SIC 3581
AUTOMATIC VENDING MACHINES



This industry consists of establishments primarily engaged in manufacturing automatic vending machines and coin-operated mechanisms for such machines.

NAICS Code(s)

333311 (Automatic Vending Machine Manufacturing)

Industry Snapshot

The vending machine industry generated U.S. sales of about $22.1 billion annually in the late 1990s. With significant advances in technology and innovation, the vending machine industry served numerous markets. In 2000, shipments of coin-operated vending machines by manufacturers totaled $1.24 billion, up from $767 million in 1995, though lower than shipments in both 1998 and 1999 of $1.44 billion.

The industry segments itself by the kind of service provided by the vending operator. Some of the major categories include: the 4 C's, which include coffee, club soda, candy, and cigarettes; full-line vending, which includes hot food, canned soda, and diary and frozen food; specialty vending, which encompasses such special products as pizza or french fries; OCS, or office coffee service; bulk vending, focusing on such unpackaged items as gum or nuts; and street vending, which includes music machines, video games, and other vending machines used in public places.

Organization and Structure

Vending is essentially a three-step process involving three separate industries: manufacturing companies, distributors, and vending machine operators. This industry group (SIC 358l) primarily covers the manufacturing step in this multi-stage industrial sequence.

About 90 U.S. companies produced automatic vending machines or parts for them in the 1990s. Although a vast majority of vending machines were manufactured by large companies, the industry did sustain quite a few smaller firms. The merchandise vending industry is essentially part of the small business community.

The U.S. Department of Commerce reported that 45 companies were engaged in manufacturing coin-operated vending machines in 1996. Thirty-five of the companies produced beverage machines, 27 were involved in manufacturing machines that sold food and confections, and 31 manufactured other types of vending machines, including those selling cigarettes, water, and postage stamps. As the numbers indicate, many of the companies manufacture machines for several segments. Canned and bottled soft drink machines made up by far the largest share of beverage machines manufactured in 1996, totaling 316,362 units. Among confection and food vending machines, those that sold bulk confections and charms predominated, totaling 158,039, while bagged snacks and confections made up another significant share at 88,271.

The National Automatic Merchandising Association (NAMA) has been the most important trade organization in the vending industry in the 1990s. NAMA represents companies involved in every facet of vending, from machine manufacturers to suppliers of vended products. Founded in 1936, NAMA compiles a broad range of statistics and produces several periodicals, including a regular industry newsletter, a review of pertinent state legislation, and a labor issues bulletin.

The National Bulk Vendors Association (NBVA) concentrates specifically on the manufacture and operation of bulk vending equipment. The NBVA was founded in 1949 and is based in Chicago.

Background and Development

The earliest recorded "vending machine" was in 215 B.C. when the mathematician Hero described and illustrated a number of inventions conceived by himself and his teacher, Tesibius, in a book called Pneumatika. Included in the book was the plan for a completely automatic, coin-operated machine that dispensed a small amount of sacrificial water when a five-drachma coin was deposited. It is unlikely that the machine was used on a large scale, and there is no evidence to suggest that anything was sold automatically again for centuries.

Coin-operated machines that sold snuff and tobacco appeared in English taverns around 1615. These machines were actually cruder than Hero's device and required the proprietor to shut the lid after each use. Usually made of brass, the machines were portable and were carried from customer to customer.

In the nineteenth century, vending machines began to appear in much greater variety and quantity. An early incarnation of the newspaper machine appeared in England in 1822. The device was the brainchild of Richard Carlile, a bookseller trying to avoid arrest for peddling copies of banned works such as Thomas Paine's The Age of Reason. While his machine worked, his plan to avoid arrest didn't.

The first known patent for a vending machine was issued in 1857 to Simeon Denham for a penny postage stamp device. Over the next couple of decades, inventors began showing up at patent offices all over the world with coin-operated machines that sold candy, cigarettes, handkerchiefs, and other small items. In 1884, the first U.S. vending machine patent was issued to W.H. Fruen for a contraption remarkably similar to Hero's holy water machine.

The American vending machine industry was truly born in 1888, when Thomas Adams of the Adams Gum Company began selling his Tutti-Frutti gum out of machines on the platforms of New York's elevated rail system. These machines were an immediate success, and toward the end of the century, postage stamp machines also became more common. The Automatic Machine Company of Buffalo, New York, was the first company to sell stamps automatically on a large scale, beginning in 1891. Bulk vending machines began to appear around the turn of the century. The Mills Novelty Company introduced the first of these, which sold a pre-set amount of peanuts for a penny, at the Pan American Exposition in 1901. The following year, the Horn & Hardart Baking Company revolutionized vending in the United States by opening is first Automat restaurant in Philadelphia.

