundness of these principles. Few people today will dispute the fact that the ability and the willingness of the food distribution industry to adapt to changing environmental circumstances has been at least 1Paul L. Brown and William R. Davidson, Retailing Principles and Practices (New York: The Ronald Press,‘ 1953?} P. 977 21bid., p. 14. partially responsible for the continued growth of the industry. In short, food distributors have found what' Mrs. Consumer wants, and have given it to her. Changes_infiMrs. Consumer's Wants Over the years, Mrs. Consumer has asked for and received self-service, low prices, larger selections of, goods, ample parking facilities, et cetera. Recently, Mrs. Consumer has been asking for more convenience and she has been getting it in the form of frozen foods, prepared foods, et cetera. The trade Journals of the food industry report that Mrs. Consumer's desire for convenience mill soon bring about changes so drastic that the whole food industry will be affected. Supposedly, Mrs. Consumer will no longer be required to plan her shopping according to a fixed schedule; nor will she be required“to drive to a distant supermarket to shop; instead, "silent salesmen" will serve her at her conVenience. Table I lists a sampling of the multitude of news items heralding the coming of the silent salesman. Purpose of the Study In spite of the many pronouncements declaring that automatic selling is destined to revolutionize food re- tailing, supermarket operators have been conspicuously hesitant to install vending machines on a permanent basis. The vast majority of supermarket vending machine install- ations have been considered as mere experiments. In fact, TABLE I RECENT NEWS RELEASES From Food Field Reporter: FROZEN FOODS FIRMS GET SET FOR ERA OF VENDING MACHINES, BIG EXPANSION, July 23, 1956. NEW FOOD LINES MADE FOR VENDORS UNVEILED, December 10, 1956. From Food Topics: 35 IGA UNITS PLAN OUTDOORS VENDING SETUPS, January 7, 1957. OUTDOORS VENDOR PLANS SPEEDED UP, February 18, I957. VENDING MACHINES PRESCRIBED BY IGA TO SOLVE PROBLEMS OF SMALLER STORES, March A, 1957. From Supermarket News: A & P INSTALLS MULTIPLE-UNIT OUTSIDE VENDING MACHINES, December 3, 1956. SEVERAL CHAINS EYE OUTDOOR VENDING DEVICES, January 7, 1957. OUTSIDE VENDORS AT COAST UNIT, February ll, 1957. RED & WHITE PLANS TO RECOMMEND VENDING OPERATIONS TO ITS MEMBERS, February 18, 1957. VARIéVEND SETS OUTSIDE VENDORS, March 8, 1957. COLONIAL TESTS INSTALLATION OF OUTDOORS VENDERS . IN N. C., March 11, 1957. GRAND UNION SETS OUTSIDE ‘FOOD-MAT', March 11, 1957. EBERHARD'S SETS OUTSIDE VENDOR TEST, April 8, 1957. OWN VENDING MACHINES DEVELOPED BY GRAND UNION, FRONT N. J. STORE, June 10, 1957. TABLE I (continued) From Supermarket News: 4 OUTDOOR VEND MACHINES FEATURE SID'S REMODELING June 17, 1957. OUTDOOR VENDERS INSTALLED BY KROGER, July 8, 1957. OUTDOOR VENDORS DRAW AT KELLEY'S, July 15, 1957. SAY GRAND UNION 25-VENDING-MACHINE UNIT WILL OFFER 1,AOO-2,1000 ITEMS OUTSIDE STORE, July 29, 1957. VENDING MACHINES SUCCESSFUL AT KROGER'S BRANCH, JUly 29) 1957- SIX APARTMENT BUILDINGS GET VENDING UNITS, August 5, 1957 HEAR GRAND UNION PLANS 2D VENDOR, July 14, 1958. From Vend: A NEW WAY TO MARKET EGGS, October, 1957. MORE MILK VENDORS FOR 1958, October, 1957. MILK MARKET TRENDS BOOST VENDING POTENTIAL, December, 1957. OUTDOOR VENDING-~IT‘S STILL UP FOR GRABS, December, 195’7. during recent months, the number of vending machines operated by food retailers'has actually declined. The purpose of this thesis is threefold: 1. To bring together in a condensed and readable fOrm the currently available information on the subject of grocery vending. 2. To make a modest addition to this limited body of knowledge. 3. To present this infOrmation in a form which will provide some insight into the future of the '"silent salesman" in retail food distribution. The Need for the Study The uncertainty and confusion which have character- ized recent experiments in grocery vending clearly demon- strate the need for a factual study of grocery vending. To the knowledge of the author, no such Study is presently available. chpe and Limitations of the Study The study will focus on the unique nature of vending aSEAfacility of distribution, the vending industry and its potentials, the results of grocery vending experiments, and recent developments in the field which appear to be of sig- nificance for the future. Within the above framework, the study is further limited because of one of vendings' greatest problems: lack of accurate statistical data. Vending machine operators typically do not keep accurate sales and operating figures.~ Those who do keep accurate figures are somewhat inclined to overdo this. 'They keep the figures to themselves. In spite of this very real limitation, the author believes that this thesis will achieve the purpose stated above. Research Methodology The background material has been drawn from secondary sources such as the trade Journals of the food industry and of the vending industry, articles on the subject appearing in periodical magazines, and the reports of Marshall3 and Schreiberu on the vending industry. The primary sources of information include vending machine manufacturers, distributors, and operators.; The ‘ author met a number of these men personally and corresponded with others. Definition of Tamas The terms "automatic merchandising,"'"vendingy". "vending machine, silent salesman,‘ and "vender" will appear frequently in the text. .For purposes of this thesis these terms are defined as follows: WV 3Martin V. Marshall, Automatic Merchandising (Boston: Harvard University Press, 1954).III " I I ”G. R. Schreiber, Automatic Selling_(New York: John Wiley and Sons, Inc., 195UXT ' . . Automatic merchandising. '"Sale of merchandise or service through machines which become operative after the 5 . ~ insertion of a coin or coins." Vending. Synonymous for automatic merchandising. Vending machine. A coin operated mechanism which dispenses a good or a service. Silent salesman. Synonymous for vending machine. Vender (sometimes spelled Vendor). Synonymous for vending machine; also used sometimes in reference to the person who distributes his goods through vending machines. 51954 Directory of Automatic Merchandising (Chicago: National Automatic Merchandising Association, 1953), p. 6. A CHAPTER II THE NATURE OF VENDING Why Vending Almost everywhere,one is confronted by_vending machines. Whether it be public transportation terminals,~ theater lobbies, military post exchanges, gasoline stations, supermarkets, or even post offices, Silent salesmen are always nearby. One might logically ask‘"why?" Pioneers of automatic selling envisioned vending‘ as a supplementary or complimentary method of retailing. They saw the machine succeeding where the volume was insufficient to warrant personal selling. . . . There was the additional concept that aUtomatic selling could make products available at a profit where those products were an unprofitable, but necessary, item for a retail outlet to handle.1 Until very recently, vending machines have been used almost exclusively as a supplementary sales tool in convenience goods field. ‘ For all practical purposes, automatic selling untiI 1950 was confined to candy, gum, nuts, soft drinks, and cigarettes. These products were the backbone of the average vending machine company and they repre- Sented 9O per2cent of the automatic sellings' total, sales volume. lSchreiber, op. cit., p. 32. 