Summer 2016
Automated Retail Primer

When Luke Saunders came up with the idea for Farmer’s Fridge, to provide a healthy alternative to vending machine junk food, it seemed like a relatively simple business concept: set up a machine, load it with yummy salads, and watch sales take off. But since starting his Chicago, IL-based company in 2013, the CEO and Founder of Farmer’s Fridge learned there’s much more to automated retail.

On the other hand, Linda Johansen-James, CEO of American Kiosk Management—specialty retailer of Proactiv skin care products—says she didn’t believe at first that AKM’s demonstrative skin care product line could ever be sold from a “vending machine”; that is, until Zoom Systems of San Francisco, CA, proved the possibilities.
Whether you are considering automated retail as an extension of your online or brick-and-mortar retail stores; or as your primary retail strategy, consider what both of these CEO’s now know: Automated retail is much more complex than you may think, but it also may be a good way to reach more customers in new ways.

“It’s a great way to bridge between physical and digital retail worlds,” says Alfonso Correale, Vice President of Sales and Marketing for Warehouse in a Box (WIB) of Palermo, Italy. But to make sure you’re getting the most out of automated retail, consider the following advice before rolling out your plans.

A suitable product

First you need to determine whether your product and/or brand is suited to automated retail. Correale says that, in his experience, “The most successful products are those that are premium priced and used as an extension of the customer experience,” whether they’re sold online or via brick-and-mortar. Successful automated retail installations include all types of products, from ready food to vitamins to high-tech to fashion items.

Johansen-James never even considered automated retail an option for the Proactiv brand until her company was approached ten years ago by Zoom Systems, which specializes in creating automated retail experiences. “We thought they were crazy,” she says, “but we decided to test eight machines.” She soon discovered that the machines were popular with the millennial generation. And the machines allowed the company to sell in areas where it didn’t make sense to have a staffed store or kiosk, such as airports, military bases, and store-in-stores.

7elevenSaunders points out that to make a successful business in automated retail, your products must have velocity; they have to move rather quickly to make it a sustainable, profitable business model. It’s also important when considering automated retail for your product, to map out the way you will scale to more locations. For example, Saunders’s company makes and distributes their fresh salads each day within a 50-mile radius in and around Chicago. The company continues to adjust its product and production, and further adjustments will be made if and when the company begins to offer its products in areas outside a short drive from the kitchen to the machines.

Packaging and the machine

The packaging of your products and the design of the machine must go hand-in-hand as they must be compatible to function properly; and both have to work well for your customer. For example, Farmer’s Fridge salads are in screw-top plastic mason-style jars, all the same size. As much as Saunders would love to use glass, it’s not practical because of the danger of breakage either by the machine or the customer.

For Johansen-James, the design of the machine to sell Proactiv skin care products had to help create an easy, comfortable buying process that educates the customers and leads them through the steps of choosing the right products—and even upselling them. The machines also need to have appealing, attractive packaging and clear branding. “Our success was due to working with the right partner to design the machines that also understands our product,” she says. The Proactiv ARUs collect email addresses to enter each customer into a VIP marketing experience with a 24/7 help line, coupons and a survey. Johansen-James says she learned that her firm could increase profitability by offering customers a high-touch follow-up marketing that keeps them coming back and creates loyalty.

Warehouse in a Box designs a custom machine for each of its products, and Correale recommends that retailers make sure to build a machine that has flexibility to accommodate various product sizes and shapes, so that the product mix can be changed easily to respond to what works best for customers at each machine location. Some machines, like those built by WIB, are designed to allow instant reconfiguration to match the machine to customer demands.

Modern automated retail units now often include advanced analytics and can communicate information via remote management systems. WIB designs machines that have HD digital signage, and touch screens with Wi-Fi and even Facebook connections. If you’d like to learn more about your customers, you can even have facial recognition systems installed that will study and report to you your customer profiles. However, Saunders warns that, in his experience, some of the technology out there is not yet fully developed, so thorough testing is recommended before you invest in this type of system.

The right place at the right time

foto0Location! Location! Location! It’s just as important for automated retail as it is for real estate. Finding the best placement for your machines is essential. However, Saunders point out that, fortunately, you can move machines around to test locations relatively easily. “You have to find where is the best fit for your products. And even when you think you do, one location may turn out good and another bad, like when we put our machines into hospitals: Some performed better than others.”

Johansen-James says that her challenge was in convincing mall managers to let her company place an automated retail unit to begin with, and even when they let the Proactiv machines in, they put them in strange, out of the way places; she had to convince malls to allow the ARUs in high-traffic areas.

Making it profitable

Being successful with automated retail requires that you understand and plan for the complexity of the whole process. Saunders points out that you need to understand that there are lots more moving parts than you may first think; while Johansen-James found that it’s all about finding the right partners to work with who understand your product.

Collecting and using good analytics will help you to change and evolve as you go along, and give you the information you need to make better decisions regarding products, locations, and marketing. Johansen-James says that her company collects very little data from the machines but it does send a follow up survey to customers via email to collect demographic and product preference information. Over the years AKM has developed a system of changing out its product mix twice per year, and the company runs different promotions and free gifts in different machines. “We use the machines as A/B testing for different promos,” says Johansen-James. “We spend lots of time testing and figuring out how to capitalize on our machines.”

Finally, take your time and test everything before you roll out lots of machines. “Machines are expensive,” says Johansen-James, “so make sure it all works. Selling through automated retail is different than other channels. Learn first!”

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Melissa M. Kellogg

Melissa M. Kellogg is a freelance writer specializing in small business, marketing, social media and retail business management. She is based in Edwards, CO, and is a regular contributor to GIFT SHOP magazine. Her work has also been published in various newspapers and magazines in the U.S. and Mexico
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