Coca-Cola’s Vending Machines Get Smart
The Coca-Cola Company introduces smart vending machines that report inventory levels, control temperature, change prices, take mobile payments, and someday may even start talking.
Blessed Beginnings
The vending machine was invented in the first century C.E. by Heron of Alexandria to dispense holy water. Temple goers had a penchant for taking extra dips of the blessing, so Heron created a coin based system that poured only as much holy water as was due.
The early mechanics were very similar to today’s system, but the vending machine was not seen again until many centuries later, in the 1880s, when it was resurrected for postcards and paper by Percival Everett [1]. Since then, vending machines have been a staple of movie theaters, gas stations, corporate offices, and dorm room basements.
Now, the vending machine finds itself in an era of digitalization. When Amazon or Instacart drops off Doritos on doorsteps before you can scrounge up an old wrinkled dollar bill, and cash and coins have disappeared for credit cards and mobile payments, what is the use of vending machines?
The challenge for the Coca-Cola Company, with millions of vending machines worldwide, is how to rethink the old technology for a new world.
The Digitalization of Supply Chains
In the TOM beer game simulation, we experienced how difficult it is to manage a supply chain with limited information. Among the challenges were unpredictable or unknown customer demand, stunted information flows, independent decision making, bullwhip effects, and general panic. In the real world, with firms managing multiple products and players, the task becomes significantly more complex. To address these challenges, effective supply chains integrate operations and information flows using digital platforms.
With the digitalization of supply chains, companies are faster, more flexible, more customized, and more accurate [2]. A key trend is “The Internet of Things.” The “Things” are products embedded with computers and connected to the internet. These devices offer beneficial monitoring, control, optimization, and autonomy to the firm [3].
The rewards to the company and to the consumer are plentiful. Customers receive a more convenient, quick, and customized experience. Firms can expect a 4.1% increase in efficiency gains and a 2.9% increase in revenue annually [4]. To stay competitive, the question is not if but how will companies digitize their supply chains by making use of smart, connected devices.
Coca Cola’s Smart Vending Machines
Coca-Cola has an answer, and you guessed it: smart vending machines. Over the next couple years, the company is deploying a vast network of smart machines across the U.S. and New Zealand. The devices provide data on stock levels, customer behavior, and machine conditions. As a result, Coca-Cola is better at managing inventory, forecasting demand, and performing machine maintenance. The smart machines control temperature, keep a history of past transactions, and allow for dynamic pricing.
- Running low on Cokes in Tuscaloosa? Coca-Cola receives a low inventory warning which prompts restocking orders. Shipping and transport are optimized to get to the neediest machines using the most efficient route.
- Not selling enough Powerade in Tallahassee? Coca-Cola drops prices to move older items off the shelf. It deploys promotional videos and ads on the vending machine screens to catch the attention of the thirsty passerby.
- A machine in Talladega is breaking down? Signals are sent back to Coca-Cola when a machine is in need of repair so the team can fix or replace it.
Not only is Coca-Cola reaping the benefits, but the smart vending machines are also good for vendors and customers. Vendors get access to the supply chain information through an online portal. The portal shares new product updates, customer targeting research, pricing suggestions, and shelf optimization recommendations. Customers get convenience, reliability, and availability. Touch screens allow for easier ordering. Customers can pay with their mobile phone. Coca-Cola even offers a program called “My Coke Rewards” that provides loyalty points [5].
In the medium term, Coca-Cola is working on a next generation features powered by artificial intelligence. A chatbot will be installed in the machine, acting as both an order management service and customer support. It will send customer feedback and preferences back to Coca-Cola. Customers will be able to order ahead and then pick up the item from their chosen location. There are plans for facial recognition software that tracks the customer expression, age, and gender to give the company more consumer insights for customized product recommendations and targeted ads [6].
To Coca-Cola, I say go forth with proper controls. As we enter the Industry 4.0 era, artificial intelligence and facial recognition technology will become commonplace but they require good control systems. Chatbots can easily be annoying to customers. Privacy issues need to be address seriously. Cyber security will be critical. No doubt a temple visitor back in the day tried to hack the first vending machine for some extra coins and holy water.
Should Coca-Cola move forward with A.I. chatbots and facial recognition? Will its vending machines stand the test of time or falter in the digital era?
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References
[1] Segrave, Kerry. (2012). Vending Machines: An American Social History. Jefferson: McFarland & Company.
[2] Alicke, K., Rexhausen, D. and Seyfert, A. (2017). Supply Chain 4.0 in consumer goods. McKinsey&Company, April.
[3] Porter, M. and Heppelmann, J. (2014). How Smart, Connected Products Are Transforming Competition. Harvard Business Review, November.
[4] Schrauf, S. and Berttram, P. (2016). Industry 4.0: How digitization makes the supply chain more efficient, agile, and customer-focused I. PWC.
[5] Cokesolutions.com. (2017). FLO.CokeSolutions.com Is the Ultimate Resource for Full Line Operators. [online] Available at: https://www.cokesolutions.com/vending/articles/flocokesolutionscom-is-the-ultimate-resource-for-full-line-operators [Accessed 15 Nov. 2017].
[6] Yates, N. (2017). Vending machines are getting smarter with machine learning and facial recognition. [online] VentureBeat. Available at: https://venturebeat.com/2017/10/21/vending-machines-are-getting-smarter-with-machine-learning-and-facial-recognition/ [Accessed 15 Nov. 2017].