2Ibid., pp. 12-13. Recent developments, however, indicate that silent salesmen are being used to reach new markets, to recapture existing markets, and to increase efficiency in serving other markets. Among those seeking new markets extra number of supermarket operators who have placed vending machines outside their markets in an attempt.to serve the late night and the holiday Shoppers while the markets themselves remain closed. _ Many local dairies having gradually lost volume to the supermarkets have entered the vending business in an attempt to regain some of their sales volume. Among the attractions which the use of vending machines offer to dairies are: a greater degree of market control, smaller losses on returns, more cash sales, less dependence upon retailers. Constantly increasing selling costs have led many. retailers to experiment with vending machines for the sale of nuisance items. Notable examples are The Penn Fruit Company and ACF Wrigley Stores. These firms sell all single packages of cigarettes through vending machines located strategically within the stores. History of Vending v. )‘First known venders. Vending machines are far from new. A coin operated device to sell Holy Water to the. worshippers in the Greek temples was built in 219 B. C. by 10 the Greek inventor, Hero Cstebus. Hero's vending apparatus was a simple but ingenious mechanism consisting of a tube, a lever which opened a crude valve and a cap which closed the opening. A horizontal lever at the top of the tube controlled the dispensing action. A coin inserted in an opening at the top of the machine fell on the control lever. The weight of the coin pushed the lever down, opened the cap and released a quantity of water. Once the coin fell off the lever into a money box, the lever returned to its original position and the valve closed.3 Hero's dispenser was apparently one of a kind, however, for there are no other known references to vending devices until the days of the tobacco venders in the early nineteenth century. European venders. In 1822, Richard Carlile, an English publisher and bookstore proprietor, with moral standards apparently quite different from those of Hero Cstebus, produced a vending machine to sell censored books. Carlile's theory was that the prosecuting authorities would thus be unable to legally identify the seller of the censored literature. Carlile was prosecuted successfully, however, and his vender disappeared.“ Early British vending machines were not limited to the vending of censored books. At about the same time as 31bid., p. 2. A The story of Carlile's book vender is described in Martin V. Marshall‘s Automatic Merchandising (Boston: Harvard University Press, 1954), p. 6} ll Carlile‘s book vending experiment, tobacco vending machines appeared in inns and public houses throughout England. These early tobacco venders, in spite of their crudeness, were extremely durable and some models were still in use fifty years later. During the nineteenth century, vending machines spread across Europe. In 1883 Percival Everitt, another English- man designed a coin operated postal card vending machine which proved popular with the English public. Everitt eventually designed a variety of vending machines including a penny ticket scale which was later adapted for use as a tobacco vender. Thomas Adams Later converted this machine to a gum vender to sell his "Tutti-Frutti" gum on the plat- forms of New York City's elevated railroad. A beverage vender dispensing beer, wine, and other liquors was put into operation in Paris in 1890, and in Berlin Shortly thereafter. Book vending machines developed by Philip Reclam, a Brussels book publisher, were installed in German railroad stations beginning in 1895. Coin oper- ated restaurants were opened in Germany during the same year. 7 Venders come to the Unitedetates. As mentioned previously, Thomas Adams introduced vending machines to the United States in 1888. By 1910, over fifty American com- panies were engaged in vending--most were vending bulk gum balls and candy. Dollar sales of these early venders were negligible but the influence of the machines was widespread. l2 AS early as 1925, the Rural New Yorker commented: '"We have become a nation of gum chewers largely because the Slot machines have made it easy to obtain gum. ."5 The modern era of vending. Both Marshall and Schreiber attribute the so-called "modern era" of vending to the invention of the first cigarette vending machine in 1925.6 The success of the early cigarette venders clearly demonstrated that machines could be used to sell items of more than a penny value. These venders also showed their potential for serving the convenience goods‘ market when they succeeded in selling cigarettes at fifteen cents a ‘package while conventional retailers sold the Same brands of cigarettes for eleven and twelve cents. Three factors were responsible for the rapid develop-‘ ment of cigarette vending: 1. The acceptance and recognition by a large portion of the public of the service rendered by cigarette machines; 2. .The great increase'in cigarette consumption during the 1920's and later; and 3. The technological improvements in machines.7 fifi 5"An Apple Vending Machine--Nickel in the Slot," Rural New Yorker, May 30,1925, cited in Dana G. Dalrymple, Automatic FruIt Vending (Ithaca, New York: Cornell Univer- sity‘P—ess, 1955), p. 6 6Marshall, op. cit., p. 5: and Schreiber, op. cit., p. - . 7Marshall, op. cit., p. 8. 13 Candy bar vending and soft drink vending grew rapidly beginning in the 1930‘s. The first Coca-Cola machine ap- peared in 1937. Although vending grew quite rapidly in the pre-war years, the National Automatic Merchandising Associ- ation (NAMA) feels that the vending industry first fully realized its potentials during World War II when defense plants demonstrated a desperate need for refreshment facili— ties and a flexible method of feeding employees'in the plants.8 By 1946 vending machine sales in the United States had reached the half billion dollar level. This growing industry attracted national attention. In 1948 the Associated Merchandise Corporation (AMC) undertook a study of vending and' its possible applications in member stores.9 As a result of the AMC study, the J. L. Hudson Company of Detroit, and William Filene's Sons Company of Boston, experimented with vending machines as a means of selling department store type goods. The Hudson experiment was conducted during the period December 1-29, 1949; Filene's experiment lasted from May 1950 to February 1952. I At Hudson's the venders were installed inside the store in direct competition with personal selling facilities. 81954 Directory 9£_Automatic Merchandising, op. cit., p. 10.'II I ' ' 9Marshall, op. cit., pp. 154-157. 