The Vending Machine Industry Are Appraisal

It's enough to make a salesman shudder. Wherever you go, the persuasive smile of a clerk and the pleasant thank-you of a cashier are being replaced by the blank, chrome stare of vending machines.

Whether you miss the old, personal, human touch or not, it's pretty clear that not only is automatic merchandising here to stay, it also has a huge growth potential. This is not surprising in view of the business world's ever increasing interest in achieving maximum merchandising with minimum handling cost.

Leader in this field is Universal Match Corporation which made headlines with the introduction in 1960 at New York's Macy's department store of its currency-changing vending machine for merchandising soft goods. While the Macy's experiment was limited to two items—men's T-shirts and boxer shorts—at a single price of 97¢, the new currency changer had a capacity for thirty-six selections.

According to John L. Wilson, president of Universal Match Corporation, its paper currency acceptor and changers are capable of vending up to 634 different items and can accept and give correct change for all U.S. coins and |1 and $5 bills.

All the customer has to do is to choose an item, deposit $1, $5 or any combination, press a button and receive the item or any change. The company expects to have a machine soon that accepts $10, $20 and higher bills as well as machines for distribution in other countries.

Merchandising Breakthrough

The new automatic vending device removes the ceiling of 99¢ which formerly limited the use of automatic vending machines.

This new paper currency changer can be used in every merchandising situation which involves portable merchandise. It would reduce unit selling, administrative, handling and inventory costs. An added advantage of an automatic vending machine is the curtailment of pilferage both by customers and employees, a very significant retailing expense.

This substantial cost reduction would improve revenue carry-through in an industry noted for its low profit margins, thereby motivating the speedy adoption of the bill changer by a great host of retailing merchandisers.

Therefore, expert analysts have described the automatic venders as opening an entirely new era of merchandising to the automatic vending machine industry.

Still in Infancy

Still in its infancy, the automatic vending industry now accounts for only $2.4 billion or about 16 per cent of the whole merchandising volume estimated at $40 billion annually for the United States alone.

Even the less romantic segments of the vending machine business are fertile fields for growth. Total vended sales volume has grown from $30 million in 1925 to $2.4 billion in 1959. "Vending machine manufacturers and operators," said Mark C. Glad of Cohen, Simonson & Co., "are finally receiving acclaim by Wall Street investors as a growth industry after years of disregard. The big change in attitude is largely attributed to the innovation of coin and bill changers which have opened innumerable new localities of operation and markets in food and merchandise hitherto never fully realized as practical—much less possible."

During the past decade, sales of goods through vending machines increased by 156 per cent, or at a compound annual rate of nearly 10 per cent. By comparison personal consumption expenditures for nondurable goods rose by only 52 per cent, or at a compound annual rate of 4.3 per cent.

The growth in automatic merchandising has been largely due to the rising cost of labor, which has made machine merchandising the most economical form of distribution. Other contributory factors include growing public acceptance of the self-service principle, advances in packaging methods and the significant technological advances which have opened immense new markets for the industry.

One such market was opened, for instance, by Rudd-Melikian, Inc. which was called by Hugo Kappler of Boenning & Co. a "creative" company, with its Brew-A-Cup coffee machine being a "revolutionary" concept in the vending industry.

Especially promising is the growth of meals by machines, which have become the hottest item in the food service industry. The most advanced area at present is the factory. However, the idea of meals by machine is gaining in popularity among hospitals, offices, schools, etc. It may not be long before this trend makes extensive inroads into public restaurants.

The development of the hot platter machine, together with other food vending machines, is ushering in an era of automatic cafeteria.

A Growth Interlude

In recent months vending stocks as a group has toppled heavily in the market as shown by the following representative issues:

Price range Latest Price

(1961) 12 mos. earn. (11-29-61)

A.B.C. Vending                        273/4-l73/4      $1.01 (est.)      l9¼
Automatic Canteen                   455/8-271/4     1.00 (est.)        28½
Universal Match                       62   -27½         0.90                 29
Vendo                                      773/4,4-42       0.81                 453/4

The drastic decline is largely attributed to disappointing earnings resulting from keen competition and heavy costs of rapid expansion and research, development and start-up expenditures on new machines. This seems to be only an interlude in the growth of a still young dynamic industry with an almost built-in cost advantage over "conventional" retailing.

There is every indication that the growth in volume of vended merchandise in the years ahead will exceed that of the past. Industry experts predict that the total volume of vended merchandise will reach a minimum of $5 billion by 1965, which would mean a compound annual growth rate of 15 per cent during the next five years versus the 10 per cent experienced during the past decade.

A somewhat more moderate estimate puts vending sales at $6 billion by 1968, which would mean a compounded annual growth rate of 12 per cent starting 1962. Even continuation of the 10 per cent experienced during the past decade would seem to be more than adequate to assure prosperity for the leaders in the industry.

