Discount vending machines pressure big brands

The Yomiuri Shimbun

By Mamoru Kurihara and Ko Terada / Yomiuri Shimbun Staff WritersOSAKA — The world of beverage vending machines, a ubiquitous feature of modern life, is undergoing major changes.

Vending machines have been a reliable source of income for big beverage makers, but with the advent of new machines selling drinks for ¥100 and even less, the profitable business is changing to an “unprofitable” one.

Under the circumstances, in Osaka, where many such discount machines can be seen, some big beverage makers are talking about giving up.

Cast-off drinks

In early January, numerous vending machines were placed in the basement of a building in front of JR Osaka Station to catch the business of passing office workers. Most of the drinks were priced at ¥100 or less, with ¥50 drinks standing out.

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The cheapest one on offer was Asahi Soft Drinks Co.’s 160-milliliter Calpis Soda for ¥30. It was as refreshing and delicious as always, but the label showed that the expiration date was only a month away.

In the past, beverage vending machines were an attractive business because prices were fixed. In exchange for the convenience of being able to buy a cold bottle of juice or hot can of coffee at any time, customers were willing to pay fixed prices.

This was highly profitable for beverage makers, and since the machines themselves also served as advertisements in public places, they installed them wherever they could.

Low profits, quick returns

Vending machine prices for drinks made by the major brands are usually priced at ¥130 for canned coffee and ¥160 for a 500-milliliter plastic bottle drink.

Yet prices are dramatically falling due to the recent arrival of machines selling drinks for ¥100 or less. The “culprits” behind this are independently run vending machine companies.

In the beverage industry, there are channels to purchase products at cut prices through wholesalers when the products are nearing their expiration date or have been returned after failing to sell. Independent vending machine operators obtain their stock through these routes.

Osaka Jiran is a food wholesaler based in Osaka that has about 500 vending machines that sell ¥50 drinks in Osaka and Hyogo prefectures.

The company entered the vending machine business six years ago, and now logs ¥1.2 billion in annual sales from it.

It makes large purchases of drinks approaching their expiration dates for about ¥30 to ¥50 each from multiple wholesalers from the Kanto to Kyushu regions.

Their prices are low and so are their profit margins, but with a strategy of small profits and quick returns, the company has succeeded in attracting price-conscious consumers.

Company President Koji Kamasaka, 57, said: “Salaries aren’t rising, so consumers are becoming more and more discriminating. I think the industry will continue to see competition over low prices.”

Desperate measures

In some cases, the big beverage makers have had locations taken away from them by discount machines.

A 60-year-old self-employed man who operates several vending machines in Kita Ward, Osaka, said, “Income from discount machines is almost 10 times more than from the manufacturers’ machines.”

The manufacturers’ machines operate on a commission system, in which the owner of the land that the vending machine is on takes home a proportion of sales. The man said that after paying for electricity for manufacturers’ machines, he is only left with about ¥60,000 in profits per year.

Discount machines, on the other hand, usually operate on a flat-rate system, in which the landowner receives the same amount each month regardless of sales.

This has prompted some landowners to replace manufacturers’ machines with discount ones.

It is said that Osaka has a particularly high concentration of companies that operate discount machines. “Osaka is sensitive to price changes. It’s not a profitable place for the vending machine business,” an official of a major beverage maker complained.

The large beverage makers have taken the drastic step of creating products tailored to vending machines. These products contain slightly less so the price can be lowered to ¥100 in a bid to maintain sales.

War of attrition

The major beverage makers are removing unprofitable machines. While not publicizing it, Coca-Cola Bottlers Japan Inc. said that it planned to remove about 22,500 machines in 2017, about 45 percent more than the previous year.

Meanwhile, the battlefield is starting to move from outdoors to indoors, such as in office buildings and public facilities. Offices are not affected by the weather and are seen as a possible source of stable income.

“There are a lot of undiscovered areas and a lot of room for growth,” said Teruyuki Suzuki, an executive officer at Coca-Cola Bottlers Japan.

DyDo DRINCO Inc. also said it plans to increase its ratio of indoor machines from the current 40 percent to 50 percent in the next year.

However, competition is heating up over the most attractive sites, such as in government buildings and commercial facilities.

Beverage makers want to distance themselves from the price wars that are undermining profits. Yet they face the dilemma that “some amount of the market share is essential for maintaining their brands,” one industry source said.

Under such circumstances, there have been signs that drink makers are throwing themselves into a war of attrition by lowering prices and increasing payments to landowners.Speech

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