1A The Short life of the experiment gives ample evidence of its failure. Yet, because of the manner in which the ex- periment was conducted, the results are generally regarded as inconclusive.lo The Filene experiment, which was much more elaborate than the Hudson experiment, was an attempt to sell depart- ment store type goods in public transportation terminals, through vending machines. Although this experiment was also a financial failure, the data provided by the test has been a significant contribution to vending knowledge.ll Since the end of the Filene experiment with depart- ment store type goods, vending machine operators have con- centrated on the sale of convenience goods. This topic will be covered in detail in succeeding chapters. Economic Aspects of Vending Availability. The widespread success of self-service merchandising has clearly demonstrated that making a product more readily available is one of the secrets of increased sales. In vending, availability has a dual meaning. Availability refers to concepts of both place and time. 10 See Marshall, op. cit., Chapter 9, pp. 153-173, for an analysis and critical appraisal of this equipment. ll Ibid., Chapters 10 and 11, pp. 174-211. i5 Because vending machines usually do a better selling Job in the absence of competition from personal selling,12 and because most personal selling is confined to day and evening hours only while vending machines operate around the clock, vending machines can make goods available at regular retail establishments after the stores close, as well as at locations which cannot support "personal" selling.l3 Personnel. Although automatic selling eliminates many of the personnel problems of "personal" selling, the personnel problems confronting vending machine operators are every bit as challenging as those facing conventional retailers. vending machines, like all other machines, require constant attention and frequent service. The seemingly routine Job of servicing a vending machine is in reality a four-step process as follows: A l. replenish the stock in'the machine, 2 empty the coin box and refill the change chutes, 3. clean the machine, and 4 make minor adjustments. l21bid., p. 165. 13Under these conditions vending machines serve what often amounts to a "captive" market. 16 Because minor adjustments must be made almost every- time that a vender is restocked, Semi-skilled personnel must be employed to perform this (otherwise) routine Job.lbr Mechanical failures which cannot be corrected by '"minor adjustments" call for the services of a Skilled technician.15 Thus, only semi-skilled and skilled workers are employed by vending machine operators.16 The workers who have been "replaced" by vending machines are the un- skilled workers. % Capital requirements. The capital requirements of vending machine operators are high. Unlike most other retailers whose principal investment is in the form of mer- i a 17 . 1. ‘ chandise inventory, independent vending machine operators are obliged to invest heavily in equipment. '"While the l u 3 1 . 1 In the words of one operator, " venders aren‘t too complicated mechanically, but, at the same time, it takes some ability to open up the front of a vender and immediately figure out why the machine doesn't work right. ." Quoted in Marshall, op. cit., p. 46. 15Although precise figures are not available, oper- ators generally estimate that "the expense of an emergency service call exceeds the expense of a regular service call by three or four times," ibid., p. 45. l6Supermarket operators who have experimented with vending machines have typically used store clerks to service their machines. These experiments will be discussed in detail in Chapter IV. . ~ 17Brown and Davidson, op. cit., p. 54. 17 operator incurs large outlays for merchandise, . . . his largest investment is in automatic machines." Vending machines_capab1e of vending grocery products cost over $1500.00 apiece. In October 1957 Vari-Vend' venders were offered to food chains in the midwestern part of the United States at the following prices:19 Standard non-refrigerated 1,545.00 . Refrigerated 35-40 degrees 1,695.00 Frozen $1,795.00 FOB Chicago The immediate impact of such a large investment in fixed assets is an apparent lack of flexibility by the vending machine operator. The mere Size of the investment required and the rapid obsolescense of the machines combine to make the capital requirements for the equipment a per~ petual problem of the vending machine operator. As early as 1956, the United States Department of Commerce reported that "the capital requirements for new equipment have become too heavy to handle from retained earnings.“20 18Summary of Infonnation on Automatic Merchandising, BSB-151 (Wasfiington, D.TCI: Business and Defense SéEViEes Administration, U. S. Department of Commerce, 1956), p. 3. 19Personal letter from E. Lee Feller, Jobbers Service, Inc., Goldwater, Michigan, October, 1957. 0 Summary of Information on Automatic Merchandising, op. cit., p. 3. ~— m 18 Apparently, the time is not too far distant when the sale of stock to the public will replace retained earnings as the principal source of growth capital.21 The cost of selling through machines. A large segment of the American public today believes that increased mech- anization is a sure route to lower costs. Unfortunately, in the case of vending machines, this idea is not always completely accurate. . The "cost of selling through [vending] machineS" can _probably best be determined-by studying the (a) margins, (b) expenses, and (c) profits of vending machine operators?2 The data on vending machine operator's costs and profits presented below have been drawn from the 1957 Operating Ratio Report of the National Automatic Merchan- dising Association. The report waS'"prepared from figures submitted by a representative group of 163 operators with a combined sales volume of $75,000,000.“23 21At the present time only two vending companies‘ stocks are listed on the New York Stock Exchange--the firms are ABC Vending Corporation and Automatic Canteen Company of America. 22To the knowledge of this writer no reliable infor- mation is available on the operating results of grocery venders. The analysis_in this section must be regarded as merely a rough guide to vending in general. 3" A .II . Industry News, Vend, Vol. 12 (July, 1958), 78. l9 Unfortunately,the complete Operating Patio Report is not available to this writer. Therefore the data have several limitations as follows: 1. The claimed representativeness of the sample cannot be verified. 2. The mathematical procedures employed to arrive at the "average” figures are not revealed. Despite these limitations, the report is believed by this writer to be the only reliable source for this type of data. (a) Margins. AccOrding to the above mentioned Operating Ratio Report, merchandise sold through vending machines during 1957 cost operators $58.13 for each $100 24 Gross margin on sales, therefore, was 41.87 of sales. per cent. The Harvard Business School reports that during 1956, the fifty-five food chains participating in the Harvard study operated on a gross margin of 19.53 per cent.25 Thus, allowing for the lack of comparability of the figures, one can see that vending machine operators tend to operate on a margin approximately twice that of the food chains. The cause of this high margin will be analyzed on the following pages. 24Ibid., p. 78. 25Wilbur B. England, Operating Results of Food Chains in 1956, Bulletin No. 151 (CamEridge:T'HarvarE—University Graduate S hool of Business Administration, September, 1957), p. 7. This is a percentage computed from the combined figures of fifty-five chains. ' 20 (b) Expenses. Operating expenses of vending machine 26 operators during 1957 totaled 39.46 per cent. The individ- ual expense percentages are not available to this writer. However, the most significant items of expense are: Maintenance costs of vending machines Service salaries and commissions Vending equipment depreciation Location commissions Automobile and truck expense Taxes, in addition to Federal Income and State Sales Insurance2 ' “\lmmtme-J (c) Profits. The NAMA Operating Ratio Report listed operating profit as 2.41 per cent of sales.28 Other income ~and charges of .92 per cent brought the total profit, before income taxes, to 3.33 per cent.29 Before tax profit amounted to 10.6 per cent on total assets and 20.19 per cent on net worth.30 For comparison the Harvard report on food chains listed before tax profits of 2.88 per cent of sales and 29.34 per cent of net worth.3-l Generally speaking, the profits of vending machine operators appear to be fairly comparable to those of the 26"Industry News," Op. Cit-: 78- 27§Eflfl§£l.2£ Information 9Q Automatic Merchandising, Op. cit., p. 3. 