"The New Touch-Face of Vending Machines"

From The New York Times
By STEPHANIE ROSENBLOOM
Published: May 25, 2010

Vending machines in neon-splashed Tokyo have electronic eyes that evaluate customers’ skin and wrinkles to determine whether they are old enough to buy tobacco. In bathrooms at upscale Canadian bars, vending machines with flat irons enable women to defrizz their locks. In Abu Dhabi, the lobby of a luxury hotel has a vending machine that dispenses gold bars and coins at more than $1,000 an ounce.

A new breed of vending machine is proliferating around the world — and while the United States is coming late to the party, Dr Pepper and Baby Ruth are already feeling sidelined.

Flashy and futuristic, souped-up machines are popping up everywhere, be it the Mondrian hotel in Miami or at Macy’s in Minneapolis. They have touch screens instead of buttons, facades that glow and pulse, and technology intended to blunt vending machine rage — sensors that ensure that a customer’s credit card is not charged unless the chosen item has dropped. These machines are not for quarters: purchases are measured in dollar amounts that typically start at two figures and go up.

Changing consumer preferences about shopping and the high cost of operating brick-and-mortar stores are inspiring premium brands to rethink how they sell their wares. As Gower Smith, whose company, ZoomSystems, has created about 1,000 automated kiosks called ZoomShops, put it, “A ZoomShop costs less than an employee.”

And with examples overseas showing there is money to be made, the so-called automated retail store (the term vending machine is so Industrial Revolution) is venturing into fashion, beauty products, electronics and more.

A couple of months ago, the Body Shop cosmetics franchise began offering skin care products with ingredients like hemp and vitamin E in deluxe machines at airports; soon will come shopping centers.

In the fall and winter, a company called U*tique will begin selling high-end beauty products in machines that light up when customers approach — a better reception than shoppers see from most retail employees.

In the last few years, Best Buy, Sephora, Apple and Proactiv have put their products in vending machines. Quiksilver offers board shorts and bikinis in machines at Standard hotels.

Such machines also offer nascent brands that have no store outlet another way to bring their products to market. Customers can make returns by calling a phone number on the receipt.

In an age of iPads, high-speed Internet service, A.T.M.’s and self-service check-in at airports, consumers expect instant gratification. Not only are they accustomed to researching and buying products on their own by touching screens and pressing buttons; they often prefer it.

A study published in 2008 by NCR Corporation found that 86 percent of North American consumers were more likely to do business with companies offering some sort of self-service. Many respondents also said they had a more positive perception of a brand if it offered self-service technology. This appears to be especially true of young shoppers.

“You will hear in studies, ‘My mom shops at the beauty counter, and I want to shop for products on my own,’ ” said Mara Segal, chief executive of U*tique, which plans to install up to 20 automated machines this year before going full throttle in 2011. “They are actively avoiding the counter.”

The new machines are meant to provide a feeling of discovery and charm often lacking in traditional retailing. Indeed, the machines are not “stocked” — they are, as Ms. Segal put it, “curated.” Merchandise in U*tique machines is arranged and lighted like works of modern art in a series of dainty portals, evoking a neon honeycomb.

“We put a lot of attention and focus on all the things that are sexy about retail,” she said.

The machines — which bridge the gap between old-fashioned stores and online shopping — are not only being installed in airports and malls. They are materializing in supermarkets, military bases, college campuses, even chain stores.

The economics make it easy to see why. Mall stores produce about $330 a square foot a year, while a 28-square-foot ZoomShop can generate $3,000 to $10,000 a square foot a year, Mr. Smith said.

Or consider airports, where stores make about $1,000 a square foot and ZoomShops generate $10,000 to $40,000 a square foot, he said. ZoomSystems, based in San Francisco, charges the brands in its machines a fee that includes the cost of rent at an airport or mall. Landlords typically take a percentage of the sales too.

As Mr. Smith noted, the attraction goes beyond payroll and rental expenses. If an airline closes a terminal, or if customer traffic is slow in a particular mall corridor, the machine can be unplugged and moved.

Machines have fewer inventory problems and less theft than a traditional store. Additionally, the main way a brick-and-mortar store discovers what its customers want is when they check out. Automated machines, in contrast, learn about consumers’ shopping habits from the moment they begin using the machine because every click is tracked.

“We’re starting to see, more and more, weirder items and weirder machines,” said Christopher D. Salyers, the author of a new book, “Vending Machines: Coined Consumerism” (Mark Batty Publisher), that chronicles the rise of the machines, from the boom in the 1800s Tutti-Frutti gum era to today.

At the same time, the classic vending machine business — sales of soda and snacks — is troubled. Research by IBISWorld said the industry is in decline because of trends toward more healthful eating, increased cigarette regulation, declining industrial work forces and more competition from fast-food restaurants and convenience stores open late or 24 hours.

Revenues for vending operators are expected to be $11.3 billion this year, according to IBISWorld, up from $11.1 billion in 2009. Yet the industry is expected to grow only 1 percent a year through 2015, down from a 2 percent growth rate over the five years ending 2010.

The newfangled machines, which cost $3,000 to tens of thousands of dollars, are now a small part of the industry, generating less than a $1 billion in revenue, said Chris Rezendes of VDC Research.

And expanding the vending frontier has not been without setbacks. One of the first automated convenience stores in the United States began operating in 2002 and was controversial.

Known as Shop 2000, it offered sundries — eggs, diapers, condoms — in the Adams Morgan neighborhood of Washington. But as it turned out, one man’s convenience was another’s dehumanizing eyesore and the machine was shut down.

Other parts of the world are less hesitant. In Europe and Asia consumers buy underwear, umbrellas, toys, pizza and organic strawberries from machines.

Japan has one vending machine for about every 23 people, Mr. Salyers said. The country’s population density, low crime rate and fascination with technology have made it a vending paradise.

“They just line the streets,” Mr. Salyers said. “You can’t find a trash can there. But you can find a vending machine.”