Are you looking to capitalize on the burgeoning retail sector that has been on an upward trend since 2012 and posted growth even during the turbulent pandemic times? Then we have a unique proposition for you – a business that requires no specialized skills, low start-up costs, and minimal maintenance efforts and time resources thereafter. We are talking about a smart vending machine business that you can start just about NOW, even as a side hustle, and see your profits bloom as the retail sector in India is poised to reach USD 1.5 trillion by 2030, according to NASSCOM Retail 4.0 India Story. But before you jump into buying a vending machine and start planning the logistics and inventory management, here we present to you the main challenges in this business that you need to be mindful of along with the current opportunities in the sector that you can best leverage if you venture into this industry right now.
Some Pivotal (but addressable) Challenges in the Vending Business
Whether you are planning to start as a full-fledged vending machine operator (VMO) on your own or planning to lease a machine and get franchise rights, there are a few pointers that you need to keep in mind before taking your first steps in this uniquely profitable and independent business. Some actionable insights inferred from these customer pain points can prove crucial in determining the success of your enterprise:-
- Out of Stock Items
Perhaps the most irksome factor that drives away customers is walking up to the vending machines during a quick break, only to find that the item they wanted to buy is currently “out of stock”.The customer frustration arising out of one particular day affects not only that day’s business but also makes him/her reluctant for future purchases. And since most vending machines operate in a closed space, word-of-mouth publicity is pivotal in driving the sales which may also affect the business from other customers.
Currently, the vending machine operators go for only periodic refills of stocked items.They have no access to real-time data of finished or unsold inventory, which may help them in planning the refills more efficiently. But a smart vending machine can work around this problem, both from the demand and supply side. With a cloud-connected software that tracks SKUs in real time, retailers can know how much stock of a particular item has been sold or remains and can, thus, guide the refill plans by stocking more units of items that are in high demand while reducing the quantities of frequently unsold items. The customer, on the other hand, benefits from knowing beforehand through the VMO’s app, which he/she can use to order items, if the desired item is available and can make the purchase (including payments) online and then just go to collect the assured item from the vending machine.
- Difficulties with Physical Currency Acceptance
Most of us may have experienced problems with a vending machine continuously rejecting a crumpled currency note or not detecting the correct face value of coins. The most plausible solution for the customer to deal with this scenario in cash-only vending machines is to try inserting a fresh set of notes or coins, with the customer’s frustration increasing with each attempt. This augurs bad not only for sales but also for brand perception of the VMO among customers. To top this, some cash-based vending machines require the customer to provide the exact amount to buy a particular item because of the myriad of problems associated with giving back change to the customer after a purchase.
Moreover, from the VMOs perspective, government mandated exercises like the demonetization drive in India in 2016, which changed the Rs 500 and Rs 1000 currency notes’ dimensions and design, rendered those vending machines which were dealing with such high-denomination currency notes for their stock, completely useless overnight. Every fresh issue of currency notes or minting of coins which causes a change in their physical dimensions (which is frequent) requires the recalibration of the vending machines to be able to accept both the old and new currency, adding to the logistic woes of the VMOs.
Fortunately enough, the increase in pace of digitization of the economy, especially when it comes to the payment systems, has brought enormous relief to VMOs. The advantages of deploying a smart vending machine capable of accepting digital payments are manifolds – ease of purchase for the customer with just a tap, reduction of manpower used to collect the cash from the vending machine and depositing it in the bank account, increased ease in filing and calculating GST by VMOs, etc. Due to these reasons, most VMOs now prefer to do away with cash-based vending machines completely and count on the digital savvy population to drive sales.
- Socio Economic Hurdles
For a country with continental size and even population like India, it seems obvious that there would be ample retail channels, including vending machines, to serve the population demands in highly packed locations. What then appears shocking is that a country of 1.35 billion people has only 5000 vending machines, an astonishing 6000 times less in proportion to the population of Japan- a country which is considered a benchmark in the vending industry. Even more surprising is the fact that most of these already disproportionate numbers of vending machines are located only at prime locations within urban conglomerations. The current retail paradigm thus excludes the demand mapping of products from the majority income strata within a particular region along with almost completely neglecting the massive sales that can be generated from the rural areas.
Consider the above numbers with two additional facts – first, according to the last available census figures, only 31% of India’s population lives in urban areas, and secondly, the population density in Indian rural areas, at times, far exceeds that of urban conglomerations found in many other developed countries and even many urban centres within India – and the scale of the unserved population segment in India suddenly becomes more pronounced.
While these numbers may appear rattling to others, vending machine operators can see this as an unprecedented opportunity to tap into the hitherto unserved and underserved rural and non-prime urban locations. Due to space and budgetary constraints, setting up a physical store is infeasible and e-commerce also has penetration issues in these areas. Here comes the white space that can be leveraged by a phygital approach – setting up a vending machine in these areas, which is slated to thrive owing to the rising consumerism and ensuing product demands from these segments.
- Out of Service Machines
How often have you spotted a vending machine with a plaque tied around it shouting “Out of Order”? Chances are that you have encountered such signages way too often and may have even been put off in some instances for not being able to purchase an eagerly needed product. Now thinking from the point of view of a vending machine operator, we know that occasional machine malfunctions are inevitable whether you’re buying new machines for your location or leasing an older one initially to gauge the business viability.