28"Industry News," Op? Cit-: p. 78' 29Ibidq i 3OIbid. .31 England, op. cit., p. 7. 21 food chains. If this is so, then the profits of vending machine operators would not be considered as exorbitant. However, in order to achieve the moderate profits reported by the National Automatic MerchandiS1ng Association, vending machine operators were obliged to employ a gross margin on sales double that of the food chains. Since the gross margin of vending machines operators is approximately double that of the food chains, and the profits of both businesses are comparable, these facts seem to indicate that the cost of selling through machines is relatively high. The figures quoted above are reproduced in Table II in order to facilitate this comparison. The supplementary nature of_vending. Although vending 'machines now dispense over two billion dollars worth of consumer goods per year, and vending machine sales of goods are increasing rapidly,—the silent salesman does not yet appear ready to replace the retail sales clerk.32 At the present time, "automatic merchandising is designed to supplement personal selling--not to replace it{"33 Vending machines are used to sell when and where 321957 sales were estimated at $2,052,000,000 by the National Automatic Merchandising Association. See, "Vend, 1958 Annual Market Data and Directoryj'op. cit., p. 28. 33 1958 Directory of Automatic Merchandising, op. cit., 22 TABLE II COMPARISON OF AVERAGE OPERATING RESULTSlOF VENDING MACHINE OPERATORS AND FOOD CHAINS Li J i j w v j v Wfi Y fii vv fl Vending Machine ' Operators Food Chains Gross Margins 41.87% ' ‘ 19.53% Operating Expenses 39.46% 17.85% Profit on Sales 2.41% 2.88% Profit on Net worth 20.19% '29.34% \ 1The figures presented here are not exactly c0mparable. Those for venders are for the year 1957. Those for the food chains are for 1956. The figures presented are-the latest reliable figures which are available. Sources of data: Vending Machine Operators:'"l957 Operating Ratio Report of the National Automatic Merchan- dising Association," reported in ”Industry News," Vend, July, 1958, p. 78; and Fodd Chains: Wilbur B. England, Operating Results of Food Chains in 1956, Bulletin No. 151 (CamEridge: HarvaTE University GFEduate School of Business Administration, September, 1957), p. 7. 23 there is not sufficient volume to warrant the employment of a salesperson. Silent salesmen could therefore be called "auxiliary salesmen" who serve a market that could not be profitably served otherwise. Since the middle 1930's when the vending industry began its rapid expansion, even_the most optimistic pro- ponents of automatic merchandising have agreed that vending machines will not replace personal selling for many years to come--if at all. In spite of the tremendous progress in vending that has recently been made, including the development of a paper money changer, this writer has uncovered no evidence with which to challenge the idea that vending is a supplementary type of selling. The Potentials of Vending If, as previously stated, vending is merely a supple- ment to personal selling, what are the potentials of vending? Vending machines appear to possess great potential as a means of capturing‘"pluSV sales (i.e., sales that would not otherwise be made) by making merchandise available at times and places which cannot support personal selling. To the supermarket operator, vending machines poten:/ tially can: 1. Make marginal floor Space productive. 2. Product sales from areas outside the stOre. Store fronts, parking lots, or remote locations are possible in outside areas. 3. Serve customers around the clock. 4. Improve store operations and eliminate costly services by taking over the selling of nuisance items.3u 34This Section adapted from Herman Rodalph,."What'S Ahead for Automatic Selling?," Women's Wear Daily, June 28, 1950, reprinted in J. H. Westing'TedT), Readin S in Eggketing (New York: _Prentice-Hall, Inc.,‘ _5. 99. 3 CHAPTER III THE VENDING INDUSTRY AS POTENTIAL SUPERMARKET COMPETITION In Chapter II of this thesis, the potentials of vending were enumerated. Since 1956 a number of leading fOJG chains have sought to capture--or at least to measure-- these potentials. The food chains, however, are not the only ones who are working in this area. The vending industry--including the manufacturers, the operators, and the suppliers-eis studying the retail food business carefully. In fact, as early as 1954, the editor of YEB§.(the magazine of the vending industry) spelled out in detail the ways in which, vending can serve the‘"take-home" market.1 In the light of the expressed interest of the vending industry in retail food distribution,2 food retailers would —v wY—Wfi’vfi lSchreiber, op. cit., Chapter 13, pp. 137-155. 2For a glimpse of the opinions and ideas of the vending industry on this subject, the Eeaderais referred to: Schreiber, op. cit., Chapters 13 and 1 ; l9 Directo of Agtomatic Merc andising, op, cit., assim; end 1 5 Adfifial Market Data and Directory,"FVend, Vol. I2 (March 15, 1958), 25-56; Bertrand R. Canfield, I'Will Retail Robots Revolu- tionize Marketing?," Advertising and Selling, V01. 40 (August, 1947), 33-34+; :WOutdOOrFVending41Tt's Still Up for Grabs," Vend, Vol. 11 (December, 1957), 68; "What be well advised to familiarize themselves with at least the basic characteristics of the vending industry. The Vending Industry Present status. The dollar volume of sales through vending machines reached a new high of $2,052,000,000 in 1957.3 This new record is some eight per cent above the 1956 figure of $1,900,000,000. Total vending machine sales today run at a rate some three and one-half times the 1956 rate. In 1946, tOtal sales of Venders totaled some $600,000,000 compared with today's two billion dollars plus.u Annual vending machine» sales for the post World War II years are presented in Figure 1. AS usual, cigarettes accounted for the largest single share of total vending sales. Cigarette sales through fifi T Dairies Think of Outdoor Vending," Vend, Vol. 12 (January, 1958), 78 '81; ‘"Chicago Area Firms Ready New Vendors," _ Supermarket News, June 16, 1958, p. 24; "Hundreds of Vendors to be InstalledFin Outdoor Locations Throughout U.S.," Food To ics, Vol. 11 (November 5, 1956), 2; ”New Food Lines Made for Vendors unveiled," Food Field Reporter, December 10, 1956, p. 1; "Six Apartment Buildings Get Vending Units," Supermarket News, August 5, 1957, p. 19; "Collection of Milk vending FeaturE‘Articles," reprinted from The Milk Dealer (Milwaukee, Wisconsin: The Olsen Printing—56mpany, 1957), passim; '"Frozen Foods Firms Get Set for Era of Vending Machines-~Big Expansion," Food Field Reporter, July 23, 1956, p. 32. J 22 3"Vend 1958 Annual Market Data and Directory," op.cit., p. 28.. “Ibid. F- l 1946. R]! .4 Figure 1. Annual Dollar Sales Volume of Vending Machines in the United States-~1956-1957 (in millions of dollars) Source: "Vend 1958 Annual Market 2400 Data and Directory," Veng, Vo1. 12 (March 15, 1958), 27. 2200 - 2000 1800 ‘ /’ l 600 ,. ”my“: 1400 * ///' 1200‘ lOOO 800 4. 400 4 A w 4)- + A». 1947 1948 1949 1950 1952 1953 1954 1955 1956 1957 1951 28 venders totaled $761,881,000 in 1957,5 approximately thirty- seven per cent of total vending machine sales, and 14.2 per cent of total domestic cigarettesales.6 A breakdown of 1957 vending sales into eleven major segments is presented in Figure 2. This figure Shows the relative importance of the various segments of the industry in 1957. The figure given for milk sales does not include sales of outside milk venders because accurate data on this phase of vending is not available.7 In 1956 the National Automatic Merchandising Associ- ation estimated outside milk vender sales at $9,000,000 8 annually. Composition of the industgy. The vending industry today is made up of three classes of businesses: manu- Ifacturers, operators, and suppliers. MagufacturerS-—Most manufacturers of vending machines fall into one of two classes: (1) those who manufacture exclusively, and (2) those who manufacture and operate machines. 