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VENDING MACHINES REDEFINE CONVENIENCE RETAIL

BY JIM MCCARTNEY

Machines are cheaper than pharmacists, and they don’t go home at 5 p.m.

If “fast” and “convenient” are among the retail buzzwords of the day, can automated retail be far behind?

Vending machines have been part of the retail landscape for decades. (Remember those pull-knob cigarette machines?) But recent technological advances have made the “mechanical store” vastly more sophisticated. Furthermore, consumers have come to like doing their banking at ATMs or getting their gas at self-service pumps; if they know what they want, they can get it without waiting in line or interacting with a cranky store clerk.

Now this technology is being deployed in still more-sophisticated retailing machines, including one that offers 200 convenience items and another that dispenses drug prescriptions.

Consumers rate convenience and speed well above service and ambience, at least in convenience stores, according to a recent survey by the National Association of Convenience Stores. But the trend toward automation is also a way for retailers to cut labor costs and save space. What’s more, a recent study by the association says a worker shortage will soon become one of the industry’s biggest issues.

It’s already a huge issue with drugstore retailers, who have found it increasingly difficult to staff their pharmacy counters. Many 24-hour discount or grocery stores with pharmacies say they can’t keep those counters open much more than half the time that the rest of the store is open, if that. Over the past five years, about 12,000 pharmacy positions nationwide have gone begging, according to Mendota Healthcare, which manufactures a machine that dispenses medical prescriptions. Combine this with a boom in prescriptions ” up 50 percent over the past several years ” and you have the makings of a crisis.

There are compelling arguments for mechanizing pharmaceutical sales. Even if they could find the pharmacists, most discounters or grocery stores can’t afford to pay someone $100,000 a year or more ” the average pharmacist’s salary ” to stand behind a counter at 2 a.m. But it’s important to have someone, or something, there; the shoppers who come to the store to get their prescriptions filled are valuable customers, because they buy other merchandise, and they don’t like finding the pharmacy counter closed.

“There’s nothing more frustrating than to be a customer who goes to the store to pick up a prescription and can see it behind the glass of a closed pharmacy counter,” said Ken Rosenbloom, a former emergency room doctor at Regions Hospital, St. Paul, Minn.

That’s why Rosenbloom developed InstyMeds, a device resembling a large ATM that distributes prescription medicines any time of the day or night.

“Consumers can have the confidence that they can obtain their prescription at any time the store is open,” he said.

Automated Distribution’s Shop 2000 is a veritable mechanical convenience store, offering film, food, beverages, diapers and much besides.

Here is how Rosenbloom’s machine works: After the doctor prescribes medication on a handheld electronic device, he asks if the patient would prefer to get the drugs at a drugstore counter or at the machine. Those who choose the machine are handed a voucher with a security code. The customer enters this code on a keyboard, and the prescription drops into the machine’s bin. The machine processes the patient’s insurance and billing information over the Internet.

Rosenbloom says he envisions more than 100,000 sites nationwide at discount and grocery stores, drugstores and hospital emergency rooms.

Meanwhile, Automated Distribution Technologies of Exton, Pa., hopes for a similar growth curve for its Shop 2000, which is aimed at convenience stores and gas stations ” and is itself a virtual convenience store in an 18-foot-wide, ATM-like machine. The device offers a touch screen and accepts cash, credit and debit cards; it dispenses rolls of film, food and beverages, paper towels, detergent, diapers, pantyhose, toothpaste, condoms and even DVDs.

Europe may be further ahead in such convenience-store-in-a box units. Belgian manufacturer New Distribution Systems, for instance, has some 160 Shop24 units (the company calls them “automated convenience stores”) throughout Austria, Belgium, France, Germany, the Netherlands, Portugal and Spain. The company has an additional 150 units in the works, as well as agreements for up to 400 more.

New Distribution says its units, which sell some 200 different products, fill a niche between traditional vending machines that sell, say, 20 items, and convenience stores that distribute 2,000.

Automated Distribution installed its first Shop 2000 last year in the Washington, D.C., area. The machine offers distinct advantages, the company says. It cuts labor costs, exposes no clerks to the risk of armed robberies and occupies only 200 square feet of space, versus the 2,500 square feet needed for a typical convenience store.

“Gas stations will find these machines wonderful amenities,” said Rene F. Daniel, CLS, president of Baltimore-based Daniel Group, a retail brokerage that represents shopping centers. “In Europe you see them popping up at metro stops and train stations too.” But Daniel says he doesn’t expect them to appear in shopping centers anytime soon.

