Retailing: Automatic Millionaires

Few U.S. businessmen have more ostensible cause for self-congratulation than the men who run the automatic vending industry. Though an infant among U.S. industries, vending has already spawned 30 millionaires, many of them in the past two years. Total industry sales, which amounted to only $1.1 billion a decade ago, are expected to run $2.8 billion this year, will probably reach $4 billion by 1965. Yet last week as more than 10,000 vending machine operators met in Chicago for their annual convention, they were concerned rather than complacent. Their problem: how to survive the flood of new electronic marvels that are forcing men who once made a tidy living with candy, cigarette and coffee machines into the complex business of vending entire hot meals.

Already vending machine operators are running more than 3,000 automated canteens for U.S. industrial firms, schools and colleges. For the customer (if not necessarily the eater) the deal is an attractive one; it offers a means of at least breaking even on employee or student meals. But the operators themselves have yet to find a way of making hot food vending pay. The reason: vending machine food remains fit to eat for only about four hours after it is cooked. Laments Chicago’s Automatic Canteen Co. Chairman Frederick Schuster: “The amount of food you have to throw away at the end of the day is just staggering.”

Unprofitable as it may be, however, a contract to operate a plant cafeteria generally carries with it the right to operate cigarette, candy, coffee and soft-drink machines. To hang onto these highly lucrative concessions, the vending operators have been obliged to push ahead with hot food service. The result has been an industry shakeout so violent that in the past two years, more than 300 of the nation’s 6,000 vending companies have either gone out of business or have been absorbed by emerging industry giants that have the capital and facilities to survive.

The Comers. Fastest moving of the new Goliaths is Los Angeles’ Automatic Retailers of America. Incorporated less than three years ago, A.R.A has absorbed 37 smaller companies, and in its latest fiscal year reported a sales increase of 140%. This year, with 60 hospitals, 200 schools and colleges and nearly 40% of the top 500 U.S. industrial corporations among his customers, A.R.A. President Davre J. Davidson confidently expects sales to hit $150 million. Says he: “We are a volume operation, working on a 3% to 4% profit margin.” (Profit margins for the industry as a whole average 4.6%.)

A.R.A.’s rocketlike rise makes it a serious challenge to the once unchallenged monarch of the vending industry, Chicago’s Automatic Canteen Co. Another fast comer is Interstate Vending Co. of Chicago, which has bought 25 companies in the past year and recently acquired New York’s Brass Rail restaurant and catering chain. (A pioneer in preparing restaurant-quality dinners for vending, Brass Rail supplies machine-served meals to General Electric employees at G.E.’s New York home office.) Interstate’s President Ronald Wolff, 31, has made himself one of vending’s new millionaires since he started the company in 1955, expects sales this year to hit $60 million v. $42.6 million last year.

Mud Machines. Vending’s technological revolution got its start right after World War II when Bert Mills Corp. of St. Charles, Ill., and Rudd-Melikian, Inc. of Hatboro, Pa., came out with hot coffee machines. Despite the unappetizing flavor of the first machine-served coffee—variations on Mississippi mud—it was an immediate success, and Rudd-Melikian Chairman K. Cyrus Melikian and President Lloyd Rudd are two more of vending’s instant millionaires. It was coffee, too, that started Interstate’s Wolff off seven years later when he got exclusive rights to the first machine to prepare coffee from actual grounds instead of powders or concentrates.

Coffee, which accounted for 19% of their total sales last year, is still the vending operators’ most profitable item, and some of them occasionally wonder why they ever pushed on into food vending. Says Wolff: “Installing a coffee machine is a fairly simple operation, but when you start vending rolls to go with the coffee, you are already in trouble.” Most vendors, however, believe that solving the costly problems of hot food selling is only a matter of time. Wolff’s Interstate is currently testing a quick-cook process designed to heat a complete frozen meal in 15 seconds. If the radar stove works, food waste in automated cafeterias should be much reduced. The optimists among vending operators look forward to a time when they will be taking in as much as $15 million a day on meals alone.