April 2012

A Vend in the Road: An Insight into the Vending Machine Market and the Neo-Indian Consumer

By Pradyut Hande

The Indian economy continues to register respectable growth rates, given the predicament of a sluggish global economy. Consequently, with a substantial increase in the levels of disposable income, consumption trends have also undergone a gradual metamorphosis both in urban and rural India. Urban India in particular has spawned a new generation of educated, dynamic, globally sensitized, highly aspirational and ever burgeoning socio-economic collective that I call the Neo-Indian consumer. Within the age demographic of 15-35 years and drawing upon its predominantly middle and upper middle class background, the Neo-Indian consumer is more receptive to the morphing socio-economic scenario, both on a domestic and global level. For him, consumption is fuelled by an amalgam of demand, need, curiosity and comfort. Quality is of vital consequence. This rapidly growing consumer base in an emerging economy propelled by sound free market ideals provides more than a fabulous window of opportunity for companies to suitably position themselves by offering a diverse and demand specific range of products and services. Set in this backdrop, I have chosen to view the Vending Machine market in India through a more discerning lens with an accent on the Neo-Indian consumer profile.

Ever wondered how much potential the Vending Machine that gives you a steaming cup of Coffee at the Railway Station every morning or evening holds? Well, I certainly gave it some thought! The Vending Machine market in India has been around for more than a decade and a half but has shown uninspired growth as such. The initial rudimentary machines gradually gave way to more sophisticated and reliable setups but the market as such failed to take off. However, of late, in the backdrop of the emergence of the Neo-Indian progressive consumer and other favourable socio-economic undercurrents; the market has begun to show great promise. Given the potential target consumer base primed for consumption, sale of products through Vending Machines is touted to reach USD 1 billion by the end of 2012. Estimates suggest that only 12 - 15 per cent of the entire market has been tapped thus far. Furthermore, a majority of the revenues generated accrue through the sale of hot beverages such as Tea and Coffee and Soft Drinks. This presents Vending Machine manufacturers, operators and FMCG companies as such with a huge opportunity to target a largely untapped market.

Automated Vending Machines in particular are becoming increasingly popular in the Indian context. These compact setups that are generally 4 - 6 ft. in height, occupy an area of 4 - 6 ft. These cost Rs 140,000 - 10,00,000; depending upon the level of refrigeration and order customization. These are generally stocked with a relatively diverse product range inclusive of packaged snacks, food items, candy, confectionary, beverages, stationery and certain other high consumption FMCG items. Predominantly installed at Railway Stations, Airports, Colleges and other Educational Institutions, Petrol Stations, Malls, Offices and Hospitals; the Automated Vending Machine presents a lucrative option for market players to effectively cater to an existential latent demand.

So, what is it that makes these machines a hugely viable and enticing proposition? The following are the merits of Vending Machines as efficient marketing channels:

- The Neo-Indian Consumer Factor: For starters, the emergence of the Neo-Indian consumer driven by changing lifestyle and consumption patterns and the percolating consumerism effect has created a burgeoning market and increased demand.

- Greater Distribution: Manufacturers and companies alike benefit by utilizing Vending Machines as an efficient distribution channel for their products by appropriately locating them in spaces liable to see high footfall from the target demographic.

- Increased Market Penetration: At a fraction of the cost incurred, these machines provide companies with the chance to penetrate new markets without the hassle of hiring too much labour. These machines bring the company one step closer to the eventual consumer; thereby, serving an intermediary role.

- Enhanced Visibility: Companies willing to sell their products through Vending Machines stand to gain from increased visibility in an already cluttered market. Hence, the machines not only serve as a distribution unit but also serve as a display unit; creating enhanced visibility and brand recognition.

- Effective Advertisement Platform: In addition to just merely offering products for sale, the machines also serve as an effective advertisement vehicle; thereby, aiding companies to establish a more holistic interface with the consumers and ensure higher brand recall in the long run.

- Silent Salesman: Bereft of any human intervention whilst selling, the machines negate the adverse implications of low productivity as a consequence of employee leave, holiday or strikes. These machines function 24 hours a day, 365 days a year serving customers.

- Guaranteed Quality: Vending Machines store quality products in a quality, safe, secure and hygienic environment. This also reduces the chances of adulteration and duplication that can hurt the prospects and credibility of the company per se.

Now despite the many advantages that this avenue presents to multiple stakeholders; the market is fraught with myriad challenges that have hindered its progress and may continue to do so unless addressed at the earliest. Some of these developmental impediments include:

- Availability of relatively cheap labour that fuels the proliferation and operations of Stores and Canteens. These serve as indirect competition.

- Lack of usage despite access to automated machines owing to absence of technical knowhow, trust and other psycho-social variables.

- Issues pertinent to currency recognition: prices of products within the country is such that making payment through coins is inconvenient and unfeasible at times. A proper currency recognition system which accepts and gives back currency in both notes and coins is vital. Also, alternate payment channels via cards and mobiles could be explored later.

- Threat posed by vandalism and inconsiderate usage.

- Lack of regular repair and maintenance and replenishment of these machines can render them unfit for operation; thereby, undermining the entire endeavour.

Indubitable is the fact that the Vending Machine market in the country as well as other emerging economies such as China, Mexico, Brazil and South Africa is poised for significant growth in the years to come. However, the industry will be able to fulfill its latent potential only if the aforementioned challenges are taken cognizance of. It will come down to handling the Neo-Indian consumer transition from curiosity to convenience to habit driven consumption through Vending Machines. What it boils down to is whether the market players are able to leverage their core competencies with a strong customer orientation and expand market coverage in the future.

A Vend in the Road is certainly here. We just have to tread on it productively now.

Some useful links for
your career:

  • Union Public Service Commission - www.upsc.gov.in
  • IIT-Kharagpur - www.iitkgp.ac.in
  • Indian Statistical Institute - www.isical.ac.in
  • Indian Institute of Technology Madras - www.iitm.ac.in
  • Indian Institute of Management, Ahmedabad - www.iimahd.ernet.in
  • Indian Institute of Mass Commission - www.iimc.nic.in
  • IIT Bombay - www.iitb.ac.in
  • Indian School of Mines, Dhanbad - www.ismdhanbad.ac.in
  • Birla Institute of Technology, Ranchi - www.bitmesra.ac.in
  • Central Institute of Fisheries Nautical and Engineering Training - www.cifnet.nic.in
  • Indian Institute of Information Technology, Allahabad (Deemed University) - www.iiita.ac.in
  • Central Marine Fisheries Research Institute, Kochi - www.cmfri.com
  • Tata Institute of Social Sciences, Mumbai - www.tiss.edu

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