This blog will delve into the physical and digital assets that constitute a physical retail business and a vending machine chain
A comparative analysis of the operations and costs between the two business models will also be discussed
In today’s times when the lines between digital and physical are blurring and “phygital” has become a buzzword. Have you wondered what the retail sector would look like in its ultra modern “phygital” incarnation? If it seems too futuristic to you, let us also tell you that you have, in fact, already come across these phygital retail outlets at some point in time in your life – vending machines. Present across retail sectors, a smart vending machine combines the convenience and credibility of being able to see the product before purchase. With the digital offerings of online payments, interactive product catalogue and real-time inventory status.
But how do the Key Performance Indicators (KPIs) change when we move from a traditional physical retail outlet to a phygital smart vending machine? To answer this question, we will dissect the anatomy of a retail store and compare it with its counterparts in a smart vending machine in this blog. We will also delve into a comparative analysis of financial and resource expenditures in both cases and look for cost-savings opportunities.
Physical Assets
The real estate costs to open a retail store at prime locations are really high and face space constraints
Vending machine take very less place and can be deployed at multiple prime locations at a fraction of the cost
Perhaps the biggest advantage of transitioning from retail stores to vending machines is the cost savings from purchasing or leasing a real estate property. As the prices escalate exponentially with the increase in the “primness” of a location.
Physical stores end up spending the majority of their capital investment in choosing and purchasing a property. Although they generate higher footfall, the prime locations already have space constraints owing to many retailers vying for the limited land resource. This drives up the property costs, draining the financial capital available to retailers and restraining expansion to other locations.
Compare this with the technological novelty of vending machines. These cupboard-sized machines can be placed at any prime location without taking up much space. This translates to cheaper costs of deployment. While one may argue that a vending machine provides for lower product types and volumes to be stored. But the installation expenses for vending machines are so cheap. That the retailers can very easily profit from this “concern” by installing multiple machines at one location or installing machines at multiple prime locations, to get higher footfall and more revenues.
How to successfully set up a vending machine: overcoming the hurdles.
Deployment of Manpower
Retail stores need permanent personnel for helping the customers navigate the products, shelf management and billing purposes
With vending machines, these costs are obviated and even refilling can be outsourced
Due to the plethora of products available at a retail store, a number of salespersons are employed by the store owner to help the customers navigate through the aisles and get to their desired product. This dedicated manpower also helps in shelf space management to replace or refill the stock of products from the inventory. Furthermore, due to the high customer footfall, multiple personnel need to be employed for billing and bagging the customers’ purchase.
With a vending machine, this need for employing personnel on a payroll can be bypassed. The retail owner only needs manpower to refill the vending machine based on the real time inventory status. But even this task can be outsourced to specialized logistics companies for picking up the products. From the warehouse and refilling the machine. And with payment software already installed as part of the “smart” vending machine. The need for billing personnel is also obviated. This saves considerable time and financial resources needed for hiring and maintaining employees. On a payroll not only in terms of salary but also in terms of the social security benefits that are mandated by governments.
Capital Expenditures
Retail shops need to have a separate warehouse for inventory stock and management
Vending machines can bypass these costs by working with D2C companies that deliver their product to the vending machines directly
Apart from the expenditures already covered in this blog, one major expense is that of inventory management and storage. In order to make sufficient quantities of products available to the customers all the time. The retail owners need to buy stock of the products beforehand. Lease or buy a warehouse to store it and then undertake logistics costs to transfer those products to the retail store(s). Owning or renting another large piece of property is a major expense in itself and hiring personnel to manage it only adds to the cost.
Compare this with a vending machine operator’s situation. While one may argue that for storing and managing the inventory for different vending machines, a VMO would also need to maintain a warehouse but more and more VMOs are opting for the business model wherein VMOs agree to sell the products of direct to customer (D2C) companies and these companies refill the smart vending machines directly from their own warehouses based on the real-time inventory status they can get from the dashboard of the VMOs, thus saving all these costs for the VMOs who still earn profits based off commissions from the sales made out of their vending machines.
Sale Timings
Unlike retail stores, vending machines can operate 24X7, with no holidays
This leads to more sales for operators, and increased convenience for customers
Most retail stores operate for a maximum of 12 hours a day with a weekly off. While these timings are indeed very much needed for cleaning the stores. Restocking the products and giving the hired employees a weekly resting period. It can translate into missing out on potential sales during the days and timings when the store is closed. This can spell doom for the customers as well when they cannot purchase some product they might need on an urgent basis.
Smart vending machines operate with no such constraints. Powered by digital technologies, they can operate 24X7 with no weekly offs or holidays during the festive season. With a single commitment of periodic refilling of products, vending machines can operate without any need for manual oversight or even intervention. In addition to driving more sales, this also enhances the convenience and reliability factor for customers.
Software Costs
Retail stores need to deploy (often separate) software for inventory management, billing and payments.
Smart vending machines already come equipped with a unified software for these operations
While tracking KPIs, a very important expense that is often not accounted for is the (recurring) cost of deploying a software for managing the inventory. Making the bills and facilitating digital payments (through integration of Point of Sale machines which counts for another expense). And more often than not, these software are hired from different vendors and the integration is done manually or by hiring another vendor altogether. This increases the costs and may also lead to confusions for the software users because of different parameters and standards used by different vendors.
But a smart vending machine already comes packed with the software needed for all its operations. Including real time inventory management, graphical user interface for customer interaction, logistics status and support for digital payments. And these software are either developed by the same vendor or even in case of different vendors. The integrated software installed in the vending machine is already standardized. Not just for one machine but for all the machines operated by that vending business owner.
While vending machines cannot practically replace retail outlets. Simply because of the massive sales volumes and simultaneous footfall possible through a physical store. The phygital approach of vending machines can surely be seen as a complement to these outlets. Especially in locations where either space or connectivity is a constraint. An IoT SaaS solution, like the one provided by Vendify, can thus help the budding vending machine entrepreneurs in exploring this phygital approach by automating the entire supply chain through a unified software platform, with different access controls provided to the varied software users. Our apps come bundled with support for remote monitoring, digital payments, AI-based product recommendations, and cloud-based logistics and inventory management. Please feel free to get in touch with us to know in detail about our services at sales@vendify.in.