365 Retail Markets on the Future of Vending Machines

6/7/13Follow @XconomyDET

Last month, the Troy, MI-based startup 365 Retail Markets scored a financing round led by Ann Arbor’s Plymouth Venture Partners for an undisclosed amount. Plymouth Management Company partner Jeff Barry says the fund was attracted to 365 because of its 300 percent annual growth rate. 365′s CEO, Joe Hessling, expects that explosive growth to continue because he says his company is at the forefront of a sea change in the vending sector.

365 provides hardware and software to vending machine owners who are looking to cash in on the wave of the future: unmanned, miniature convenience stores. Hessling says the vending industry represents a $42 billion market, and many of the machines have been owned by the same families for generations—which means that the industry has done very little to update or innovate in the last 30 years.

“Even though it’s a very large industry, it’s a very dated industry,” Hessling says.

Hessling started a company a few years ago in an early attempt to innovate in vending machines. The company was setting up self check-out stations in hotels that used RFID tags to track the merchandise. It was a great concept, Hessling says, but the self check-out machines cost $20,000 apiece and the RFID tags were 13 cents apiece, which didn’t make much sense on a $1 candy bar.

The company eventually went bust, but Hessling says he learned a very important lesson: The public loved the idea of unmanned micro markets. Now, Hessling needed to find a cheaper way to do it.

“I took a step back and said, what should I do instead—use dumb old bar codes?” Hessling says. “I realized we had to. It was very simple, and consumers and vending owners were comfortable with it. Once we made that switch, it really changed the vending industry.”

In 2010, 365′s products were in more than 100 locations. Today, they’re in more than 800 locations. By 2022, Hessling expects his company’s products to be in 35,500 locations, everywhere from employee breakrooms to hotel lobbies to apartment high-rises.

The hardware is manufactured in the Detroit area, and 365 sells the hardware and licenses the software. “We’re a software-as-a-service company with a hardware component,” he says.

In the past year, 365′s staff has grown from 15 people to 45. Hessling acknowledges that there’s a lot of competition in the vending industry, but he says 365 is more of a tech company than the others.

“Most vendors set up a kiosk with a canned point-of-sale system,” he says. “We’re a software company. We don’t make a profit off the selling of goods. And as the cost of labor and health care goes up, we have a very broad horizon.”

Sarah Schmid is the editor of Xconomy Detroit. You can reach her at 313-570-9823 or sschmid@xconomy.com. Follow @XconomyDET

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