It’s exciting that vending machines have innovated so much! However, the facial recognition idea frightens me. I also think it is a poor idea for Coca-Cola’s business. Facial recognition in vending machines clearly benefits Coca-Cola without any similarly meaningful gain for customers (I doubt they care for product recognitions or targeted ads). In addition, it is sure to set off customers’ creepy meter. This violation of privacy could significantly hurt Coca-Cola’s reputation and turn customers away from its brand.
As this article aptly demonstrates, much of the digitization of supply chain functions is as much a response to the technologies now available as it is to the ways in which customer behavior has changed as a result of their emergence. Consequently, when it comes to purchasing a soda through facial recognition or getting serviced via chatbot, I think it is more a question of when vs. if. Given iPhone X opens through facial recognition, and many companies are already using chatbots for orders, e.g. Spotify or Whole Foods, it would appear that the technology is not only here, it is already changing consumer behavior.
Thus, while these technologies may not be the most applicable to vending machines, I do think Coca Cola should move forward in exploring their use cases. As a company whose worldwide footprint is immense, I would imagine that its vending machines will at least stand the test of the time for the next 20-30 years as a key mechanism for distribution given access to Coca Cola products is far from even.
Very interesting post, particularly because vending machines have the ability to provide very targeted information on micro-neighborhoods around the world. Relative to the broader supply chain where Coca Cola distributes to wholesalers, it would be interesting to see how information gains achieved through B2C vending machines can impact the B2B supply chains. Alternatively, does this facial recognition and other technological advances set the stage for direct-to-consumer Coca-Cola where patters around consumption can be timed to certain home-delivery products in the future?
I agree with others that facial recognition is the developing technology that most concerns me. Though I personally think it is excessive and could receive significant consumer pushback, perhaps the right messaging and a smart implementation/launch plan could help mitigate such concerns. I am also curious how, if at all, the machine’s dynamic pricing control will affect vendor compensation and, consequently, Coca-Cola’s relationship with the vendors; they could potentially be hesitant to adopt these new machines.
I thought this essay was fascinating. I had no idea Coca-Cola was pushing forward so much innovation and change with its vending machines. I think your warnings are wise given the growing prevalence of hacks and consumer data privacy leaks. However, in this particular case, I am particularly excited about the power of chat and facial identification. The ability for a vending machine to identify me and provide me a specific item I have ordered and/or the ability to obtain products better tailored to my preferences vastly increases my utility from the vending machine. I also think smarter vending machines have significant potential to improve the welfare of the American population. Japan, which has the highest ratio of vending machines to landmass, offers an interesting case study. Many individuals in the country will purchase a range products from these machines. Roughly ~14M Americans live in a food desert (USDA). While setting up new grocery stores is costly and time-consuming, using smart vending machines to serve these individuals could be an interesting option.
Fascinating post, Monica! I agree that embracing digitization appears not to be an option for Coca-Cola, rather a required step in remaining competitive. Not only do I see smart vending machines as an opportunity to reinvigorate the brand and provide short-term promotional benefits, but also, as you highlight, these machines are a clear source of cost-savings and inventory management for the company and vending machine owners. However, beyond the cost reductions and improved supply-chain efficiencies, I see the consumer behavior data that these machines provide as the most critical reason for Coca-Cola to continue to digitize. Like you, I worry that invasive technologies such as facial recognition may be detrimental to Coca-Cola’s brand, which is why I see digital features, such as “My Coke Rewards,” as the most advantageous avenue for the company to pursue. With the rise of on-demand services and the effect this has had on consumer behavior, I do not see vending machines as a winning proposition in the long-run. However, I believe they are an intelligent way through which Coca-Cola can test promising digital services, which will be how I believe Coca-Cola can remain competitive in an increasingly digital world.
Woah! Super cool article. This is technology I wasn’t aware about. To address your question at the end..absolutely! I think AI technology is going to revolutionize how CPG companies supply their products. To have technology that helps you optimize supply on Coco Cola’s side but also have real time data on demand and understand customer behavior – that’s a win/win situation. Looking at our beer game challenge though I question if demand insights directly for the customer will truly help. However, they will surely see large efficiencies on the supply side.
Very interesting article! It raises a lot of questions, many of which have been listed above, so I will focus on one. There is always a temptation with new technology to over-invest and wander down the rabbit hole of things that are interesting but may not add value (one pertinent example could be apple’s investment in Animoji). While the direct costs are often stated as low (adding facial recognition to a vending machine may be a simple low cost sensor), they are often far greater in the form of management attention. Coca Cola should think seriously about whether some of these “advances” are really worth pursuing as a potential first mover, or if they should instead adopt a fast-follower approach and let someone else do the upfront legwork (like figuring out how to use facial recognition data to inform promotion strategy). Is there really an advantage to be gained by doing this first? Or would you capture 90% of the value by waiting, while avoiding distracting management from broader issues (like combating changing consumer tastes for sugary beverages)?
Coca-Cola’s smart vending machines present an incredible alignment of operations and marketing objectives! Not only do they provide all the supply chain benefits of real time digital inventory tracking, but they are also enabling an enhanced customer experience through optimized pricing and promotional practices. In an increasingly digital world, consumers are constantly bombarded with messaging, and it is more important than ever to maximize every engagement a company has with its customers. While I share your privacy concerns, I am optimistic about Coca-Cola’s investment in AI chatbots and facial recognition software, because they will generate rich insights that will allow Coca-Cola to deliver an even more customized and optimal experience.