5Ibid., p. 29. 6Ibid., p. 27. 7Ibid. 81957 Directory of‘Automatic Merchandising (Chicago: National AUtBfiétiEfiMerERandising ASSOCiation, 1956), passim. . . 29 Figure 2. Analysis of 1957 Sales Volume of Vending Machines in the United States Packaged Confections $244,000,000 Bulk Confections $ 57,000,000 Cigarettes $761,881,000 Cigars . $ 6,405,000 Soft Drinks (cups) $101,557,000 Soft Drinks (bottled) $258,005,000 Coffee _ $ 94,745,000 Ice Cream $ 22,756,000 Milk $ 50,000,000 Hot canned foods | $ 14,580,000 A11 other mdse. and services $438,000,000 \ Dollar volume of packaged confections includes nickel candy ($135,000,000) and dime candy ( 70,000,000); cookies($24,000,000)and nickel packs of gum $15,000,000). Does not include sales of gum thru nickel chewing gum venders nor sales of cookies and crackers thru machines designed to sell only these products. These sales are under All Others. Source: Vend, 1958 Directory, p. 29. The first class of manufacturerS--those who manu— facture exclusively--is by far the largest in numbers. Generally speaking, these manufacturers are small companies. Manufacturers sell their machines for cash or on installment credit. Occasionally, the larger manufacturers lease their machines to operatdrs. I Operatqu-- Vending machine operators, the backbone Of automatic merchandising, are with few exceptions, small businessmen. Until very recently, "the average company operating vending machines was a one-man [or at most a one and one-half man] proposition."9 While there is no such thing as a "typical" operating company, many companies possess Similar characteriStics regarding Size and nature of operations. For example: 41 per cent of the companies employ one to three people; . ~ 56 per cent of the coTBany vend four or more products. The vending machine operator arranges with location owners for the placement of machines, services the machines on a regular schedule, provides emergency service, and pays fifi w 7+ 9"Vend 1958 Annual Market Data and Directory," 22; cit., p. 41. The so-called avarage operator referred to HEFe is the independent vending machine operator. In‘addi- tion to the independent operator, there are two other (less significant) classes of operators: Operating subsidiaries of vending machine manufacturers, and vending departments or subsidiaries of firms whose principal business is out- side the field of automatic merchandising. lOIbid., pp. 43-44; see pp. 41-49 for additional data on operating companies. ' 31 the location owner a rental fee which iS.quite often a flat percentage of dollar sales. Servicing of~venders is the principal function of the operating company. Servicing includes cleaning and restocking the venders; making minor adjustments; removing the receipts and replenishing the‘change supply. Because so many details, so many possible areas of contention are involVed in the-agreement between the oper- ating company and the location owner, the National Automatic Merchandising Association strongly recommends that these agreements be written with the assistance of legal counsel}1 A copy of a typical contract used by operating com- panies is illustrated in the Appendix. Suppliers-~The third type of business in the vending industry can be classified under the general heading of -Suppliers. Actually, two types Of suppliers serve the vending industry: (1) suppliers of the consumer goods which the machines dispense, and (2) suppliers of parts and equipment such as coin changers, slug rejectors, et_ cetera. The trade association. Since the success of both manufacturers and suppliers is of necessity highly dependent upon the success of the operating companies to whom they fiv v fiwfi 11A number of articles treating this to ic appear in vend from time to time. For example see"ContractS are Good Business," vend, Vol. 12 (May, 1958), 54-55+. sell their products, a high degree of cooperation exists among the various members of the vending industry. AS early as 1935, vending machine manufacturers, operators, and suppliers realized the interdependence of their businesses. In that year when allegedly discrimin- atory taxes threatened to drive the vending industry from the American scene, the industry banded together to form the National Automatic Merchandising Association (NAMA).1£ In November 1957 the membership rolls of the NAMA included some 1400 operating companies and more than 175 manufacturers and suppliers. 13 The initial purpose of the NAMA was unified opposition to the state and local taxes which placed heavy burdens on the industry. Essentially, the NAMA sought (and largely won) relief from so-called "per machine" taxes which assessed the owners and/or operators of vending machines a flat fee for each machine under the jurisdiction of the taxing authority. In the twenty-three years Since the 14 founding of the NAMA, the tide has turned in the tax battle. I - , . - l2Brief historical Sketches of the NAMA are published annually in the Directory 2£_Automatic Merchandising. 131958 Direchry gf Agtomatic Merchandising, 92, city, p.f173."' ' See Chapter VI of this thesis for a more detailed study of the tax Situation. 33 "Educational" work in the legislative field is still one of the major functions of the NAMA. However, the activities and objectives of the NAMA have been immensely widened during the past twenty-two years. A partial listing of the twenty-five standing committees maintained by the NAMA provides a key to its operations. Among the standing committees are the following: Court of Inquiry, Government Liasion, Labor Relations, Legislative, Management Education, Operator Accounting, Operator Insurance, Public Health, Public Relations, Personnel Employment and Training, NAMA Group Insurance Trust.15 The NAMA states its objectives as follows: 1. To serve the public by promoting the highest possible standards within the automatic merchandising industry in matters of merchandise, equipment, service, and business ethics, and by promoting the distribution of products through automatic merchandising wherever practicable and whenever in the public interest. 2. To serve its members by bringing about a better understanding and a greater acceptance of automatic merchandising on the part of the public (thus redUcing the incidence of unfair legislation), by providing nec- essary leadership in legislative and other industry matters, and by developing ways and meani6for furthering the progress of automatic merchandising. Over the years, NAMA has worked hard on public re1a4_ tiOns which it considers to be one of the principal problems ........ 15A complete listing of the standing committees and short notes on the activities of a number of these commit- tees appears in the 1958 Directory 9: Automatic Merchan- dising, op.'cita, pp. 174ff. r ' 16Ibid., p. 173. 34’ facing the industry. In this area, the association stresses two points: 1. The code of ethics which the Association adopted in 1945 and which all members are pledged to uphold.‘ (A copy of the code appears in the Appendix of this thesis.) 