[businesses].”

According to documents from the FDA, “In the case of the proposed rule, FDA estimates that there would be approximately 10,800 operators under the proposed requirements, controlling between 4 million and 5.6 million machines that sell covered vending machine foods.”

What are the estimated costs of compliance? 

The FDA speculates that the estimated cost of compliance could be as much as $141.4 Million annualized over ten years at a 3% discount rate. Although their impact analysis says “[The] FDA estimates that average per machine costs are less than $10 annually,” my math (using an estimate of 4.8 million affected vending machines and those FDA cost estimates) shows a range of $5-$29.40 average per machine, depending on which of the proposed regulatory options for the Rule are employed.[quote style=”boxed” float=”right”]The money that would be spent to comply with this — there’s no return on the investment[/quote] Eric Dell, National Automatic Merchandising Association’s (NAMA’s) VP of government affairs claims that compliance could cost operators an initial investment of $2400 and another $2200 annually. “The money that would be spent to comply with this — there’s no return on the investment,” says Dell.

How long do I have?

The proposed rule calls for a one-year grace period once the FDA finalizes and publishes the rules for covered vending machines; NAMA is calling for two years for the vending industry to comply, as well as other flexibility within the rules.  Although many snack food and beverage operators consider vending operators a lower priority market segment, some brands have taken proactive steps to label the front of their single-serve packages with calorie counts, including SmartFries, Michael Seasons, GuS sodas, and YogaVive.

A late December AP article has brought a lot of attention to these proposed regulations, and the vending industry has been vocal. However, as of right now, the FDA is still in the midst of its rulemaking process and are reportedly still reviewing and responding to over 900 public comments on the proposed rules and effective dates. The public comment period is now closed, but we’d love to hear your feedback.

–Would knowing that a Snickers bar, a can of Coke, and a bag of Doritos is 539 calories deter you from buying them from a machine?

–Would you be more likely to buy something you’ve never tried before if it said it was only 80 calories?

–How do you think this will impact your vending business?

The business partners began by selling a single product out of a truck as they drove throughout the Midwest. Today, Norman distributes more than 1,000 individual SKUs to 2,000 convenience stores and independent grocery stores throughout the Midwest. It also operates a direct store delivery system in Chicago, serving a high-profile retail roster that includes Whole Foods, 7-Eleven and Walgreens.

Many of the products Norman Distribution was carrying qualified as “healthy,” and several of the brands with which it worked were eager to make their way into vending machines. The Elk Grove Village, IL-based distributor also had received numerous inquiries from vending operators seeking such products. This prompted the owners to bridge the gap by creating HealthVend.

Heading up the “healthy vending” distributorship is division president Patrick Meyn. He joined the company in 2012 after serving as a consultant to a brokerage, where he had become familiar with the vending industry and its product distribution systems by launching a grab-and-go granola snack into 20,000 vending machines across the U.S.

About a third of the products Norman Distributing carries are well-suited for vending, foodservice and micromarkets, which helped HealthVend hit the ground running. HealthVend also benefits from its parent company’s distribution infrastructure, which underpins its fulfillment system.

HealthVend’s model is unique in that it provides operators with mixed-product pallets and flat-rate shipping to help them maximize “healthy” product variety while minimizing delivery costs.

“Our pallet program allows for orders weighing as much as 1,800 lbs. and standing 96″ tall for one flat rate, so our customers usually order two weeks’ or a month’s worth of product, which ends up being less expensive than other distributors’ weekly delivery fees,” explained Meyn. “Operators can buy a pallet of mixed products, all of which have at least a six-month shelf life, so they don’t have to buy a large amount of any one product and risk it going stale.”

He emphasized that HealthVend’s structure is a cost-effective way for operators to take delivery of healthy products, as long as they have the space to accommodate at least one full pallet at a time.

HealthVend can deliver to an operator’s warehouse or home. It also has shipping docks across the U.S. at which it can “drop” pallets of product for operator customers to pick up at their convenience. All of HealthVend’s snacks and beverages are shelf-stable. They range from Skinny Pop popcorn and Pirate’s Booty rice and corn puffs to Made Drinks‘ tea and juice blend, GoGoSqueez apple sauce and Enjoy Life chocolate bars.

Meyn said HealthVend analyzes the buying habits of each operator it serves, to ensure that enough of the product they order regularly is in stock at all times. It also works closely with its vendor customers to help them determine the products that best meet the tastes and nutritional demands of their clientele.

BUSINESS-BUILDER

Meyn reported that he has assisted new vending companies to get their businesses up and running over the past few months by helping them leverage HealthVend’s better-for-you products. He added that many operators use the company’s website as a selling tool to showcase to clients and prospective locations the range of wholesome snacks and beverages they can provide.

Another HealthVend customer recently opened his first five micromarkets — and didn’t know what to sell. “I pulled an eight-month history of a customer we have who runs 30 micromarkets and shared it with him, and his program has been very successful,” Meyn told VT. “Even though the other operator is not in his market, the majority of our products are a good fit anywhere in the U.S. where people want healthy alternatives. We don’t just sell product; we put our consulting hats on as much as we can, to help operators succeed.”

