When it comes to the state of the vending machine industry, Joseph Hessling isn’t one to pull any punches. “It’s been on a pretty steady decline for the last ten to fifteen years,” he explains. “At one point, vending was a cash cow – in the boom years, there was a heavy investment in those machines, and they aren’t cheap. So they’d buy these machines and they’d put them everywhere, and when the economy was good and buildings were full, they had use for them. But as the recession set in, [operators] were stuck with these huge capital investments and no returns on the products they were selling.”
After painting such a bleak outlook, who would want to get involved in the vending machine industry? Innovators, that’s who. Those who want to turn that industry around and get it back on its feet through new ideas and fresh takes on the business model. As CEO of 365 Retail Markets, Joseph Hessling is one of those on the vanguard with a business model that’s been showing up at businesses across North America and making waves at trade shows like TechCrunch Disrupt Show and NAMA OneShow. Feeling less like a vending machine and more like a Fresh and Easy-style self-check-out market, it’s a model he refers to as the “micromarket,” and it’s already in businesses and one he hopes will breathe fresh life into a stagnant industry.
FOOD and DRINK DIGITAL: So how did you get into the vending business and how did you hit upon the micromarket idea?
Joseph Hessling: I’d been in the foodservice industry for many years through family history – my family has owned restaurants and hotels for a couple of generations. I started off in food distribution, and as time went by I had the opportunity to invest in a company that was doing something similar about five years ago. The idea didn’t take off – I don’t think the industry was ready for such a drastic change in the way that they tried to do it – but out of my investment came inheritance of this technology. The time was right when I had the technology to do it, and I just knew that there was an opportunity in the gap between vending and foodservice that could be filled by something like this. I’d seen it all my life as a missing service in workplace commerce, and it didn’t take long to figure out that all you had to do was pitch it to the right person. That’s half the battle with this stuff – you have to have somebody buying it. In foodservice and vending, that’s tough: you’ve gotta sell why your Snickers bar is better than the next guy’s Snickers bar. To sell this against vending is a no-brainer.
FDD: Tell us more about your 365 Retail Markets – how do they relate to the state of the vending machine industry?
JH: Generally, each [vending machine] has 45 SKUs. Once you add in doubling up on popular items, it really brings the variety down to about 30 different options split up between beverages, snacks, chocolate, and gums. It really limits your selection, and what happens is that operators tend to commoditize and pick the things they think they’d get the most money off of, rather than the things that would sell the most.
So what we’ve found is that when we said, “we’re not going to go by the vending product distributors’ plan-a-gram – we’re going to open that up with what people are used to buying in their everyday life when they shop,” we ended up coming up with a significantly higher amount of variety – up to 300 different SKUs.
The funniest part about it is that the things that never sold in vending now sell in these micromarket spaces. 30 percent of all micromarket sales are fresh foods, and I don’t know you from Adam but I guarantee you’ve never bought a salad from a vending machine in your life. Another 30 percent are beverages. The biggest lift is in alternative beverages, from energy beverages to Odwalla – a really drastic switch in what you’d normally see offered to more of a health and wellness-based mindset.
It’s drastically changed the way people’s behaviors are at work: at one time they were using the vending machine for snacks. Now they’re using the micromarket for meals. They’ll buy a fresh sandwich, they’ll buy a beverage, and they’ll buy an accompaniment, whether it’s chips or something like that – they’ve created a meal. It’s keeping people in house. The actual operators are happy because they’re making more money; the host companies are happier because they’re keeping their people happy and healthy, and also keeping them in the building and keeping them productive.
There’s a big push from human resources at host companies and facilities groups, pushing operators to provide health and wellness items. They really want that, but it’s never really taken off and there’s always been a big argument back and forth as to why. But it’s funny – with micromarkets, now that you’ve put these things out there to buy and you’re not limited by inventory or space issues, you find that energy bars, juices, fresh sandwiches, fresh salads, fresh fruits – all the things people normally wouldn’t buy out of vending or wouldn’t be available – are some of the largest lifts in sales. I think that’s really great because it solves the host companies, it helps them meet their goal which is a happier, healthier employee base, and it also helps the operator by opening up their product line. Instead of just being a Snickers bar reseller, now they’ve opened themselves up to being a wellness product provider. It has broadened the horizons of a once pretty stale industry.
FDD: Do you think a lot of the change in consumer choices has to do with the change of venue?
JH: Absolutely. I actually trademarked the phrase “possession is nine-tenths of the sale,” because it means so much to me that when people have the ability to pick up and examine the items that are there, it means that you as a customer make your own decision.
You’re never going to buy a salad from behind the glass. Even if it’s the same salad, it doesn’t matter – you’re not going to take that chance. It might look good, but you know what? Once it’s behind that glass, it’s just not the same. But once you pick it up, hold it in your own hands, and have the ability to examine it, about nine out of ten times you’re going to buy that product. So yeah, I think it lifts sales by using that human nature. But at the same time, it’s also giving the operator of those vending machines and now micromarkets the ability to stand out and stand by the products that they already sell that you would have never taken a chance to buy [before].
FDD: Do you see micromarkets as something that will lift the entire vending industry up?
JH: I think that either they’re going to do it or they’re going to be forced to do it. You’ve got some aggressive operators who go out and knock on other people’s doors and say: “I see you’re still using vending – would you like to migrate to this new format of commerce?” When they say that, the current provider has no choice but to investigate or get left behind. I think that that’s what you’re going to see.
At the same time, I think that the industry is going to be lifted by this form of micromarket. We can definitely tell our customers that if you walked into the same location that was using vending and put in a micromarket, you could expect an easy 25 percent lift in revenue and up to a 500 percent lift in profits, because you have the ability to sell products you can make more money off of, they’re not all the same name brand products over and over again, you can sell higher margin products – you have so many things that you can take advantage of with this technology that you never could before. Incentives, couponing, mobile-to-mobile offers and promotions: those things have never been available or taken advantage of by vending. I know they try to perpetrate that they have some sort of capabilities there, but it’s just a stale way of doing business. People don’t respond to it as well as they do to self-check out and kiosks.
FDD: What new technology do you have on the horizon?
JH: We just released our Gen 2 unit at the NAMA OneShow, which included facial recognition software, optical scanning, and thumbprint biometric scans for identifying yourself to the machine to make payments. We’re the only company in this space that has optical scanning, which will allow us to be able to send QR incentive codes directly to customers.
Imagine you’re at one of our stores, and up on our digital signage screen comes an advertisement for Coca-Cola [with] a QR code on it. You could use your smartphone to scan that QR code and it would take you to a global coupon, which could be read off of our optical scanner at our payment center. At that point it deducts the amount right off the product that you’re buying. Operators love it because they’re getting a lift in sales, customers love it because they’re getting a discount, and companies like Coca-Cola love it because they’re getting something that they’ve never had before: the ability to directly influence customers’ behavior within work. You just can’t do that with vending, it’s just not available. So these are ways that we’re working around to dramatically change the way business is done.
We’re very happy with where we are – we helped found this industry, and I think that you’re going to see a lot of this in the future. When you do, it’s a culmination of so many existing business models and existing technologies all put together in a space at work to make something cool. It’s just a lot of fun to do it. It’s a lot of fun to be in business right now.