coKe

Christine Peterson quintanus at hotmail.com
Wed Oct 27 23:03:29 PDT 1999


you might run across this on your own:

October 28, 1999

Coke Tests Vending Unit That Can Hike

Prices in Hot Weather

By CONSTANCE L. HAYS

aking full advantage of the law of supply and demand, Coca-Cola

Co. has quietly begun testing a vending machine that can

automatically raise prices for its drinks in hot weather.

"This technology is something the Coca-Cola Co. has been looking at for

more than a year," said Rob Baskin, a company spokesman, adding that

it had not yet been placed in any consumer market.

The potential was heralded, though, by the company's chairman and chief

executive in an interview earlier this month with a Brazilian

newsmagazine. Chairman M. Douglas Ivester described how desire for a

cold drink can increase during a sports championship final held in the

summer heat. "So, it is fair that it should be more expensive," Ivester was

quoted as saying in the magazine, Veja. "The machine will simply make

this process automatic."

The process appears to be done simply through a temperature sensor

and a computer chip, not any breakthrough technology, though

Coca-Cola refused to provide any details Wednesday.

While the concept might seem unfair to a thirsty person, it essentially

extends to another industry what has become the practice for airlines and

other companies that sell products and services to consumers. The falling

price of computer chips and the increasing ease of connecting to the

Internet has made it practical for companies to pair daily and hourly

fluctuations in demand with fluctuations in price -- even if the product is a

can of soda that sells for just 75 cents.

The potential for other types of innovations is great. Other modifications

under discussion at Coca-Cola, Baskin said, include adjusting prices

based on demand at a specific machine. "What could you do to boost

sales at off-hours?" he asked. "You might be able to lower the price. It

might be discounted at a vending machine in a building during the evening

or when there's less traffic."

Vending machines have become an increasingly important source of

profits for Coca-Cola and its archrival, Pepsico. Over the last three

years, the soft-drink giants have watched their earnings erode as they

waged a price war in supermarkets. Vending machines have remained

largely untouched by the discounting. Now, Coca-Cola aims to tweak

what has been a golden goose to extract even more profits.

"There are a number of initiatives under way in Japan, the United States

and in other parts of the world where the technology in vending is rapidly

improving, not only from a temperature-scanning capability but also to

understand when a machine is out of stock," said Andrew Conway, a

beverage analyst for Morgan Stanley. "The increase in the rate of

technology breakthrough in vending is pretty dramatic."

Bill Hurley, a spokesman for the National Automatic Merchandising

Association in Washington, added: "You are only limited by your

creativity, since electronic components are becoming more and more

versatile."

Machines are already in place that can accept credit cards and debit

cards for payment. In Australia and in North Carolina, Coke bottlers use

machines to relay, via wireless signal or telephone, information about

which drinks are selling and at what rates in a particular location. The

technology is known as intelligent vending, Baskin said, and the

information gathered and relayed by Internet helps salespeople to figure

out which drinks will sell best in which locations.

"It all feeds into their strategy of micro-marketing and understanding the

local consumer," Conway said. "If you can understand brand preferences

by geography, that has implications for other places with similar

geography."

Coca-Cola and its bottlers have invested heavily in vending machines,

refrigerated display cases, coolers and other equipment to sell their

drinks cold. Over the last five years, Coca-Cola Enterprises, Coke's

biggest bottler, has spent more than $1.8 billion on such equipment. In

support, Coca-Cola has spent millions more on employees who monitor

and service the equipment. In 1998 alone, it spent $324 million on such

support to its biggest bottler.

And last week, Coke's chief marketing officer unveiled the company's

plan to pump more sales of its flagship soft drink, Coca-Cola Classic.

The program includes a pronounced emphasis on Coke served cold.

Sales of soft drinks from vending machines have risen steadily over the

last few years, though most sales still take place in supermarkets. Last

year, about 11.9 percent of soft-drink sales worldwide came from

vending machines, said John Sicher, the editor of Beverage Digest, an

industry newsletter. In the United States, about 1.2 billion cases of soft

drinks were sold through vending machines.

In Japan, some vending machines already adjust their prices based on the

temperature outside, using wireless modems, said Gad Elmoznino,

director of the Trisignal division of Eicon Technology, a Montreal-based

modem maker. "They are going to be using more and more

communications in these machines to do interactive price setting," he said.

Industry reactions to the heat-sensitive Coke machine ranged from

enthusiastic to sanctimonious. "It's another reason to move to Sweden,"

one beverage industry executive sniffed. "What's next? A machine that

X-rays people's pockets to find out how much change they have and

raises the price accordingly?"

Bill Pecoriello, a stock analyst with Sanford C. Bernstein, applauded the

move to increase profits in the vending-machine business. "This is already

the most profitable channel for the beverage companies, so any effort to

get higher profits when demand is higher obviously can enhance the

profitability of the system further," he said.

He pointed to a possible downside as well. "You don't want to have a

price war in this channel, where you have discounting over a holiday

weekend, for example," he said. "Once the capability is out there to vary

the pricing, you can take the price down."

A Pepsi spokesman said no similar innovation was being tested at the

No. 2 soft-drink company. "We believe that machines that raise prices in

hot weather exploit consumers who live in warm climates," declared the

spokesman, Jeff Brown. "At Pepsi, we are focused on innovations that

make it easier for consumers to buy a soft drink, not harder."

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