Research Shows Size Of Category Does Not Predict Popularity Of Product

One of the most critical business decisions that a vending operator needs to make is the selection of products to offer at each location. And the manner in which operators make this decision is of great importance to product suppliers and distributors, too. Management Science Associates, a national market research organization which has developed a vending market information service based on actual line-item sales data collected by vending route personnel, points out that operators often make decisions about which products to include in the machine menu strictly on the basis of the volume of products moving through the vendors. This usually means that major brands

CATEGORY Avg. % Distribution (across all brands) Avg. % of Machines Top 10(across all brands) Chocolate 26% 41% Non-chocolate 11% 49% Gum 8% 56% Mints 7% 54% Salty Snacks 10% 56% Bakery Goods 8% 55% Nuts 15% 52% Crackers 7% 58% Meat Snacks 4% 80% Nutritional 17% 41%

and extensive product categories dominate the assortment, often to the exclusion of smaller niche brands and categories.

"Unfortunately, this 'survival of the fittest' strategy for choosing brands to include in machines is not the best way to maximize overall sales," MSA warned. "While 95 percent of consumers will make a selection from the top 20 brands, five percent will walk away if their atypical preference is not available. Excluding these niche items from the machine assortment risks lost revenue." While that might not have been a major concern in yesterday's high-volume industrial workplace, operators today must insure that everyone approaching their machines finds something attractive to purchase.

"In the world of vending, understanding brand-shifting and brand loyalty is difficult because it is impossible to string out each individual's purchases over time," MSA explained. That is, the operator cannot know whether consumers always buy one particular item, never purchasing anything else.

Based on its 37 years of experience in interpreting consumer sales data, MSA recognizes that consumer attitudes and purchase preferences do not change as their venue changes. Most vending operators know this, too: an individual's preference for a certain candy bar is the same, whether he or she is standing in a supermarket checkout lane or standing in front of the vending machine in a hospital lobby.

MSA worked with Validata Computer & Research (Montgomery, AL) to develop the "VendScape" and "VScan" vending market research services (see V/T, July 1999). To determine which brands and categories belong in the vending product mix, MSA has integrated "VendScape" data with its learning from grocery store "frequent-shopper" analytics, which compare brand distribution to brand performance.

Using sales information from grocery store frequent-shopper visits, MSA created a series of customer profiles. In comparing each brand's share of category purchases to its share of market, it becomes obvious that market share does not necessarily translate into brand loyalty. "The brand with the lowest market share within a certain category maintains a 39 percent share of purchases among the customers who buy that brand," MSA reported. "Among some demograhics, that brand has 80 to 95 percent loyal customers." An operator who drops this brand from the vendible product mix is very likely to lose those customers completely.

Another brand within the same category possesses a 17 per cent market share, but the customers who buy this brand only choose it for three percent of their purchases. Unlike the first brand, this one could be dropped from the vending menu without losing customers - they probably would cheerfully select another product.

Based on MSA's analysis of brand distribution versus brand performance within its "VendScape" sample, it appears that this phenomenon also occurs in the vending channel. MSA found that some of the smaller niche categories, such as meat snacks and crackers, had the highest percentage of "top 10" rankings within machines that carried them. That a category does not contain a great many different products does not mean it's not popular; meat snack products ranked in the top 10 sellers in 80 percent of the machines in which they were offered for sale. Given that performance, MSA noted, it is surprising that meat snacks were distributed only in about four percent of machines. Crackers, which have similar characteristics, were present only in some seven percent of vendors.

While meat snacks and crackers struggle to find a place in the vending assortment, major categories have no difficulty getting slots. Although distribution for chocolate brands within the ""VendScape" sample ranged from three to 77 percent, overall, the 22 chocolate brands within that sample averaged a 26 percent distribution rate - that is, were present in more than one out of every four snack machines. But in the machines containing those brands, on average they ranked in the top 10 only about 41 percent of the time.

"This suggests that the scenario occurring in the grocery store checkout line also takes place in the hospital lobby," MSA said. And, based on this analysis, vending operators should examine the assortment of items in their machines to make sure that all categories are represented. "With 30 to 40 slots to fill, it makes sense to consider at least one slot of each of those niche categories," the market researchers emphasized. Students of vending category management often have made the point that all categories should be represented in every machine; the MSA research appears to demonstrate the validity of this recommendation.

In today's highly competitive market, with vending locations increasingly populated by smaller numbers of better-compensated people with highly individual tastes, the worse outcome is for a potential customer to walk away from a vending machine because his or her "niche craving" is not addressed.

© Vending Times; Management Science Associates, Inc. April 25, 2000 All Rights Reserved.
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