The economics of vending machines

Japan has so many, but why?  You can cite love of gadgets, etc. but I want something more general.  After all, Japanese retailing has a very high ratio of small stores serving a local clientele; surely Japanese vending machines are another example — albeit an extreme one — of that more general trend.

First we must look to the shortage of storage space in homes.  I suspect few Japanese want to buy big piles of stuff at Costco.  So buy smaller "portions" and in the meantime the inventories are stored in the vending machines, where they are more or less at your disposal. 

Cars of course are another means of storage and also a way to transport goods in bulk (NB: you carless people have a hard time pigging out at the public library, you poor souls).  But most Tokyo residents don’t use cars so again they buy goods in smaller numbers which again points us to the vending machine.  Buy one disgusting sweet fizzy juice, drink it on the spot, and walk to your nearest vending machine when you need another one.

You’ll notice that vending machines are especially popular for canned and bottled liquids, where the ratio of storage and carry costs to per unit value is relatively high.

This article associates vending machines with the nomadic lifestyle.

Comments

The number of vending machines in Japan could perhaps be explained by the general anti-social/socially awkward behavior amongst the Japanese. Use a vending machine and you get to avoid human interaction. Prejudice? Maybe, since it does not explain why vending machines primarily hold beverages. It's probably an important explaining variable, though.

Total stab in the dark, but could it have anything to do with the fact that it's been easier to carry coins in Japan since they're hollow in the middle?

We have cheap labor to serve fast food and drinks from immigrants and teenagers. Japan has few immigrants and I don't think their teenagers work.

I would also look at the storage space for humans in stores. Shops require expensive ground floor space. If you can eliminate the space the human takes up to manage the store and space shoppers use to enter and browse, you can store more compactly. It's seems a little counterintuitive to think that the storage space could be more valuable than a human occupant.

Tokyo has more restaurants per capita than any city in the world. Most urban Japaneses rarely make a meal at home (I've observed that its nearly the same in Hong Kong). Could it be that there isn't enough restaurants? I think cheap labor is also an issue.

I've never actually bought anything from a vending machine in Tokyo as the average restaurant is so much better than in the states (although I confess on my last day of my last trip I ate at a mcdonalds).

"Shops require expensive ground floor space."

Never been to Tokyo have you? Shops and restaurants are frequently 3, 4, 5 stories off the ground.

Whoa! Haven't been to Tokyo, but always wanted to.
Are the vending machines only on the ground level?

Also, here's an automat in NYC: http://www.bamnfood.com/

Surprisingly, Costco seems to have found success in (suburban, though not "suburban" by U.S. standards) Seoul. The wide selection of items both within and across segments at Costco compared to vending-machine items or convenience stores means that thousands of Seoulites every day brave harrowing traffic and parking conditions to visit the local Costco or E-Mart.

Sorry about previous post...

There’s an easy answer: protectionist regulations. The "high ratio of small stores" is a byproduct of law: super-malls and big stores like Carrefour/Walmart aren’t allowed to be built there, and small stores are protected by a minimum distance between them, so the consumer is vastly underserved and the market responds with zillion of vending machines, effectively bypassing the regulations.
This distortion created by regulation is not the only one in Japan: the highly-unionized labour market in industry (much more in the past than now), caused a very deep labour-capital substitution, and now Japan is a worldwide leader in robotics, with the highest percentage of robots per worker. And currently, the highly-unionized and unproductive service sector is causing another labour-capital substitution: those crazy robots to take care of the elderly...

Stab in the dark, but an aging population needs to bring in immigrants or robots to do its labour. I've heard before that Japan is one of the few countries to take the robots option seriously.

I have heard from expats that the painful level of politeness demanded of even small human transactions adds to the appeal of automation. this wouldn't be an issue when buying a car, but could be tedious when all you want is a coffee.

but the low crime rate must also be a contributory effect: the machines even sell beer, something no machine in London could survive with for more than two hours.

If the Japanese have more vending machines because of the difference in crime rates, as the New York Times article from 1992 pointed out, then we can see one more hidden cost of U.S. crime: U.S. consumers must wait in checkout lines at convenience stores rather than being able to grab and go as do the Japanese. Certainly Japanese consumers might experience brief queueing at their vending machines. But a Japanese consumer who wishes to buy a soft drink does not have to wait while the woman in line in front of him buys 4 lottery tickets using the birthdates of each one of her preschool children.

Awkward social interactions and levels of politeness have nothing to do with it. (Robert, you're right that your response betrays your prejudice.) My local convenience stores have impeccable and highly efficient service - nothing awkward about it. (I can't really see how interactions *among* Japanese people are socially awkward - perhaps you're thinking of Japanese tourists trying to speak a language that they're uncomfortable with, or people in Japan dealing with foreigners who don't speak Japanese very well?)

I tend to agree with others that one of the major factors is floor space. Japanese convenience stores are the same size as or smaller than those in the US, but they seem to carry a much wider variety of merchandise. Besides having about 30 kinds of beer, they have a lot more prepared foods, dress shirts (and loads of other Muji products), sometimes even iPods. Why not move some of the higher volume merchandise to a vending machine and save some floor space? The vending machines are also more appealing generally - besides being vandalism-free and having a good selection, they offer hot coffee, tea and soup in the winter and cold coffee and tea in the summer (both in the spring and autumn). One other thought: Japanese people, especially salarymen, tend to drink a lot. Being able to buy a sports drink or other means of rehydration every fifty feet comes in very handy after a long night out.

