MD | 28 Jun 2004
“This branding (through vending machines) comes at a much cheaper rate than getting a hoarding. Apart from this, clients not only get to advertise, but also generate returns in terms of sales of their products. So this is a win-win combination all the way.”
Armed with a post-graduate degree and a diploma in computer science, Rohit Nath looked after the family business before becoming Managing Director of Fountain Consumer Appliances. Having spent close to 10 years building the vending machine business in India, he can certainly be called a pioneer in the field. Speaking to Shubha Kumble, he shares his vision for the industry, the challenges and more.
Q. Please tell us about your entry into the vending machine business and the recent joint venture you entered into with Azkoyen.
There are two kinds of joint ventures, one is with Fountain, the Netherlands, which is predominantly a company manufacturing and selling vending machines for the small and medium office segments. It was set up sometime in 1970 and has been doing well ever since. They have a financial participation in Fountain India and have been lending technology. But this product has been restricted to coffee, tea and other hot beverages. We have been doing this business for about 10 years and have grown tremendously. We started with Rs. 60 lakh and are now at Rs. 20 crore. We are expanding and really taking on the big guns like Nestle and Levers.
Currently, we have a market share of about 10% in this business. But we realized that there is a huge gap per se in this business and vending need not be restricted to hot beverages. I think it’s important to realize that vending can be applied to any packaged product, be it a snack, a tetra pack, a bottle of beer, soft drink or a pack of cigarettes. The range is really large and can apply to any section of industry. It could even relate to an over-the-counter pharma product. We realized that the Indian market is attaining a level of understanding and acceptance in terms of hi-tech products which lend convenience and instant availability 24 hours a day, seven days a week. This is very vital as today we have BPOs and software companies that work round the clock. This has become a necessity.
We decided to launch a complete range of vending machines which can dispense any packaged product plus a hi-tech range of coffee and tea vending machines with 16-18 options ranging from black coffee to latte. This again is being made available to a cross-section that ranges from a corporate environment to a retail environment. However, Fountain doesn’t make this range. We have tied up with market leaders who are based in Spain – a company called Azkoyen. They are a Euro 150 million company that has been in existence since 1945 and is the market leader in vending solutions. Their biggest USP is that the coin mechanisms and the bill readers are also made by them and are tamper- and pilfer-proof and therefore suited to an Indian environment.
Q. What is the current scenario in India with regard to vending solutions?
Today, if you look at vending in India, you don’t see a vending machine per se. What you see is a vending machine with a guy standing next to it and working it. The whole concept of a vending machine is that it doesn’t need to be manned. It is available practically everywhere – street corners, shops, corporate offices, in basically any environment. So a person walks up puts in some money, collects his product and change, and walks on. This is a concept we are trying to create. We think that India today is ready to accept such a concept provided we have machines that conform to these specifications, primarily revolving around the machines being tamper and pilfer proof.
Q. Who are your current clients?
Fountain has been focusing for the past 10-12 years mainly on corporate clients. This has been our main area of interest. Unlike the Nestles and Levers of today who are interested in creating a large brand equity and are therefore focusing more on the retail segment, Fountain has been looking at this business from all aspects. From a profitability aspect to something like putting up a machine and building a brand in the out-of-home segment, primarily in the corporate arena. Ninety-nine percent of our clients are from the corporate segment ranging from the Reliance Group to Infosys, Wipro, Cipla, HP – basically all the top corporates in the country.
Q. Would your joint venture with Azkoyen mean that your focus will now shift to retail?
No, initially our focus will remain with the corporate segment. We will move on to the retail segment gradually. We will also focus on customers like UB or Fosters and ITC. Also Nestles for their noodles, Levers for their hygiene products or someone like Haldirams for their packed snacks. So there is tremendous scope in the market today for such customers to buy machines from us and fill it up with their products. They get huge branding visibility, as the machines are about six feet tall and therefore large. This branding comes at a much cheaper rate than getting a hoarding. Apart from this they get to not only advertise, but also generate returns in terms of sale of their products. So this is a win-win combination all the way.
Q. Given the Indian scenario, how do you plan to make this work?
We intend to first of all create awareness and a need for vending machines. We held an exhibition for the same and the feedback we received has been very positive. In fact some of the corporate clients asked for the machines we had on display to be set up in their premises right away.
Apart from this, we intend to attract the market with an installation of 600-700 machines in the first year, which is not a very large number considering the size of the Indian market. We would like to test the market this year. Our target markets would initially be Bangalore, Mumbai and perhaps Kolkata and Delhi. From there we would move on. Anyone who wants to create a brand or would like to enhance sales of their products should be looking at the out-of-home market. This is exactly where the business is and one of the primary means of taking this further is through vending machines, which offers you branding visibility and point of sale.
Q. What are the main challenges you face in developing this category?
Resistance could come in from perhaps the cost factor. A typical machine could cost something like Rs. 2 lakh. But when you compare the cost of the machine vis-à-vis the branding visibility and the sale that can be generated, I think it would turn out to be negligible. So this aspect needs to sink in. The second challenge is perhaps space availability. Corporate offices are not a problem; retail outlets or retail points might however have a small issue with space, which can be overcome. The third challenge is to educate the customer who is not aware of such a system and needs to get acclimatized to it.
Q. Will you be entering another joint venture for your distribution?
We have a marketing arm called Symphony Marketing and Research, which handles a distribution network of around 35 dealers spread across 14 states and already catering to over 5,000 corporate clients. So we will leverage on this existing chain for now and gradually build it.
Q. Who are your competitors and how do you face them?
We have competition in coffee and tea, with Nestle and Levers being the market leaders. Tata Coffee is another player. Fountain currently has a 9-10% market share and we intend to bring this up to 12% this year as far as the coffee and tea segments are concerned.
With regard to alternate vending solutions, there is no competition at the moment. There will of course be a number of players entering this segment soon. But the key factor really is technology and the service mechanism. What we offer our clients is a service solution where we give them a machine and also maintain it. We also ensure that if they want, we can refill the machines with their products. The machines are also programmed to provide data that can be very critical for the companies we deal with as the machine can tell us which product is moving faster and what the consumption pattern is like. These factors are very important for companies like Britannia or Nestle. So we are in that sense providing comprehensive solutions to our clients.