Following is a ShareChat Investor Interview with co-founder and finance director of Vending Technologies Limited (NZSE: VTL), Mervyn Doolan. This interview was conducted during May 2001 and posted on ShareChat on May 29th, 2001.
SC Investor: What are your expansion plans in New Zealand?
Mervyn Doolan: Presently, VTL is continuing to seek snack and drink machine sites and is focussing on Auckland, Wellington and New Zealand. Both cities provide viable opportunities for VTL to secure profitable sites. We are also reviewing and targeting operators in the vending market with a view to acquiring those that meet our business criteria and outlook.
SC Investor: Does VTL have any loyalty or rewards programmes planned? For example, use a smart card, credit card or pay by mobile phone and get the tenth packet of chips or can of drink for free?
Mervyn Doolan: VTL's technology gives us a unique advantage when it comes to promoting successful loyalty programmes. This allows people to pay for food or drink in a way that suits them, whether by credit card or mobile phone. It also means that we can remotely programme each vending machine to dispense, for example, two products for the price of one, or sell products on special at any time of the day or night. We are also working to enhance this technology with one of our main supply partners, Cadburys. You can expect to see more of this exciting feature in the future, particularly in association with new product launches.
SC Investor: Why did you choose Rio Beverages for an alliance over Frucor? I think the ability to sell V would have been a popular decision on your part.
Mervyn Doolan: The agreement we have with RIO allows us, and consumers, to get the best of both worlds. We can select from RIO's full range of products including the popular e2 fruit juice as well as selling other products including V if we wish. The agreement which we made allows us to enter various markets, and does not preclude us from selling various types of products. This means we can keep more lanes open and provide consumers with choice through a better range of products. We are only limited, in some instances, by fixed term product signage and facing rights on the exterior of the vending machines.
SC Investor: How important are soft drink sales to the company's profitability? Does the company have a breakdown of which products it sells the most?
Mervyn Doolan: All of our product sales, including soft drinks, are important to us. Since VTL began in 1997, we have maintained a balanced mix of drink and snack machines. At this point, the ratio between drink and snack is roughly 50:50. We do know that soft drinks contribute more in revenue than snack foods, although they are also subject to more seasonal variables. Thus, the demand for soft drink tends to be higher in summer than in winter.
VTL's vending machines are fully computerised and send sales information to operators on a daily basis. The data is analysed in various categories including quantity, revenue and overall profit contribution. This means that we can track sales as real time data, although this is not yet available online. Our technology also keeps a record of all historical sales information that allows us to track trends and patterns in consumer demand and purchasing habits. VTL's category management system enables us to determine which products are achieving growth and which ones are under selling. Products that are not delivering adequate sales can either be placed on promotion until they increase in turnover or are replaced with an alternative item.
SC Investor: How is your expansion into Australia going? Is there much competition over there? Does it have a sales force on the ground?
Mervyn Doolan: Australia is a growth vending market where we are achieving sales growth and meeting our planned business objectives. Apart from opening offices and establishing sales teams in Melbourne and Brisbane, VTL has achieved significant market share in these markets in the short time we have been there.
There is active competition in the Australian vended market, including the likes of Coca-Cola vending and Smiths Crisps vending. We welcome the competition and meet this head on with our ability to provide product choice and greater profitability in smaller sites. Our competitors in Australia have tended to concentrate mainly on the high turnover sites such as railway stations, hospitals and universities. However, they lack the choice that our vending machines provide, as well as the economic viability we secure with the high turnover of our products. Consumers like the choice that VTL vending machines provide, such as the ability to buy Coca-Cola or Pepsi from the same machine. As a result VTL has been very successful at capturing high turnover sites previously occupied by our vending competitors.
SC Investor: There must be a lot of vending competition in countries like Japan and the US where there are lots more machines so why are the prospects for your company so good?
Mervyn Doolan: Japan and the United States both have established, mature vending markets. In the US alone the sales of food and drink vended products in 1999 was worth US$35 billion. Both countries combined have over 10 million vending machines, which is a high proportion per head of the population. In Japan there is one vending machine for every 23 people compared to one per 150 people in Australia, and one per 300 people in New Zealand.
However, most of the machines in Japan and the US do not have smart technology and so cannot communicate or be managed remotely. As a result, managing these 'blind' machines can be difficult and inefficient. For example, users have no idea of which stock is required or the operating conditions of their machines until they are serviced.
