mei vending note recycler

VNR Value PropositionVNR Value Proposition

© 2010 MEI. All rights reserved. www.meigroup.com 2

Presentation OverviewPresentation Overview

• Improving the consumer payment experience with VNR

• Translating improved consumer experience to sales lift:- Expected long term sales lift model- Consumer adaptation- The VNR’s role in consumer adaptation.

• Note Recycling vs. Credit cards

• Operational Considerations with VNR- VNR Float Level- Impact on Coin Handling

• VNR Deployment Consideration:- Vend Price, Volume, Site location

• VNR Deployment Recommendations

© 2010 MEI. All rights reserved. www.meigroup.com

Why should you care about Why should you care about investing in bill recycling?investing in bill recycling?

• You can get everything right within your control:

- Right vending machine- Right product selection in the machine- Right price points for those products- Right service strategy so the machine is always full

…You will still miss a surprisingly large % of sales and we are going to tell you why

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Sources of VNR ValueSources of VNR Value

• Regardless of the consumer’s desire the for product or the attraction of the machine, the consumer has to have the means to complete the sale.

• The value proposition for the VNR is to improve the consumer experience by enabling vends that otherwise can’t be made with traditional vending payment systems (e.g. bill validators accepting $1 only and coin changers.)

• Improved Consumer experience leads to higher customer satisfaction and sales lift.

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What about your business?What about your business?

• What denominations do you have enabled today?

• Do you believe you are losing sales?

• Do you run into changer starvation?- A recent study showed 50% of machines

were in exact change mode 1/3 of the time or more!

• How many bill breakers do you have deployed?

• Are you using $1 coins and if so, do you pay a fee to your bank for them?

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What consumers carryWhat consumers carry

• Understanding what consumers typically carry highlights the need to alter denomination acceptance:

- Over 80% carry $1 bill or the equivalent in coins

- Only about 50% carry $3 in bills/coin- 60% carry a $5 note- 40% carry a $10 note- 65% carry a $20 note

• At vend prices above $1, limiting bill acceptance to $1 notes decreases the potential customer base significantly

• Current US bills in circulation

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Circulation

$1 46%

$2 4%

$5 11%

$10 8%

$20 31%


Enabling VendsEnabling VendsSimple example at $1 vend priceSimple example at $1 vend price

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To enable a vend at $1, the consumer must either possess:

$1 in Coins

OR

$1 Note

ProbabilityOf Success *

20%

80%

ProbabilityOf Failure

80%

AND

20%

LostSales16%

(80% x 20%)

* Note: From MEI Survey Data


Bill Recycling value to vending patronsBill Recycling value to vending patrons

Current Bill Acceptance and Change

$2.00

Vend Price

$5 inserted

$2.00

Future Bill Acceptance and Change… Bills In Bills Out Bills In Bills Out

$5 inserted $20 inserted

Increase sales by allowing consumers more payment options.Increase sales by allowing consumers more payment options.


Observations About Sales LiftObservations About Sales Lift

• Benefits of recycling are a strong function of vend price.- Less consumers can be satisfied with coins and $1 bills at higher prices.- Financially, the incremental margin on the sale is higher.

• From a consumer perspective, “vend price” is scenario based. - Consider a mother with two thirsty children that don’t want to share.- A $1.25 drink price becomes a “$2.50” vend price when she buys 2. - 7 of 10 can buy both drinks without $5 bill acceptance enabled- 9 of 10 can buy both drinks when $5 bill acceptance is enabled

• Recycling enables multiple vends and purchase bundling- In the $1.25 drink example, making the second purchase is

highly dependent upon higher bill denomination acceptance . The sales lift resulting from the secondpurchase is:

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Lift From $5 acceptance 24.1%Lift from $10 acceptance 6.3%Lift from $20 acceptance 6.7%


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$1.00 $2.00 $3.00

% o

f To

tal

Po

ten

tial

Vend Price

Successful vends from $1 and coins

Lost sales opportunities

• Consumers do not carry a large % of $1 notes or coin. Therefore a significant % of vends are not enabled by coin and $1 acceptance.

