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Vending for profit

17 February 2012

For FM managers looking to provide diverse and high quality services for customers within increasingly tight budgets, the gourmet vending machine might just have some answers. Scott Martin explains how self-serve coffee bars can deliver a profit irrespective of restrictions on budget and space.

Major technological developments in the vending industry mean most consumer demands can now be met, delivering valuable new revenue streams – whilst incurring minimal levels of stress, investment and maintenance. Food and drink continues to dominate the vending market and not surprisingly coffee is the number one attraction.

In March 2011, Whitbread, owners of Costa Coffee hit the headlines with its takeover of Coffee Nation, the UK’s leading provider of quality, self-serve coffee bars who were credited with revolutionising the vending industry. Whitbread has wasted no time in rolling out its rebranded Costa Express machines, with latest published results revealing 579 new units installed to 1st December 2011 and strong demand for the new machines from facilities management and contract catering customers in a variety of industry sectors.

The broader vending market

Self-serve vending is not a new concept, but today high-tech, gourmet offerings are a far cry from the bulky, unattractive machines of yesteryear which served thin, watery drinks at questionable temperatures. Modern, sophisticated vending machines mean consumers can access the kind of beverages they would expect on the high street, on the go and in places and times of the day you might not expect a quality drink to be available.

In the case of coffee, the demand is clearly there. Allegra Strategies, a research specialist in the coffee sector, states that despite the recent economic downturn, UK coffee shop sales grew 10 per cent last year to reach £2.1 billion, twice the level of 2005. In its latest research, it also identifies key influences in the wider market that will strike a chord in vending. These include the simultaneous surges in popularity of “artisanal” coffee (skilfully crafted drinks by highly trained baristas) and quality coffee drinking at home such as coffee pod systems, both of which mean consumers are less likely to settle for poor quality out-of-home, regardless of location.

Sustainability is another influential factor for consumers, who are becoming increasing aware of brands’ ethical credentials. Allegra Strategies indicates that sustainability appears to be more important to the under 24s and 24-35 age groups than others.

Costs of high street coffee and coffee from machines

Vending trends will always run in parallel to wider market trends, particularly high street coffee shop-style product ranges. By providing high street quality coffee available in a quick and convenient format, gourmet vending concepts respond to the demand for great coffee and challenge negative perceptions of the quality of vended coffee. Products available from vending machines mirror many of the most popular available in the high street.

Despite huge steps forward in innovation and technology, it can be challenging for vending machines to recreate the high street experience exactly. For example, the final flourish of hand-finished drinks such as latte foam art may never be possible. However, in terms of overcoming most challenges the only limit is our imagination.

Just like the high street, recognisable brands sell well in vending. As consumers approach a vending machine and recognise a high quality brand of coffee, they know they are going to receive a premium drink and are willing to pay more for it.

The popularity of gourmet vended drinks tends to reflect wider consumer tastes (we find a preference for latte, followed by cappuccino – the same as many high street coffee bars) and experimentation with flavoured coffees and hot chocolates is also similar with self-serve concepts: for example, around fifteen per cent of customers enjoy a flavour shot in their drink compared to around thirteen per cent on the high street.

For business customers, the average machine generates around £13,000 profit per sq m per year, which is greater than the average coffee shop, although this varies.

Prices of the drinks vary as well but, on average, drinks cost 20p less than the nearest high street equivalent. Typically, a regular cappuccino from a machine costs £1.95 for a consumer.

Replacing manned coffee bars with self-serve machines

These days, the quality of the coffee produced by self-serve machines can stand up to coffee bars manned by a trained barista. For example, Costa Express machines use fresh milk only (no powder) and real Costa Mocha Italia coffee beans, plus hi-tech touch screens, Chip & Pin and ‘pay at till’ options – but take up as little as 1m2 of space.

The machines also use sophisticated telemetry within the machines that provide real-time reporting on machine performance and drink sales. Each machine sends back information to the company’s helpdesk, 24 hours a day. The system monitors each machine, checking to see if it’s run out of ingredients, whether there are any faults, if it needs cleaning and so on. The helpdesk can then take corrective action if required - either by phoning the site or sending an in-house engineer. This system also monitors product sales and provides category management reports.

Installing such a machine means entering a partnership with Costa Express, which funds the installation of the machine and shares the revenue with the partner outlet – this varies depending on the volume of coffees sold. A typical unit might generate around £35,000 in shared revenue for a decent volume location and in some instances much more.

Considering the vending option

Gourmet self-serve vending is an excellent way for facilities managers to provide high-quality, in-demand hot drinks on a 24 hour basis with hardly any maintenance. One of the main advantages is that it provides a barista-quality coffee offer through a convenient self-serve format – perfect for locations where limits on space mean a manned coffee bar is impossible. The added benefit of cash and chip and pin payment options allows high street quality drinks to be available when other manned coffee bar options may be closed. These systems have been particularly popular with universities and hospitals.

We see huge potential for FM managers to take advantage of rising consumer expectations and the incremental revenue opportunity that unmanned coffee bars present. Furthermore, it is a chance to demonstrate customer care: we know there is increasing demand for decent, high-street quality coffee. Self-serve machines could be an easy revenue generator that address what customers really want.

For the FM market, this sounds like an open goal, but appealing to facilities managers has not proven so straightforward in the past. With more effort invested in cost cutting and improving efficiencies, the FM market has historically missed out on self-serve machines’ profit-making opportunities.

New ideas such as making money from coffee have been a low priority for the FM market. With the increasing sophistication and capability of gourmet vending concepts, these attitudes should shift, and facilities managers will come to recognise an opportunity to generate additional profit.

Scott Martin is managing director of Costa Express

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