Prior to 1908, beverage vending machines dispensed only the beverages themselves, which the customer then drank out of a common cup. That year, with public awareness of sanitation growing, the Public Cup Vendor Company of New York (later to become the Dixie Cup Company) unveiled a machine that dispensed water in individual paper cups.

By the 1920s, the vending industry had been divided into manufacturers and operators. The Doehler Die Casting Company, for example, developed machines for vending a diverse range of products that included Life Savers, lighter fluid, and sanitary napkins. Another industry revolution took place in 1925, when three new machines were developed, all of which sold cigarettes. Candy machines offering customers a choice of products began to spread in the 1930s. Nathaniel Leverone, the founder of the Canteen Company, was a pioneer in the development of this type of machine.

The manufacture of vending machines was suspended during World War II, but at the war's conclusion the industry regained its momentum. Among the machines that appeared during this time were the first hot coffee vendors and a hot dog machine. In the first decade after World War II, hundreds of small manufacturing companies entered the vending machine arena, and vast improvements were made in design—especially in the area of coin mechanisms. In 1960, paper money changers came into widespread use. When machines for vending canned soft drinks were introduced in 1961, vending sales soared.

Since that time the vending machine industry has been consolidating to a great degree. Manufacturing has become increasingly dominated by large companies. At the same time, advances in electronic components, which first appeared in vending machines in 1980, have made machines "smarter," enabling them to keep records and diagnose glitches. The variety of products vended automatically has continued to grow explosively, as items specifically created for machine vending, such as microwave popcorn, have made their appearances.

In the early l990s, vending machine manufacturing appeared to be entering a new era. The emergence of "smart" machines was certain to affect every part of the industry. The availability of full-service machines that could handle a variety of products and perform their own record keeping was enabling bottling companies to take over many of the chores that were previously handed over to third-party operators. This represented the reversal of a trend that began in the l950s, when bottlers began to remove themselves from the day-to-day servicing of machines. In addition, the replacement of moving parts by electronic components was expected to contribute to a further concentration of manufacturing companies, since the demand for spare parts was sure to decline sharply.

The new generation of smart vending machines was also expected to give manufacturers a healthy boost. Since the beginning of the 1990s, the slumping U.S. economy had led operators to seek ways to hold their costs in check. Frequently, this meant refurbishing old machines rather than purchasing new ones. Dixie-Narco Inc., for example, saw its sales drop by about 18 percent in 1990, while its parts business was actually more active than usual. The improved security and record keeping capabilities offered by newer machines, and their potential to save operators money in the long run, might provide operators an incentive to invest in the latest equipment.

Inflation in the 1990s affected the vending industry adversely as well. The convenience of dropping coins into a machine in exchange for merchandise disappeared when the price of an item exceeded the amount of change reasonably accommodated in a pocket. Manufacturers reacted to this problem in two ways. One involved the introduction of debit cards, first introduced in 1985. Debit cards eliminated the need to carry change, enabling regular users of a vending area to pre-pay for several dollars worth of merchandise at a time. Mechanized dollar bill acceptors, notoriously fussy and uncooperative, had also improved somewhat by the mid to late 1990s.

Current Conditions

Several significant changes were taking place in the vending industry in the late 1990s. Some resulted from new technology, while others stemmed more directly from general societal changes. New machines developed during this time were capable of vending food of much higher quality than was previously possible. This ability was having a particularly noticeable effect in the work place, as corporate downsizing necessitated the replacement of many company cafeterias with vending areas. With a new emphasis on hot, nutritious foods, the major manufacturers began producing machines that sold items such as french fries, fresh pizza, and a much broader line of microwaveable frozen foods.

According to the "State of The Vending Industry Report," published by Automatic Merchandiser, the automatic merchandising industry grew 5.6 percent in 1998, to $23.3 billion. The jump represented the largest one-year increase in the 1990s. All product categories enjoyed increases with the exception of cigarettes, a segment that accounted for less than 1 percent of the total in 1998. The beverage category was especially enthusiastic about vending machines, and about 1.2 billion cases of soft drinks were traded via vending machines in the U.S. in 1998. One reason soft drink companies invested in vending machines was because vending machine drink prices were less subject to the discounting and extreme competition affecting beverage brands in supermarkets. Growth began to slow in 1999, as the value of industry shipments declined slightly from $1.444 billion to $1.443 billion. The value of shipments fell to $1.244 billion in 2000. Between 1998 and 2000 the cost of materials dropped from $786 million to $625 million.