• Enabling $5 , $10, and $20 acceptance captures these lost sales by matching the retail experience

- Operators no longer are concerned with change starvation

- End customers do not receive ‘cascade of coins’

As price increases consumers

ability to make a purchase

decreases

Bill Recycling Value Proposition Bill Recycling Value Proposition

Lost sales

Expected sales lift, by unlocking the consumers wallet, has been confirmed in field trials Note- using $1.25 price

Lift from $5 acceptance

12.4%

Lift from $10 acceptance 3.2%

Lift from $20 acceptance 3.5%

15.7%23.0%

33.6%


Improving the Consumer Value Improving the Consumer Value ExperienceExperience

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As a consumer, do I want to shop at a “store” where I currently can’t buy

anything between one in six and one in three visits?

Note recycling can greatly reduce those negative consumer experiences.


Sales Lift by Note and Vend PriceSales Lift by Note and Vend Price

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The VNR and Consumer The VNR and Consumer AdaptationAdaptation

• Awareness:- The High Visibility Bezel (while an option on the

VNR) was designed specifically to promote consumer awareness for recycling. Hi Viz Bezel = Higher note acceptance Informs the consumer which notes are accepted.

• Trust:- The VNR is designed to reliably recycle notes of all

qualities.- If a denomination is lighted on the Hi Viz bezel, the

unit will accept it and make the expected change.

• Experience:- Over time, for consumers that have used the product,

the Hi Viz Bezel signals both higher denomination acceptance and the expectation of success.

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Option 1 VN2700- recycler

ready, $1-20

price parity with VN2500

Future proof investment

MEI provides the only complete unattended payment solution for vending in the space provided.MEI provides the only complete unattended payment solution for vending in the space provided.

MEI ModularityMEI Modularity

Option 2 VN2700HV-

includes High Visibility Bezel

Option 3 VN2700R-

includes recycler and High Visibility Bezel

Option 6 Buy as separate

components

Option 5 VN2700R-

includes recycler and 4 in 1 cashless bezel

Option 4 VN2700-

recycler ready, $1-20

4 in 1 cashless bezel

Whatever the application MEI has Whatever the application MEI has a modular approach that allows a modular approach that allows

the most flexibility for each the most flexibility for each situation.situation.


A modular approach allows customers the most flexibility to configure devices to meet the needs of each location

Whatever the application MEI has Whatever the application MEI has a modular approach that allows a modular approach that allows the most flexibility for each the most flexibility for each situation.situation.

MEI provides the only complete unattended payment solution for vending in the space provided.MEI provides the only complete unattended payment solution for vending in the space provided.

MEI ModularityMEI Modularity


• Both larger note acceptance and credit card acceptance improve the consumers ability to purchase

- credit cards provide roughly the same benefit as $5 and $10 acceptance

• Credit cards have a higher cost structure to achieve this similar benefit including incremental capital and transaction costs

• Credit card acceptance has advantages to note recycling when:

- Site demographics ensure high % of credit card holders (e.g. offices, airports)

- Telemetry is implemented for other reasons.- High value machines are in less secure

locations.

• Only MEI can offer note recycling and credit card acceptance in one device.

Compared to coins and $1 bill acceptance

Bill Recycling vs Credit CardBill Recycling vs Credit Card


Sales Lift ResultsSales Lift Results2 Case a Week Machine at $1.25 Vend Price2 Case a Week Machine at $1.25 Vend Price

17MEI Company Confidential


Sales Lift ResultsSales Lift Results2 Case a Week Machine at $2.50 Vend Price2 Case a Week Machine at $2.50 Vend Price

18MEI Company Confidential


Business Case - BottlingBusiness Case - BottlingAnalysis at $1.25 VendAnalysis at $1.25 Vend

SeeDetails

Category Cash Only Cashless Recycling Cashless and Recycling

Hardware Costs $375 $223 $598 Monthly Fees $9.95 $9.95 Cashless Fees 5% 5%Increase to Sales 16% 15% 20%Annual VPO Cases 104 121 120 125Cases per Week 2.0 2.3 2.3 2.4Cost per case $3.10 $1.86 $4.80 Cost per unit $0.13 $0.08 $0.20

