Making more than a dime out of machines - Vending Technologies Limited

By Frank Fernandez

Tuesday 31st October 2000

John Hotchin and Mervyn Doolan believe there is money to be made out of vending machines - a point they intend to prove when their company Vending Technologies (VTL) list on the NZSE this week.

VTL, whose machines are the only ones in New Zealand to offer hot and cold food, has been in existence for only two years but is already profitable.

For the year to 31 March 2000, the company made a net profit after tax of nearly $800,000. And already VTL is forecasting after-tax profits of $4.2 million for the 2001 year, and $5.0 million for 2002 - highly impressive stuff when one considers that many tech companies are struggling to even keep afloat in recent times!

At 31 March this year, VTL had 400 vending machines operating throughout New Zealand (principally in Auckland) but is projecting to have over 2100 under management in New Zealand and Australia by 2001, and over 4700 machines by 2002. Expansion beyond Australia is also planned.

The vending business is obviously not a new phenomenon overseas. However, not too many people would know that Coca-Cola actually helped pioneer the vending industry some 90 years ago with iceboxes which operated through the insertion of a nickel. But then, some historians would have us believe that vending machines originated as far back as ancient Egypt where you could insert a coin for a drip of holy water!

But back to Coca-Cola which recently announced it would invest US$100 million in intelligent online vending technology from telecommunications equipment giant Marconi Online. Coke hopes, through this partnership, to move toward such evolutionary options as cashless vending, internet and mobile phone ordering, multimedia features and interactive promotional activities - all through the humble vending machine.

Marconi Online calls the vending machine the "unattended point of sale". The motivations behind such an investment are essentially twofold: first, to create a more comprehensive shopping experience for customers rather than simply sliding dollar bills into a slot, and second, to increase the amount of information a vendor can collect and manage from each distribution point.

Takashi Kurosaki, secretary general of the Japan Vending Machine Manufacturers Association, said recently that the Japanese have historically been quicker to accept cutting-edge consumer technologies than Americans - in large part because of their dense population and demand for convenience. Japan has one vending machine for every 23 people, the most in the world.

Japanese vendors - which already dispense a broad range of products such as beer and rice - are also looking for ways to market services and information as well as goods. "Eventually," Kurosaki says, "We may be able to do the things with vending machines that we can do on personal computers." Already in Tokyo, consumers can download music and games from digital kiosks.

And there are further new vending machine innovations in the USA. A company called USA Technologies has developed the e-port which connects vending machines to the internet, allowing users to buy not just snacks but also non-food products by swiping a credit card and accessing the Web pages loaded into the machine by participating advertisers. Consumers can even speak with a customer service person and Pepsi has used this company to allow credit card use at some of its machines.

According to American vending industry statistics, 7 out of 10 Americans use automated machines every day. A strategically placed vending machine can turn a one foot square space in the US of A into a US$100 a month profit centre, we are told. This all adds up to around US$34 billion dollars in annual vending revenue - which is perhaps not surprising why John Hotchin and Mervyn Doolan are listing Vending Technologies on the NZSE and hoping for a similar success story down under.

One of VTL's competitive advantages is its ability to acquire and modify machines cost-effectively. It is also able to provide both hot food and hot and cold drinks from the same machine with a varied mix of product brands from a range of manufacturers. And the clincher must be its ability to monitor, from remote locations, all aspects of the performance of each vending machine.

The company says its proprietary software technology has potential application for a wide range of coin-operated machines and with a view towards the future, it is also trialing purchases via mobile telephone from its machines.

VTL is only offering 25.4% (7.5 million) of its shares to investors to raise money for its ambitious expansion plans. The remaining 74.6% is tightly held by four trusts representing major shareholders.

What will make VTL especially appealing for many investors is the undertaking that the major shareholders will not be selling any of their 74.6% shareholdings before 30 September 2001 without the prior written approval of VTL and the NZSE. This unusual show of frankness, honesty and integrity by the VTL directors will go down a treat with many investors - especially those burned in the past by the incessant dumping of shares on the market by less responsible directors.

In my travels around Auckland and the country recently, I have come across numerous VTL machines. They have obviously been around for a while but it has only been recently, after publicity about the impending VTL listing, that somehow (for me anyway), they have suddenly become more noticeable.

I believe this company will go far. They have a simple concept and product - but one which works and has proved extremely successful overseas. The projected profits are impressive and the VTL management appears determined to display open honesty in their dealings with investors right from the start. With the lack of any exciting new stocks on the NZSE at present, I wouldn't be surprised at all to see investors flocking to own a piece of this ever-evolving technology that will soon be a familiar sight around New Zealand.
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But while I concede that vending machines are undoubtedly the ultimate quick-sell devices, the truest litmus test for new-era vending is whether you can get good french fries from a machine. On that issue, I believe the jury is still out! Happy investing.

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