Although regular maintenance of the vending machines can reduce the instances of malfunctions, operating several vending machines in different locations makes timely servicing and repair of vending machines in line with a fixed schedule a herculean task. More so, because with traditional vending machines, it often takes an inordinate amount of time for the VMO to know that a machine has defaulted. But with smart vending machines, remote monitoring of all the operator’s machines on a common dashboard becomes a breeze. The software behind the machines is often programmed to take note of any abnormalities in the machine’s functioning and immediately notify the VMO of any impending or recurring problems with operations, along with a descriptive error message in order to prompt the operator to take appropriate and timely action.
- Theft and Vandalism
One major reason why entrepreneurs shy away from entering the vending machine business in India, despite the scope for lucrative gains, is the high risk of theft and vandalism associated with deploying a vending machine. The civic sense of the people play a great role in determining whether or not to install a vending machine at a particular location. Since these machines cost a substantial amount of money and are the major investment by a VMO in this business, the rampant threat of vandalism and theft, even during the restocking operations, casts a big question mark on the viability of the business.
As it is humanly impossible to be physically supervising the vending machines at all times, it is paramount that VMOs scout for those locations when installing a vending machine where the surveillance is already present by virtue of installed cameras CCTV or in sight of the patrolling staff often already employed at such locations. The crime history related to incidents of theft and vandalism also plays a pivotal role in deciding the location. An even better solution would be to use the advanced smart vending solutions that come packed with tools to immediately alert the operator of an attempted theft or vandalism incident. Such timely interventions can help in tracking down the culprit and can even prevent these incidents by taking preemptive actions.
- Fixed MRP
After having finally installed a vending machine at the most appropriate locations after due diligence, most VMOs are under the impression that all they now have to do is to restock the items periodically and see their profits swell. However, depending on the retail segment chosen by the operator, the journey to profitability may seem arduous. Take for instance, the nuanced industry of snacks and beverages for a vending machine business, which already accounts for the highest share in this industry. The profit margins are considerably low on most products as are the MRPs because “snacking” is associated with discretionary spending in the minds of customers. But these low profits can prove disincentivizing for an operator looking to break even by recovering the initial investments made in purchasing these expensive vending machines.
The way around this problem is to think outside the set parameters of MRP and introduce dynamic pricing. Most consumers, in their high paced lives, are willing to pay a premium for products in lieu of the convenience they get by purchasing through vending machines. Many physical store vendors present at metro stations charge above MRP for selling snacks and beverages at these locations which the customers happily pay for. The same can be replicated in the vending business model. Moreover, dynamic pricing also offers the freedom to offer discounts on unsold inventory that is near expiration which will still be more profitable than the logistical costs for disposing of the expired products.
- Obsolete Technology
It may seem incredulous but the kind of machines that we see today have been in operation since the 1880s in London, England. They were used to dispense postal stamps while the vending machines of today are capable of dispensing almost anything from a cigarette to a freshly baked pizza. However, in terms of technology, there has been no major upgrade in the last 150 years! That is, only until now. The IoT SaaS solution offered by Vendify is set to change the course of vending business forever!
The tech savvy population of today expects and embraces digitization in every business segment and the vending industry is no exception. Customer experience these days is shaped more by the seamless inclusion of app-based user experience more than anything else. Even for the operator, technology can work as a great enabler for scalability, efficiency, logistics optimization and consequently profitability. Thus, smart vending machines have the potential to unlock the benefits of a sector that has remained untapped in India.
Unfortunately, India has always lagged behind in adopting new age technology solutions. We missed the bus with the first and second industrial revolution and barely managed to catch up with the third industrial revolution, despite having a traditionally robust IT industry. But the fourth Industrial Revolution offers immense potential to transform the nation driven by a phygital approach. Riding on the back of this Industry 4.0 wave, Vendify has built a revolutionising IoT and AI- based SaaS model that is poised to disrupt the traditional vending machine business. Our cloud-managed logistics and inventory solution has the potential to increase operational efficiencies of vending enterprises by 30%. Our Enterprise Resource Planning (ERP) model comes bundled with hardware and software solutions that can fit into any existing traditional vending infrastructure and make it “smart”. Apart from remote monitoring of machines, the VMOs get to know real-time inventory status, suggestions for optimized refill plans and their routes and sales analytics based on user behaviour, thus automating the entire supply chain. The enhanced customer experience results from enabling digital payments, interactive touch interface, regional language support and AI-based product recommendations.
When such a disruptive solution is available to VMOs at nominal monthly subscription prices, there is no need for the operators to take tech development in their own hands, leaving them free to focus on their core business of offering a micro-retail channel to customers and innovate ways to increase customer acquisition and retention. When VMOs try to build this technology themselves, the cost of never-ending developments and updates can hinder their growth projections. Besides, the cost and expertise required to keep up with the ever-increasing pace of digitization can prove resource draining for even major corporations. By onboarding a technology partner like Vendify to relieve themselves from technical challenges, VMOs can remove the most prominent bottleneck inhibiting their expansion currently – technology upgradation. To know more about how Vendify can help you take advantage of the digital high tide and sail through to profitability in the retail sector, please contact our team at sales@vendify.in.