Investing in Automated Retail

It’s hard to believe I’m saying this in 2014, but we at Tech Investing Daily are bullish on vending machines.

Before you laugh me off your screen, hear me out.

You might think of vending machines as an ancient invention, and they are indeed. Essentially, they’re all just locked boxes with coin-operated mechanisms for accessing what’s inside. They have been around since the 17th century.

They’re still those beaten-up machine that sit in hotel and office hallways, that vend cigarettes in the backs of dive bars, or that serve snacks to hungry college students.

But they’ve made amazing leaps in functionality in the last decade.

The standard food-and-drink vending machine has taken on characteristics that more resemble a robotic servant than a simple locked box, with new technology and designs that improve sales, decrease waste, and save energy.

A lot of companies have brought vending machines to a new level. I prefer to call it automated retail.

Preventing Theft

Since 2008, consumer electronics retailer Best Buy (NYSE: BBY) has used digitally controlled vending machines as tiny showrooms for merchandise at airports and tourist-heavy locations.

Their tiny footprint can accommodate a whopping 100 feet of branding space, their touchscreen interfaces can run interactive product demos, and, best of all, they can be “open” 24 hours a day with no staff.

Best Buy’s machines are designed and created by San Francisco-based company ZoomSystems, which has created similar systems for Macy’s, Proactiv cosmetic products, Amazon.com, Nespresso, and TracFone.

Originally, ZoomSystems’ work focused on satellite retail — that is, creating systems that allow retailers to set up remote locations where there may not be storefront space available. Since Best Buy stores are generally just over 28,000 square feet in size on average, the company is limited in where it can set up shop.

With automated machines such as the ones created by ZoomSystems, however, Best Buy has access to customers in areas where a full-sized Best Buy can’t exist, such as in airports and existing shopping malls.

More recently, ZoomSystems has gotten into shrinkage control. It is selling smaller versions of its machines for use inside stores where high-value merchandise is susceptible to theft.

These machines are small enough to be incorporated into shelf space and include bright lighting and an interactive touchscreen interface to access the contents. They even have real-time inventory and pin-controlled access to further protect items against internal theft.

ZoomSystems refers to this as a “defensive merchandising” solution and is applying the design to one particular item that is most prone to theft: razor blade cartridges. It can also be applied to high-shrink products like over-the-counter medication, antacids, printer ink, video games, and so forth.

It’s currently test-marketing the machine in Albertsons stores in Southern California.

Connecting with Consumers

Coca-Cola (NYSE: KO) has teamed up with British Telecom Global Services (NYSE: BT) to turn soda vending machines into Wi-Fi hotspots in South Africa.

BT announced the pilot program will be taking place in two locations in South Africa that are close to shopping centers, public transit, and schools. Access to the Internet is free and doesn’t require any purchase from the machines.

“We believe that by giving them access to free WiFi we will enable students and school children in the area to increase their knowledge through research while also giving entrepreneurs and small business owners in the community the opportunity to manage some of their business aspects online,” David Visser, Chief Information Officer of Coca-Cola South Africa, said in a press statement.

It also gives Coca-Cola and BT a captive audience for advertisements, though neither company has disclosed whether advertisements will be served through the hotspot.

Even if advertisements aren’t part of it, BT and Coke will have privileged access to users’ behavioral data while they’re connected, which is extremely valuable on its own.

A “Marketing Engine”

Multinational food conglomerate Mondelez International (NASDAQ: MDLZ) has created a new vending machine it calls Diji-Touch, which utilizes a huge 46” touchscreen, on-board cameras, and wireless connectivity with customers’ smartphones to vastly improve its marketing.

While these machines offer multiple payment options (cash, credit, virtual wallet) and detailed information about the products inside the machine, the really interesting approach Mondelez has taken is in the machine’s use outside of sales.

With interactive full-screen games and activities, Mondelez gives its brands a new interactive marketing vehicle. Cadbury, for example, created a Kinect-style game using the onboard camera that allowed passersby to play a target-shooting game with the popular Cadbury crème egg.

While this might seem somewhat silly, marketing test beds showed these interactive ad-games caused a threefold sales increase for the products represented in the game.

The consumer data gathered by the machine is also noteworthy. Like the usual digital signage, the machines can grab demographic data, track all user interactions, and gauge the impression delivery, but they can also manage brand perception, results of promotions, advertising’s direct impact upon sales, and payment information.

The next step for these machines is pairing with the user’s smartphone to provide promotions/coupons and sampling data. This provides Mondelez with an avenue for customer loyalty rewards and even standalone gaming and promotion.

Though these companies take different approaches to their vending solutions, their goals are mostly the same: to increase efficiency in retail.

Good Investing,

Tim Conneally

 @TimConneally on Twitter

For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.