“I don’t see these machines as a big attraction for malls, because many of the items they sell could be in conflict with their tenants,” Daniel said. “You see a lot of Coke and Pepsi machines in malls, and that’s a nice profit into the landlord’s pocket, but it’s also not competitive with other tenants ” unless they have a food store.”

The only operating Shop 2000 machine at press time was the one in Washington, says Automated Distribution president and CEO Hettie Herzog.

“We saw a little spike in sales during the big snowstorm,” Herzog said, referring to the snowstorm that shut down the nation’s capital for the better part of a week in late February. “We’re talking with a lot of companies about a variety of different uses.”

Though the company focuses on college campuses, corporate sites, hotels and high-density public transportation sites, Herzog says shopping centers could be a market eventually.

The machines cost $80,000. How fast they pay for themselves depends on the vendor’s sales volume and profit margins, but Herzog estimates that sales could be as much as $100,000 or more per year.

Some shoppers prefer human interaction, and this, pharmacists say, is an especially big issue with prescription-dispensing devices such as InstyMeds.

“We think patients should have a pharmacist to talk to firsthand,” said Jody Cook, a spokeswoman for Camp Hill, Pa.-based drugstore chain Rite Aid. “Pharmacists are the last line of defense.”

Many pharmacists were angry with the Minnesota Pharmacy Board for approving the machine, said David Holmstrom, the board’s executive director. But he insists that safety was the board’s key issue, and it seemed “almost impossible that the machine would dispense the wrong drug.”

That does not placate the pharmacists.

“You’re taking the drug expert out of the loop,” said Julie Johnson, executive vice president of the Minnesota Pharmacists Association.

Stephen Schondelmeyer, a professor of pharmacy at the University of Minnesota and director of its PRIME (Pharmaceutical Research in Management and Economics) Institute, says he is concerned about plans to install the machines at discount stores, where there would be no one to answer questions.

But Rosenbloom says there are fail-safe measures in the InstyMeds process. The prescribing physician checks the patient’s list of other drugs, and the InstyMeds system pinpoints potential drug interactions. InstyMeds also has a 24-hour call-in telephone line attached to the machine so that patients can contact a pharmacist.

As long as the machine is not intended to replace the local pharmacist, it can serve a valuable function, says pharmacist Bruce Scott, vice president of resource management at Allina Hospitals & Clinics, a Minneapolis-based group of health care providers.

Rosenbloom says he got the idea for InstyMeds three years ago, when he had trouble filling a prescription for his 5-year-old son’s ear infection one night. Soon afterward he launched Minnetonka, Minn.-based Mendota Healthcare, which has a machine at Abbott Northwestern Hospital in south Minneapolis and recently installed another at North Memorial Hospital, North Robbinsdale, Minn.

Rosenbloom cites studies concluding that a quarter of all patients, especially in urban emergency rooms, don’t get their prescriptions filled because they lack transportation or because it’s too much bother. He expects to start installing his machines in a variety of locations within a year or so. These include rural areas, which have few pharmacists and where patients sometimes travel far to fill prescriptions after hours; large retailers, such as Albertsons, Cub Foods, Target or Wal-Mart; and drugstore chains that want pharmacists to spend more time consulting and less time labeling bottles. In fact, Rosenbloom hopes to pair up with a major drugstore retailer that would help distribute the drugs for a fee and to have its logo on the machine.

“We’re probably 12 months away from introducing [the units] to the retail market,” Rosenbloom said.

Mendota Healthcare leases space for its machines from each of its landlords. The leases typically run for five years and involve paying monthly minimum rent plus a portion of the dispensing fees, says Rosenbloom.

The machine also dovetails nicely with another trend in pharmacy: electronic prescriptions. By eliminating the physician’s handwriting, electronic prescriptions cut down on errors and speed up the processes of spotting drug interactions, checking insurance coverage and handling claims.

Some pharmacists say they worry that the machines could drain sales from drugstores, especially those in rural areas, and reduce demand for pharmacists.

That doesn’t seem to faze Buffalo Sterling Drug, however. The store is a three-minute drive from Allina’s Buffalo (Minn.) Hospital, which has had an InstyMeds machine since March. Says Buffalo Sterling pharmacist Mike Arone, “It won’t replace the family pharmacist.”

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