2. Vending machine operators regard themselves as retailers. Membership in the NAMA is restricted to those engaged in merchandise and service-vending; the manufacture or operation of machines for amusement or gaming excludes a company from membership in the Association. The trade journal. Vend magazine is the official l7 organ of the vending industry. Subtitled "the magazine of automatic merchandising” E328 publishes the latest indus- try news once a month. Each March a special market data and directory edition is published featuring an annual census of the industry. The Form of Potential Competition In the preceding section, the organization of the vending industry was explained. Although a fairly young industry, the vending industry appears to be quite well organized and capable of at least commencing the vast expansion program which its members envisage. ww w a 17Vend, published monthly, semi-monthly in March, by the Billanrd Publishing Company, Cincinnati, Ohio. 35 Execution of this expansion program will bring the vending industry into direct competition with food retailers. By placing silent salesmen capableof vending milk, bread, I butter, coffee, et cetera, in apartment house lobbies, along the roadside, near gaSOline stations, and in factories,.the vending industry will provide a convenient shopping place for "fill in" food items. Each of these possibilities will be discussed in turn. Apartment houses. Apartment house vending began in' August 1949 when the City Milk Vending Company of Maspeth, New York, installed a milk vender in a New York City apart- ment house.18 The Dairy Lane Company introduced milk venders to Milwaukee apartment house dwellers in 1954.19 In 1957 venders dispensing eggs, butter, cheese, soft drinks, jello, and potato salad, in addition to milk were installed in six large Chicago apartment houses.20 The City Milk Company with its long experience in apartment house vending is probably best able to assess this type of operation. After a long study of its operations, the City Milk Company concluded that: 18Schreiber, op. cit., p. 148. 19"Collection of Milk Vending Feature Articles," op. cit., p. 1. -11 20"Six Apartment Buildings Get Vending Units," Supermarket News, August 5, 1957, p. 19. 36 1. Its machines do best in large, vertical apartment buildings (eighty or more apartments) where the child popu— lation is high. 2. New installatiOnS encounter a considerable amount of consumer resistance. 3. The biggest hurdle is to convince the potential customers that the product is fresh and properly refri- gerated. \ 4. Generally it takes a full year for a machine to reach its peak sales potential.21 Despite the long experience of the City Milk Company, apartment house vending must still be regarded as experi- mental in nature. Some tentative conclusions can be drawn, but more time and experience are needed before these con- clusions can be finalized. Mr. G. R. Schreiber appears to have aptly summarized the potential of apartment house vending as follows: ‘"The number of apartment dwellings sufficiently large to warrant such installations is small, but the number of families 0 O ‘ O C O . O which might be served 18 impre381ve."2t Roadside venders. Roadside venders of one sort of \‘ another have been used in this country for well over twenty 7+ V j W Y WE 21Schreiber, op. cit., pp. 148-150. 22 Ibid., p. 150. 1”? 37 years. Perhaps the roadside milk vender is the most common of these machines today. However, roadside ice venders preceded the milk vending machine by many years. An esti- '_mated 2,000 ice venders were in use as early as 1941.23 Each of the thousands of venders which dot the nation's highways today is a potential automatic store. Regardless of the product vended, the design of most roadside venders varies only Slightly.2u The vending industry hopes to capitalize on this versatility by gradually broadening the product line at each installation. AS an example of how roadside vending statiOns can be developed, one such station on Route 13 in Bristol, Pennsylvania, reached a sales volume of $1,000 a week within 25 a year from the date of its opening. 23Ibid., p. 139. 2“Schreiber describes a typical outdoor vending station as "a self-contained unit, actually a small building, weather-proof and as nearly vandal-proof as a structure can be made. . . . The interior of the vending station contains a refrigeration system and a conveyor belt mechanism. AS many belts are built into the machine as are required for the kind of products the machine sells. The products to be sold are stored on the conveyor belts and these motor driven belts are adjusted to deliver a Single package. Delivery is made down a long chute thus preventing vandals from reaching inside for a free package. The coin mechanism is usually mounted outside the cabinet and is weather-proofed. Each conveyor belt has its separate coin mechanism and control. . "The stations are usually shipped fully assembled from the factory and installation is simple. A concrete platform must be provided and electricity run to the mechanismt" Schreiber, op. cit., pp. 139-140. 25"He Keeps on Adding Vending Machines with an Eye to Completely Automatic Stores, " Supermarket News, September 16, 1957, p 35 ' 38 Admittedly, the above example is in no way typical of the vending industry today. H0wever, roadside vending installations, such as this which dispense milk, bread, eggs, cold cuts, et cetera, are prominent in the vending industry's expansion plans. Gasoline stations. Gasoline stations are a favorite Theation for milk venders today because of their heavy traffic and the presence of change making facilities during most of the day. Because of these inherent advantages, gasoline stations appear to possess tremendous potential for growth in vending. Factories. A new model of the old time industrial store is a fourth potential“competitor of the more orthodox food retailers. Silent salesmen vending, bread, butter, milk, et cetera, and located at the exits of factories may soon seek the patronage of industrial workers. Many factories already have huge batteries of venders in their cafeterias selling food for on the premises con- sumption. Conceivably, these same factories could also be equipped with venders dispensing food for at home con- sumption. At the present time the vending industry is not generally regarded as a competitor of the retail food industry. However, the vending industry is growing rapidly and the end does not appear in sight. 39 Should the vending industr win a larger Share of total retail sales, some other retailers must inevitably lose part of their present share of the market. Apparently, the vending industry feels that food retailers are among the most vulnerable! CHAPTER IV THE.SUPERMARKET'S EXPERIENCE IN VENDING Brief Hispory of the Sgpermarket's Eéperience Although soft drink venders long ago won acceptance by supermarket operators and thege venders are now commonly 'classified among the traditional features of a supermarket, outdoor vending installations at supermarkets are still a novelty. _wn_ . To the knowledge of this writer the first outdoor vender employed by a supermarket was the milk vender in- stalled in the parking lot of a Jewel Tea Company super- market in Northlake, Illinois in 1954.1 In 1956 The Kroger Co. became the second chain to experiment with vending ' machines (in the'"take-home" market) when Kroger had a milk vender installed outside one of its stores in Sterling, Illinois.2 Grandenion breaks the ice. In spite of these pio- neering efforts by Jewel and Kroger, the first real fi firfi fiv’v 1This experiment and several later such experiments by leading food chains are discussed in "Food Chains Look at Outdoor Milk Vending," Vend, Vol. 12 (July, 1958), 94ff. 2Ibid. , p. 94. w 41 break-through in grocery vending was achieved by the Grand Union Company. On October 24, 1956, Grand Union initiated full-line outdoor vending with the installation of a bank of eight vending machines outside the front of the chain's newly rebuilt headquarters store at East Patterson, New Jersey. On the first Sunday of Grand Union's vending operation, the venders sold out on most items. Some 480 quarts of milk and 180 loaves of bread were dispensed. The machines grossed $700 that day.3 More firms climb on the vendingpandwagon. The sales and profit potentials of outdoor vending machines fired the imagination of supermarket operators from coast to coast. Approximately one month after Grand Union introduced its venders, The Great Atlantic and Pacific Tea Company (A&P) followed suit with the installation of a battery of five vendors outside one of its stores in Levittown, New York. Other firms quickly climbed aboard the vending bandwagon. Within the next ten months at least nine other firms fol- lowed the Grand Union--A&P vending leadership. Among those who hays installed venders are: 3Promotional literature from Vari-Vend 00., Chicago, Illinois, 1957. 