Eric Lutterman of Health-E Vend LLC (Franksville, WI), a HealthVend customer, reported that the brands it distributes differentiate the product choices he brings his clients from those of his competitors, and distinguish his company as a healthy vending specialist.

“Most of my products will not be found in traditional vending channels,” said Lutterman. “I’m able to purchase my wholesale products from HealthVend at a great price that affords me a nice margin, and I’m able to offer a premium product at a fair and competitive price to my customers.”

HealthVend’s portfolio of healthy snack and beverage brands is steadily growing. The company has brought in some products on a trial basis at the request of its customers, and they have earned a permanent place in the distributor’s catalog.

HealthVend also has the benefit of Norman’s brand-development expertise in delivering new lines to the vending channel. Skinny Pop Popcorn is one of the brands Norman helped launch, and HealthVend remains one of the principal distributors of the snack line in the Midwest. Meyn told VT that the company’s brand development side is working on a healthy dessert puff chip, and beverages that meet the USDA’s latest guidelines for school nutrition.

“A big part of what we do is work with smaller brands as an incubator for lines that larger distributors don’t pick up,” explained Meyn. “We have developed several brands and launched them into marketplaces nationwide. We help with everything from determining a package size and design through finding a co-packer, to creating sell-sheets and marketing materials.”

In some cases, Meyn explained, simply adapting the size of an existing product can make it suitable for sale through a vending machine and bring it into compliance with nutritional guidelines, such as those required by schools.

HealthVend has partnered with two of its large vending clients in the Chicago market to test new products. Its parent company also integrates up-and-coming vending products into retail tasting and sampling events throughout Chicago.

“We can leverage the shelf-space in our market and give brands a chance because of our relationship with retailers like Whole Foods,” Meyn told VT. “A vending machine is also a billboard, and so it’s a great way to promote a new or established brand.”

Many snack and beverage companies are recognizing the value in vending’s unique ability to showcase their products and drive trial, which Meyn said can benefit operators in many ways, including pricing. “HealthVend and Norman Distribution work to get better products at the traditionally accepted vending price-points by suggesting that brands consider exposure in vending machines as a marketing expense, similar to the window displays at Macy’s during Christmas,” he told VT.

In addition to distributing to vending and micromarket operators, HealthVend supplies its products to school districts, corporations and government organizations to assist in their healthy vending initiatives. It provides snacks and beverages to these organizations for resale, as well as for use in government-subsidized and employee discount programs.

In some cases, HealthVend works with school nutritionists, acting as the sourcing and buying company for healthy snacks and beverages sold in their vending machines, cafeterias and afterschool programs.

Although it may be a little too early to tell, these forward-thinking stores are doing very well. According to the NWSFA (2012), health-focused grocers, restaurants, and food-trucks are out-performing more traditional local independent grocery stores in key growth areas across the U.S.. Even convenience stores, with reputations for peddling junk food, cigarettes and beer, have made the leap. Reacting to the demand, and looking to attract more millenials – who statistically spend more on snacking than other generations – 7-Eleven stores have profited from a recent revamp of their snack section to include healthier snacks and organic options. “Better-for-you is one of the fastest growing segments of the snacking category,” Rebecca Frechette, 7-Eleven VP of Merchandising, told USA Today in an interview last month. Sure, I’m biased, but I would argue that healthy is THE fastest growing food segment, and with the combination of increased education and the growth of supply driving prices down, more access to better foods for lower-income areas will drive the market to even higher levels in the near future.

Corporations are also seeing value in providing their employees smarter options in break rooms, micro markets, and vending machines.  Way back in 2005, BYU published a study in Medical News Today that showed an ROI of 16:1 for every dollar invested in employee health and healthful food options. In 2008 Businessweek had reported that Microsoft had implemented a program that labeled food to make the better choices more recognizable, i. e. sugar-free had one color-coded icon, gluten-free another, organic sustainable, low-carb, dairy-free, vegan, etc. This program is similar to the City of Chicago’s 2013 Healthy Places Initiative, which labels vending machine options with stickers saying “Go,” “Slow,” or “Whoa,” based on their nutritional value.

What about Vending?

The trend has been obvious for years. Now that the pickier millennial generation dominates the snack-buying market, virtually everywhere one can find grab-and-go food and beverages caters to the health conscious with more nutritious and/or lower-calorie selections, and often offers allergen-friendly, gluten-free, organic options as well. Everywhere, that is, except most vending machines. Although there are a number of larger and/or more progressive vending operators that offer a more healthful section in their catalogs, why is this major segment of the F&B industry so slow to react? This concerning issue is something I will tackle in another post.

Is healthy for you?

Have you seen increased sales after expanding your selection of healthier foods and beverages? Share your thoughts about wholesale better-for-you snacks and drinks below.