Other trends in the late 1990s included the increase of plastic beverage bottles in vending machines. As soft drink manufacturers turned to larger, plastic bottles, vending machine manufacturers developed machines that accommodated not only the larger sized bottles but different sizes of bottles as well. Other innovative machines accepted credit cards, debit cards, and coupons. Glassfront cold beverage machines that showcased the enclosed drinks gained in popularity, and insulated machines that allowed candy machines to be placed outdoors were developed.

The sharp decline in cigarette smoking the United States throughout the 1990s has had a dramatic impact on the vending industry. Once a huge seller as one the four Cs of vending, cigarettes only generated a small portion of the vending operator's revenue compared to the considerable percentage of revenue cigarettes generated in the 1960s (at 45.5 percent).

One of the most significant issues affecting the vending machine industry in the late 1990s was the introduction of new currency. When new $20 bills were released in the U.S. in 1998, many vending machine manufacturers were unprepared. As a result, about 250,000 vending machines that normally accepted $20 bills, including bill changers and fare card machines, were unable to take the newly designed bills. New $5 and $10 bills were scheduled for release in 2000, and the Bureau of Engraving and Printing, the printers of U.S. currency, worked closely with the vending machine industry to make sure machines would be prepared. The adaptation of the new machines was estimated to be a $100 million project.

Industry Leaders

Dixie-Narco, Inc., a division of Maytag Corporation, was one of the nation's leading manufacturers of automatic vending machines. Other major companies in the industry included Multiplex Co., Inc., and Automatic Products International Inc. About 40 percent of Multiplex's sales were from overseas sales.

America and the World

The United States was not alone in its obsession with the convenience offered by vending machines. Industry leader Dixie-Narco, for example, was selling a complete line of models in over 30 countries by 1990. The company began to emphasize exports, tailoring machines for the specific needs of its foreign markets rather than merely making small adjustments in existing models.

The popularity of the vending machine proved even stronger in Japan. Half of Japan's retail soft drink sales in the early 1990s came through vending machines, and this market share is expected to increase. In Japan, the machines lined the sidewalks, playing music and offering a wide variety of merchandise, including beer, sushi, and panty hose. One advantage that vending operators in Japan had over their American counterparts was that vandalism was almost unheard of in that country in the l990s.

The enthusiasm for vended goods was not global, however. Although American manufacturers sold machines successfully in Europe for years, the machines were not always welcome. Cafe proprietors in Bordeaux, France, for example, refused to serve Coca Cola for a period in 1990 in protest of the placement of Coke machines on public sidewalks in their city, an offense to both their sense of good taste and fair competition.

Research and Technology

Flexibility and security were two areas in which engineers in the vending industry made great strides in the 1990s. The Merlin 2000 series developed by a company called InterBev in 1989 provided a good example of the flexibility built into the new generation of vending machines. The Merlin 2000 machines could sell both sodas and juice from a single machine, with an improved mechanism for adjusting prices from one selection to the next.

Furthermore, electronic bill and coin changing mechanisms made fraud more difficult. A common form of vandalism, injecting salt water into the coin mechanisms, and putting the machine in "jackpot" mode by shorting out the electronic parts was circumvented by improved shielding of electronic components. Programmable security code devices were also installed on many new machines to prevent unauthorized individuals from tampering with pricing and removing money or merchandise.

Other innovations in the 1990s included a new vending technology that provided computerized capabilities of the machines to record their own vending statistics. In 1999 Coca-Cola Company began testing a new vending machine that was capable of raising beverage prices as the outdoor temperature increased. Though the company would not reveal the technology behind the machine, it was believed a computer chip and temperature sensor were responsible for regulating the prices.

Further Reading

"About Vending." Chicago: National Automatic Merchandising Association, 1996. Available from http://www.vending.org/about.htm .

Hays, Constance L. "Variable-Price Coke Machine Being Tested." New York Times, 28 October 1999.

Hill, Raven. "Vending Machines Have a Big Surprise." Deseret News, 31 October 1999.

Maras, Elliot. "Thriving economy creates growing base of small customer locations; sales reach $23.3 billion." Automatic Merchandiser, August 1999. Available from http://www.amonline.com .

McMahan, Thomas E. "Vending Machines Keep Up with Change." Chicago Sun-Times, 4 December 1999.

Postlewaite, Kimbra. "Changing of the Guard." Beverage Industry, 1 May 1999.

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .

U.S. Department of Commerce. Economic and Statistical Administration. Bureau of the Census. "Vending Machines (Coin-Operated)." Washington, DC: Current Industrial Reports, 25 July 1997. Available from http://www.census.gove/industry/ma35u96.txt .

"Vending Machines Offering Healthier Choices." Beloit Daily News, 11 September 1996.



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