42 - Installation Firm Name Address Date The Grand Union Company E- Patterson, N.J. Oct., 1956 The Great Atlantic and . Pacific Tea Company Levittown, N. Y. Nov., 1956 Freeman Markets San Leandro, Calif. Dec., 1956 Nelson's Richmond, Calif. (Dec., 1956 Food King Supermarket Portland, Oregon Jan., 1957 Colonial Stores Durham, N. C. March,l957 Eberhard Supermarkets Grand Rapids, Mich. April,l957 National Tea Company Chicago, Illinois April,l957 Kelley's Bakersfield, Calif. June, 1957 Sid's Super-Duper Market Yakema, Washington July, 1957 The Kroger Company Detroit, Michigan July; 1957 During this initial boom period, two large voluntary chains, the International Grocers' Alliance (IGA) and Red and White StOres gaVe further impetus to the vending boom when they announced that vending machines were being incor- porated into their long range growth and deVelopment pro- grams.“ Mpsp firms abandon vending experiments. In January 1957, the A&P abruptly halted its vending experiment-~1ess than two months after the venders were installed and only three months after Grand Union first introduCed grocery venders. The A&P thus ended its vending experiment before most other such experiments were even begun. Time proved that when the A&P removed its venders it set a precedent almost as strong as the precedent which Grand Union set when it introduced the venders. With the r Vfifi vwv—vv V VVV 4"Red and White Plans to Recommend Vending Operations to Its Members," Supermarket News, February 18,1957, p. 29; "35 IGA Units Plan Outdoor vending Setups," Food Top_cs, January 7, 1957. p 13 43 exception of the Grand Union installation, the other major installations of vending machines by supermarket operators have been removed after a short trial period. Today some twenty-one months after Grand Union's first introduced grocery venders, Grand Union is once again the only large food chain pioneering this revolutionary concept ‘ in food distribution. Analysis of the_Supermarket's Experience Limitations of the study. In the research for this thesis the writer has been forced to rely on a combination of primary and secondary sources of information. (While exclusive use of primary sources would enhance the accuracy and reliability of the data, limitations of time and money prevented such an approach. The accuracy of the data gathered from secondary sources has been tested by comparing it with the data gathered from other sources--both primary and secondary. In some cases, notably in the area of operating results, conflicting reports were discovered. Because of this difficulty in obtaining accUrate information, this analysis of the supermarket's experience in outdoor grocery vending is subject to two Serious limi- tations: I 1. Scope--The analysis is limited to a study of the vending operations of six major food chains only. 44 2. Detai1--Many desirable and/or interesting details have been omitted because the information either was not available to the writer at all, or that information which was available was of doubtful accuracy. . The writer believes that the over-all picture pre- sented in this section is reasonably accurate. He further believes that the results of further research in this area would not justify the cost of such research. Characteristics 0f the installatiOns. All supermarket operated vending machines were situated either adjoining or adjacent to a supermarket. In all cases the machines were made easily accessible to bypassers. Favorite locations were outside store walls or the store parking lot. The supermarkets which tested the machines were mostly ”solo” stores. Only the Kroger and the Grand Union test markets were located in Shopping centers. These two stores were in locations with twenty-four hour exposure. The size of the vending installations varied from two machines (Eberhard's) to eleven (Grand Union). All other firms used five or six machine installations. The number of items offered for sale varied according to the number of machines. All machines, however, did not offer the same number of items. For example: Both the Colonial and the Kroger installations used six machines. Yet, Kroger offered its customers fifty—five items while Colonial offered thirty-two. All of the test installations were equipped with change making machines which would make change for twenty— five and fifty cent coins. For the convenienceNOf the reader, the "vital statis— tics" of the Six supermarket vending machine installations are presented in Table III. Method of operation. The actual ownership of the. machines was of no apparent consequence in the experiments, since in every case, store employees serviced the machines. Conventional vending machine operating companies were not used by any of the food chains. All machines were serviced at least once daily. . Prices of the items sold through the venders were either identical to or comparable to the prices charged in the stores themselves. The products stocked in the venders were principally those of the convenience type such as bread, milk, et cetera. A list of the most common items which the venders dispensed appears in Table IV. Qperating results. Eight months after it pioneered grocery vending, the Grand Union Company replaced its original eight machines with eleven machines of its_own design. This change permitted an increase in the number M6 .Cm>maw op aofiuMHHMumcfi nouns mnpcos unwfio ommcmco poQESG mane Q .mmoLSOm mSOpr> Eosm sonata on» an UoHHmEoom .mHanHm>m go: mpdwfim* ( fl oLOpm . . on mHQmLsQEOQ ow m mm\a-sm\ma . ummtpm .w.z .czOppH>mu msa popcoo _ macaw mm beam mm m .sm\nauwm\s wcamaosm .coflzruaoguom homosm . umogum macaw mm memm * m sm\HH-sm\q swam .HHH mommOHno Hmcofipmz _ powwow .:OH2 mpoum mm meow mm. m sm\mnsm\n zmsm .moflmmm onwaw opmgpmnm muons mm memm mm o mm\a-sm\m pmmtpm ..o.z .smgtso Hwfiqoaoo thpm Lopcmo .h .2 on mHQwLmQEoo am pm unwm\oH wcfimaocm .QOmsouumm.m :oHQD ocmuu hofiaom mofipm ooocmb mpoosm> . Mono cofiumooq .cofiumooq :fimno mEouH no no maze opOpm ponEdz ponesz mmoneaqqaemzH mszoaz oszzm> emmmazmmmpm me mo mOHemHeaem u¢BH> HHH mamas TABLE IV sows GPOCEPY ITEMS WHICH ARE STOCKED IN VENDlNd MACHINESl Apples, pre-packed Bacon Baked beans Biscuits, prepared Bread Butter Cake Cheese, sliced, cottage and spreads Coffee, vacuum and instant Cigars Cigarettes' Corn, canned Cream Eggs Prankfurts Gum Handkerchiefs Juice, canned, tomato Juice, fresh, orange Luncheon meats Margarine Milk, canned and fresh Pancake batter Peas, canned Salad dressing Salmon Sanitary Napkins Sausages Soft drinks Soup, canned Spaghetti, canned Sugar Tea bags Toilet tissue Tuna 1Compiled by the writer from various sources. A8 of items vended from fifty-four to 160.5 Today, thirteen months later, these machines are still in operation. Industry sources report that Grand Union will install a battery of venders at a second location sometime in the fall of 1958.6 The Grand Union Company itself, has maintained official silence on the subject, however. The company's only comment on vending is: '"We feel a test of this kind takes more time than six months or a year. It takes time and experience. . . . We're learning a lot. ." With the single exception of Grand Union, all chains have now abandoned their vending experiments. To the knowl- edge of this writer no further vending tests are contem- plated by the chains at this time or in the foreseeable future. Apparently, the food chains look upon their vending experiments as failures. When Colonial Stores ended their vending teSt the company announced that ”mechanical failures resulted in the .n8 decision to end the experiment. '. 