Spotlight

Vending: Brewing success

Food & beverage vending business is already a Rs 3,000 crore industry. Intense competition now promises a hot brew of price cuts and consolidation, says Viveat Susan Pinto

Tina wants her cup of coffee. She's been out the whole day and is too tired to drop by at her favourite café on her way back home. She chooses instead to help herself to an instant coffee at the vending machine near the railway station. So is the case with Mohit, who has just stepped into the office after meeting key clients. He wants to unwind. So how about a cuppa hot chocolate out of the vending machine near the pantry?

For people leading busy lives, the vending machine is nothing short of a blessing in disguise. By one estimate, there are some 65,000 machines in the coffee and tea segment alone in the country. Add to that categories such as softdrinks, soups, juices, snacks and chocolates - segments that use vending - and it's a northward climb for the machine count. "There is enormous potential for vending in the country," says Rohit Nath, managing director of Fountain Consumer Appliances, a Coonoor, Tamil Nadu-based company, which is into food & beverage vending with some 4,000 machines in the premix and fresh-brew segments. "In a saturated market like England, there are 30,000 vending machines installed every year. We've not yet reached such a stage."

The market

At about Rs 3,000 crore, the current market size for vending in the country isn't small either. Compare it with a country like Japan, however, which has over 5.5 million machines selling everything from food & beverages, cigarettes, tickets etc, and India seems way off the mark. The US market, on the other hand, has the highest number of vending machines in the world with a figure of 8 million (Japan, for the record, is a close second in terms of density of machines). Segments that have taken to vending in the US vary from food & beverages, stationery, merchandise (cards, gifts, toys), music, entertainment, etc.

In India, says Jagdeep Kapoor, chairman & managing director of Mumbai-based Samsika Marketing Consultants, "Vending is primarily restricted to the food & beverage segment. To me, vending is never-ending. If the emphasis shifts from selling the product or machine to selling the vending experience, I think it will take the category to new heights." Purnendu Kumar, senior consultant, retail, at the Gurgaon, Haryana-headquartered consulting firm KSA Technopak, says, "Tea and coffee vending, predictably, make up a bulk of the operations in India followed by softdrinks, soups and allied hot and cold beverages. The sale of food products via vending machines is not dramatic at all, unlike in markets abroad where canned food products and even bottled water is dispensed easily."

Hot cuppa?

Like with a number of growing industries, the unorganised sector has its fair representation in the Indian vending business too with small, regional players dotting the landscape. The organised market, in contrast, has a handful of players across segments. In tea and coffee, for instance, FMCG majors Hindustan Lever and Nestle jostle for space with players such as Tata Tea and Tata Coffee, the Coffee Day group, which has two brands including Coffee Day Takeaway and Coffee Day Bean to Cup, Sterling Infotech group's Fresh & Honest (promoted by NRI businessman C Sivasankaran, who also controls the coffee retail chain Barista), Coca-Cola's Georgia Tea and Coffee and Fountain Consumer Appliances, which has a joint venture with the Netherland-based Fountain Holdings, part of Fountain Industries Europe, a key manufacturer of vending and dispensing machines.

On the cola front, Pepsi and Coke pretty much lock the market between them with 4,000 and 8,000 dispensing machines, popularly called Fountain Pepsi and Fountain Coke, respectively. "We also have vending machines that dispense cans," says a PepsiCo spokesperson, who describes the company's operations in the 'out-of-home' (or vending) space as a significant one. Coca-Cola, on the other hand, admits that just 3% of its total sales happen via dispensers. "There is a lot that retails via regular channels," says a company spokesperson. Shripad Nadkarni, who was the erstwhile head of marketing at Coca-Cola India and is now director of the Mumbai-based Marketgate Consulting, says, "Vending is more of a branding exercise. Sales via dispensers are minuscule. Regular distribution channels account for a major portion of the sales."

Not everybody, though, is in agreement with this statement, at least not the tea and coffee players, who also vend soups (such as Nestle) and allied hot and cold beverages (such as Fresh & Honest). "We dispense close to 700 million cups of hot and cold beverages per annum through our vending machines across the country," says a Nestle spokesperson. Fresh & Honest, which operates in the fresh-brew segment with 2,500 machines, claims that it has been growing at a compound annual growth rate (CAGR) of 40-45%. "We pretty much defined the segment when we began operations in the 90s," says Sandip Dang, chief operating officer, Fresh & Honest Cafe Limited.

"Traditional vending operations have happened in the premix segment (where coffee or tea powder is mixed with sugar powder and milk to produce the beverage; price points are low at about Rs 2-2.50 per cup), but we chose to go the other way and the response from corporate houses, who make up 65% of our install base and revenues, followed by five-star hotels and restaurants at 20%, has been phenomenal."

Arch rival the Coffee Day group, whose Coffee Day Bean to Cup competes with Fresh & Honest in the fresh-brew space, has been pushing its product at price points between Rs 5-10 (Fresh & Honest, in comparison, vends at a slightly higher Rs 6-7 for a 100 ml coffee serving), with the result that the group has 1,400 Bean to Cup machines in the span of a year-and-a-half of commencing operations, while Coffee Day Takeway, which operates in the liquid decoction space (price points are a little higher at about Rs 4 per cup) has 7,000 machines since February 2003 when it first began.

Company officials say that the plan of action is to go up to 50,000 machines in the next five years. The bottomline is to serve up so much variety of the work-day world that what they want should be available right where they are. That will keep cash registers jingling for the beverage makers.