Brainwarped, you're right about the cell phone payment - except that it's not coming, it's already here. It's not widely used yet, but newer phones have Metro Cards built in - and you can already use prepaid Metro Cards to pay at many vending machines, stores in and near bigger stations, convenience stores and taxis. If you get a newer cell phone with the card built in, you can pay at those places by just swiping your phone at the sensor.

Pokari Sweat is good, but don't forget Calpis. Similar strange, but surprisingly good, taste. They had to change the name to "Calpico" on cans that are exported to the US (primarily, if not exclusively, to Japanese stores in big cities).

Sorry if someone already answered this question, but I didn't see it... Is it true that the vending machines in Japan don't have the theft-deterring bar where the item comes out? I.e. in the U.S., you can't stick your hand up into the machine to grab the stuff, but someone told me in Japan you could. (But of course nobody does.) So it that true?

As John Dewey, Bill Wallace, and others posted above, it's the crime. Walking back from playing some basketball one evening in the outskirts of Tokyo a few years back, some friends and I were trying to come up with explanations for why the US didn't have many vending machines. The Brooklynite of the group simply noted that the machines would have an uptime measured in hours in his neighborhood. I admitted to jimmying my way into some when I was a teenager, in a very rural part of the country. I'd be curious if there's a correlation with petty theft/vandalism vs. vending machines over the years.

On a related note, vending machines have made a comeback in the USA in a different form: self-service checkout in Home Depot, gas stations, et al. The productivity gains for automated retailing should be pretty obvious, so again, I suspect you'd see "vending machines" still be popular in the USA as long as it's in a way that's harder to vandalize or cheat.

Interesting, that in North America, vending fraud is the staple for FTC enforcement actions.

Simple to enforce, with a reasonable chance at scooping enough to pay for the litigation and the fines.

Tyler, I went out early this morning in Tokyo and saw this vending machine:

http://flickr.com/photos/dbw001/2509430091/

Can you explain why Japanese bank ATMs charge a commission after normal banking hours? Including if you want to make a deposit. Doesn't sound profit maximizing. (Citibank doesn't though).

I've been here (Tokyo and nearby) a long time and my only hunch is that people just think, well, it's always been that way so that's the way it has to be.

Cowen: "you carless people have a hard time pigging out at the public library, you poor souls"

Psyche: "With a backpack and bike, I can easily carry a dozen books to and from the library. The real limit on my pigging out tendencies is the hours - the branch library is only open two evenings a week, and not at all on Sunday."

I'm with Psyche on this. Although I own two cars, I do like to walk to the library since it's only 1/2 mile away. If you can't carry, in a backpack, the number of books you're likely to read in the next week, you either don't have a job to occupy your time (in which case you can walk back to the library frequently) or you have some serious health problems. Since Cowen does have a job, and is in good enough health to travel, I don't think either applies to him--so clearly he could pig out at the local library without a car, if it's within walking distance.

I love Cowen's books, and assign them to my political economy classes, but his anti-carless smugness is just as annoying as the anti-car crowd's smugness.

@Robert -- if the Japanese use vending machines due to social awkwardness, then why do you not see more vending machines in the UK, which has roughly the same national characteristic? Not that the UK is short on vending machines -- just that it's about the same as here in the US, a supposedly more extrovert country.

I think Rory's theory immediately above is better. Vending machines are a painless way of offering multiple sales channels because if they're in front of the owner's store, stocking them is merely a case of stocking another shelf, one that happens to be outside the front door and accessed with a key. And yet to the customer, the vending machine is a distinct sales channel, as in right there -- no time wasted to go in the store or stand in line.

Rory's right about the more outlets/more sales opportunities model. However, let's not overlook a simpler partial explanation: The Japanese love of all things technological. Vendomats over there are much more inclined towards bells, whistles, and other attention-grabbing devices. And Japanese vending concessionaires enjoy a greater degree of certainty that their investment in the machines won't be endangered by random defacement or vandalism.

Then there's the fact that coin-op machines (e.g. Pachinko) in the immediate post-war era permitted the average Japanese to purchase entertainment without the costs associated with ownership--this translated to other coin-ops. That's a consumption habit that's been passed down through generations.

'Disgusting sweet fizzy juice' is not actually very common in Japan. Sweet things are not too popular there. Most Japanese soft drinks are like less sweet versions of Gatorade.

I think the low level of street crime and the high level of density make it possible to have so many vending machines. As a previous poster noted, vending machines wouldn't last too long in Brooklyn because someone might break into it and steal all of the goods or money.

Similarly vending machines wouldn't do so well in safer locations like the suburbs because there is next to no foot traffic.

Vending machines in the USA generally flourish in areas that have a high level of foot traffic along with a fairly high level of security. This is why you'll find a good number of vending machines on college campuses, office buildings, and grade schools.

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