Not surprisingly, VTL has identified local operators Japan and the United States as potential growth markets for its VendSmart technology. We believe we have a business advantage due to the fact that both these markets have older equipment that will need to be updated with new technology in order to meet demand.
VTL has two other significant competitive advantages. Firstly, VTL offers the choice of top brand products, irrespective of the manufacturer. Machines operated by manufacturers normally limit the selection of product in their vending machines to their own brands. The majority of machines in Japan, for example, are owned by manufacturers, such as Coca-Cola, Suntory, Nestle etc.
Secondly VTL's technology is capable of converting existing and new vending machines into point of sale terminals. The technology provides a computerised management system capable of tracking all transactions with complete revenue accountability. The software enables the operator to keep track of machine transactions by individual product, cash collections, and total product sales.
SC Investor: Which is the most important country for your company's growth?
Mervyn Doolan: For the immediate future, Australia is the most important market. Australia's relatively large population base and lack of vending operators provides VTL with the ability to grow in this market alone at double-digit figures for many years. The Directors are also investigating the feasibility of transferring the business model used in both New Zealand and Australia to a number of different markets.
SC Investor: Which part of your business provides the best margin - overhauling outdated machines, your smart software, getting money from products sold in machines or manufacture of machines for the local and export market? Are there any other forms of revenue I haven't mentioned?
Mervyn Doolan: VTL obtains both new and second hand machines. We then install VendSmart, our proprietary software, as well as added technology in all of the machines. Once the vending machines are converted, they then provide us with several income streams including:
- transactional income from the sale of products through the equipment;
- the sale of machines under management contract;
- the sale of signage on the machines to fast moving consumer goods companies such as Cadburys;
- license fees paid by operators using the technology, and;
- rental payments for the use of machines.
SC Investor: I read somewhere that as well as manufacturing and servicing machines you also own a number of them and earn money from selling the products in them. Do you do this just in New Zealand or are you planning to do this overseas as well?
Mervyn Doolan: VTL does not manufacture machines. Normally we get our machines from two sources, either from other vending operators when acquire their business assets, or from manufacturers in New Zealand, United States, Europe and Japan.
VTL currently operates vending machines in both New Zealand and Australia, and is planning on operating machines in a number of different overseas markets as well.
SC Investor: How much money does the company earn per machine for having it branded like I think you are doing with Rio beverages?
Mervyn Doolan: The amount of money earned depends on the type and size of the machine concerned. In RIO's case, they have agreed to pay an amount per machine for signage for a six-year period plus an agreed number of facings per each machine.
SC Investor: Are you surprised by the success of your company's share price since listing? Why do you think the market has rated it so highly especially when you are really only delivering the kind of growth that you forecast in your prospectus?
Mervyn Doolan: The success of VTL, as reflected in its current share price, didn't come as a total surprise as we have worked hard since day one to achieve the best performance targets and growth for our shareholders. I am personally delighted the share price has continued to rise since listing, which no doubt also reflects the fact VTL met its half year forecasted results. In addition, we also successfully launched our VendSmart licensing opportunity, and secured significant signage contracts with Cadburys and Rio which helped us meet our targets.
These latter initiatives were introduced after the prospectus was issued, and as well as growing the company have also reduced shareholder risk by making VTL more viable. VTL's business model provides for long term sustainable growth and quality repeat income, and the market has responded by giving the company's shares a high rating. This business model is flexible and adaptable, meaning it is likely to work in the overseas markets we will target in the future.
SC Investor: Hi Merv I'm from the tourist mecca of Rotorua. I still haven't been able to spot one VTL machine yet, which I believed were to put the local dairy owner out of business if your statistics for Asian and American demand for your machines are correct. Why ain't these machines here in every Rotorua sleepover?
Mervyn Doolan: Hi - Watch this space! We are aware of demand and will try and meet this accordingly. However, at this stage VTL has limited its rollout of machines in New Zealand to Auckland and Wellington. Presently, and for the next 12 months we see Auckland and Wellington as our main focus. Added to this is the fact that there is a bigger growth and demand for our machines in Australia. Our vending machines in Melbourne and Brisbane are returning greater average returns than similar machines in New Zealand, so for now more equipment is being placed in the Australian market to meet this demand.
ShareChat thanks Mervyn Doolan for taking part in this Investor Interview.