Moreover, the prospects for better operating economy are bright for the industry leaders which stand to benefit from the accelerating trend toward large-scale operation resulting from the increasing complexity of the industry and rising capital requirements.

Currently, the industry appears to be in a consolidation stage in preparation for a new major growth phase ahead.

As a whole, both manufacturers and operators of vending machines have plenty of room for growth. There are of course quite a few analysts who are already predicting the end of the so-called vending boom. However, well-situated vending issues should resume their popularity with investors, especially in this era of population explosion with a rising minimum wage level and with people hungry for every labor-saving device. The youngest form of mass retailing, automatic vending is hardly coming of age!

Actually the earlier run-up in prices of vending shares was due to speculative excesses at a time when no price seemed too high to pay for shares in this field. Investors have since then radically changed their attitudes except for a few issues including Automatic Retailers of America.

In the operating end of the vending industry, there has been a growing tendency for the larger companies to absorb the smaller ones. During an eighteen-month period, according to The Financial World, some 300 firms lost their corporate identity, with some 50% or more having been acquired by one of the eight largest companies in the field. Along with Interstate Vending, Automatic Retailers and Continental Vending Machine have been particularly aggressive in expansion via the merger route.

The vending business tends to improve with a rising economy as an increasing proportion of vended products go to industrial establishments. Especially promising in future growth is the feeding of factory and institutional personnel by means of automatic, full-course, hot meal equipment. "This in-plant feeding," said The Financial World, "is virtually untapped, for until recently no vending machine could provide food with the taste and appearance of meals served manually. But growing demand, spurred by steadily rising labor costs, has brought steady development of such equipment."

Vending equipment makers have been very aggressive in designing constantly improving machines to dispense various merchandise. Particularly promising are change-making devices, including paper money identifiers and changers, of which Universal Match is the leader.

Wide-open Field

The currency identification devices are far from a closed-door affair for Universal Match. After the Macy debut of Universal Match's device, Universal Controls disclosed that it had a joint patent research and mutual licensing agreement with Universal Match covering the device. Under that arrangement, Universal Controls, according to that company, had the exclusive right for the use of this advanced device for the issuance of parimutuel tickets at race tracks, in addition to the issuance of tickets for air, rail, bus and subway terminals, and generally for the issuance of any ticket or license.

Practically every major vending machine maker is seeking a share of this new market. The ABT division of Automatic Canteen, for instance, was said to have developed a successful bill changer. Vendo Company, another maker of automatic vending equipment, was also said to have been doing research in bill changers.

The latest entry was Lionel Corporation, a toy train maker, which unveiled in December 1960 a currency recognition device developed by its electronics subsidiary, Anton-Inco Division. In his meeting with the New York Security Analysts Society that month, Lionel president, Major General John B. Medaris, said, "One of our most exciting new developments is the unit we call the bill sensing machine—in other words, a unit that recognizes and identifies currency.

"By use of a color balance and pattern balance system, and without vacuum tubes and relays," continued Major General Medaris, "this transistorized solid state unit can identify, recognize and then accept or reject bills in the denominations $1, $2, $5, $10, $50 and $100. All this business of accepting takes less than one second."

According to the Lionel president, the company does not plan to sell an entire money changing unit, but only to market the bill sensing unit—which the purchaser would then install into whatever machine he wished.

Automatic Billing

Even greater progress is being made in automatizing retail billing. Retailers have a choice of electronic data systems that can handle just about every step in their clerical operations. Most are designed for use with computers and are geared for stores with annual sales of over $10 million.

Consider IBM's low-cost 1401 data processing system with optional IBM-Farrington optical scanning equipment (which automatically handles such assignments as payrolls, sales, billing, accounts receivable and payable, and inventory accounting). Another example is Universal Control's Uni-Tote, which is described as a completely automatic retail control system that eliminates handwritten sales slips. It records the sale, notes cash transactions, gives a warning when credit is blocked and removes the item from inventory records.

Breakthrough in Tape Conversion

Another significant advance in automation was scored in May 1960 by Digitronics which introduced a device for converting data from magnetic to teletype tape, cutting computer-to-teletype time by reportedly 90 per cent, thus making possible same-day automatic billing of the customers in each branch for banks and other institutions. Digitronics was originally organized to make high-speed perforated-tape readers.

Generally considered as a major breakthrough in the field of personal identification was the successful development of a signature identification device called Autho-Visor by Craig Systems, which is a well diversified company operating in three distinctive "growth" areas: (1) office automation, (2) pleasure boating and (3) military electronics.

Designed initially for banking institutions, Craig's Autho-Visor could be applied to retail stores, gasoline and other charge account plans or even to the transmission of confidential data for defense purposes. Autho-Visor is applicable whenever a quick identification of personal signature or other information is required, which should have broad applications in our era when a growing number of businesses are conducted on a credit basis requiring a fast system of identifying accounts and checking credits. A growing number of banks have shown interest in this device which permits tellers to identify signatures right at their windows, instead of going to the central file for checking one signature against another.

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