5"Own Vending Machines Developed by Grand Union,ll Front N. J. Store," Supermarket News, June 10, 1957, p. 1+. 6See'"Hear Grand Union Plans 2nd Vendor,‘ Supermarket News, July 14, 1958, p. 1+; and ”Food Chains Look'atIOutdoor Milk Vending," loc. cit. 7Ibid., p. 36. ! 8"Colonial Unit Ends Vendors,n Supermarket News, May 25, 1958, p. 38. 49 Mr. L. V. Eberhard told the writer that mechanical failures were the principal reason for his firm‘s discon- tinuance of venders.9 Both the National Tea Company and The Kroger Co. were dissatisfied with the sales performance of their venders. Kroger also had considerable mechanical difficul- ties.lO When the A&P discontinued its venders a mere seven weeks after their installation, the company's only comment was that'Vending didn't fit in with our operations at this time.“11 However, the Vari-Vend Company, the manufacturer of the A&P's venders admitted that the A&P had been plagued by mechanical failures and this fact may have influenced the company‘s decision to remove the venders.12 In general, the supermarkets experience with vending machines has not been satisfactory. Mechanical failures of the venders and low sales volume have been cited as the two principal causes of this dissatisfaction. Although actual sales figures have not been released by the supermarkets, Jobbers Service, Inc., the Vari-Vend yfi—v v v 9Personal interview with L. V. Eberhard, Eberhard's Foods, Grand Rapids, Michigan, November 14, 1957. 10"Food Chains Look at Outdoor Milk Vending," op. cit., p. 96. - ll"Vari-Vend Explains A&P Dropping It,“ Supermarket News, February M, 1957, p. 26. ' '6 l2Ibid. 50 distributors for the eastern U'nitedStates13 supplied this writer with the following yardstick: Vari-Vend machines which vend twelve items each, cost between $1,500 and $1,800 each. These machines should gross about $30 per machine per day to earn a~ (before taxes) return on capital of about thirty-five per cenEE-based on an estimated twenty per cent gross margin. To the knowledge of this writer, none of the installations came close to producing the above figures. CommentaryfionfithevSupermarket‘s_Experiments Scientists (notably physical scientists) and others who appreciate the difficulties involved in identifying cause and effect relationships have long used the technique of controlled experimentation to enable them to isolate and measure the variable elements in a giVen'situation. These people appreciate the degree to which the results of research are dependent upon the technique employed. This appreciation of research techniques is not 'wniversal, however. The writer believes that the vending experiments conducted by the food chains previously‘dis- cussed (with the exception of Grand Union) indicate a marked disregard for careful research. If the research has been shoddy as alleged, then the results of the experiment are doubtful at best. l3Vari-Vend machines were used by A&P, Eberhard, Grand Union, Kroger, and National Tea. 1AE. Lee Feller, Jobbers Service, Inc., Goldwater, Michigan, personal letter, October, 1957. The purpose of this section is to try to show that 15 while the experiments which the food chains conducted were not satisfactory, this does not necessarily mean that the fault lies with the machines. The fault may well lie with the experiments. Most likely it lies with them both. Length of experiments. Not one of the experiments lasted a full year. The A&P test lasted a mere seven weeks and most of the others lasted less than six months. The duration of the tests seems questionable in view of the experience of the City Milk Company which found that its apartment house venders required a full year on location before sales reached their peak.16 If apartment house venders which are seen almost daily by potential customers require a year on location before peak sales are reached, it seems logical that at least a year on location would be required to attract cus- tomers to grocery venders which they encounter rather l7 infrequently. e~ Vender location. The general manager of one of the leading vending machine distributors reported to this __ a Y V V ‘ 15The Grand Union Experiment is not included in the following discussion except where it is specifically iden- tified. 16See Chapter III, Section'"Apartment Houses,‘I of this thesis. - 17The problem of consumer acceptance is covered in Chapter V of this thesis. 52 writer that he would "recommend that installations be made only at stores that close at 6:00 P.M., rather than 9:00 P.M;" He would "also prefer locations near factories that have night shifts.“18 Site selection methods as crude as these, after almost a year's experience in the field, indicate that there is still much to be desired in site selection tech-' niques.19 Since proper site selection has long been regarded as absolutely vital to the success of vending machines, more refined methods of site selection seem necessary. Merchandise selection. In discussingthe success of his company, Elmer Hinkle, president of the Automatic Canteen Company of America (one of the country's largest vending machine operators) said: ‘"The big secret in this business is to know what not to vend."20 In effect, Mr. Hinkle was saying that of the millions of products on the market, relatively few can be vended suc- cessfully. The problem is to eliminate those that cannot succeed.21 V—fi a ww 18Feller, op. cit. 19At least one firm, The Kroger Co., erred by placing its venders outside a store that remained open until 9:00 P.M. 20"The Click of Coins--Louder:'n NQWSWESE: VOl' 50 (August 5, 1957): 77‘ 21Product limitations of vending machines are dis- cussed in Chapter VI of this thesis. 53 When attempting to separate the vendable products from the non-vendable products, one must consider such qualities as brands and sizes as well as the type of product involved. To the knowledge of this writer, product changes were made frequently in most installations but few changes were made in brands and sizes. Machine servicing. Three of the five companies which abandoned their vending machines specifically mentioned mechanical failures as a principal reason for abandoning the machines. Yet, in all five cases the daily servicing of the machines was entrusted to store clerks, the vast majority of whom are completely ignorant of the complex workings of a vending machine. Regardless of any possible defects in the machines themselves, the possibility exists that the number of mechanical failures could have been 22 1 _ . °reduced considerably through the use of trained servicemen. 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