% of business cash 100% 77% 100% 90%% of business cashless 0% 23% 0% 10%

Payback Period (months) 46 11 42Annual Sales Lift $507 $470 $615

Annual Margin Lift $98 $235 $172


SeeDetails

Category Cash Only Cashless Recycling Cashless and Recycling

Hardware Costs $375 $223 $598 Monthly Fees $9.95 $9.95 Cashless Fees 5% 5%Increase to Sales 32% 30% 38%Annual VPO Cases 104 137 135 143Cases per Week 2.0 2.6 2.6 2.8Cost per case $2.74 $1.65 $4.18 Cost per unit $0.11 $0.07 $0.17

% of business cash 100% 61% 100% 87%% of business cashless 0% 39% 0% 13%

Payback Period (months) 6 3 7Annual Sales Lift $1,970 $1,859 $2,349

Annual Margin Lift $745 $929 $1,015

Business Case - BottlingBusiness Case - BottlingAnalysis at $2.50 VendAnalysis at $2.50 Vend


Coins RecyclerCapacity Capacity

N,Q,Q,$,$ w ithout recycler

214.35$ n / a $214.35

N,Q,Q,Q,Q with

recycler recycling $1's

$ 100.35 30 bills

max$130.35

$1 up to $10Multi Price

(quarter increments)

ConfigTotal Float Bills Accepted Vend Price

MEI 5 Tube

Recycling Affect on Machine Float

• Recycling reduces total machine float with higher bill acceptance.

Float reduction plus increase in sales by accepting higher denomination bills creates a great value Float reduction plus increase in sales by accepting higher denomination bills creates a great value proposition.proposition.

$84 difference in machine float


Recycling Affect on coin funds

• In a normal scenario at $1.25 vend price, accepting $1 bills and coins, there is a positive coin ratio of $0.21.

- Customers will insert more coins than will be paid out - Incidences of exact change result from unique circumstances and not from an expected

coin depletion scenario- a machine should not run out of change

• Bill recycling enables the acceptance of higher denomination bills without a concern for coin starvation.

- The percentage of $5 and $10 notes that could be used for the purchase is calculated to be 15% of the total inserted.

- This results in a coin positive balance of $0.10

• Conclusion- Coin starvation is not a concern when using bill recycling to enable higher denomination acceptance. Bill recycling leverages customer provided bill float and protects coin levels allowing an unlimited number of vends until next scheduled service.

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Higher denom impact on coin funds w/o bill recycling

• Using the same scenario of a $1.25 vend price, accepting $1-$10 bills and coins, but without recycling, the coin ratio now goes negative.

- Even when using $$QQN tube config, the changer will still go coin negative. There is simply too many coins going out for the 15% $5 and $10 bill usage.

- The 15% incidence of $5 or $10 usage results in a $0.62 negative coin ratio limiting maximum vends.

QQQQN tube config: $5 acceptance 142 vends $5 & $10 acceptance 239 vends

NQQ$$ tube config: $5 acceptance 298 vends $5 & $10 acceptance 500 vends

• Conclusion; the addition of dollar tubes absorbs large capital investment ($138) and doubles maximum # of vends until exact change.

Only bill recycling eliminates exact change scenarios when enabling higher bill denominations.

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Operational Considerations:Operational Considerations:ReconciliationReconciliation

• Note recycling with current MDB requires interpretation in the reconciliation process:

- When recycling $1 notes, for DEX audit purposes, $1 notes are reported as $1 coins when accepted into the recycler or when dispensed for change.

- $1 notes that are stacked in the bill acceptor magazine are reported normally.- As long as the companion coin changer is set up to accept any $1 coins to the cash-box, the

resulting DEX audit data is unambiguous. It simply requires interpretation.- Recycling $5 notes is reported similarly: as $5 “coins” in the recycler and as $5 notes when

stacked in the magazine.

• MDB ver 4 is designed to accommodate note recycling to allow proper reporting of note balances without interpretation. Both the note recycler and the VMC must be designed to work with MDB ver 4.

• The VNR is designed to auto-detect whether a VMC is MDB ver 4 compliant at start-up and dynamically adapt its reporting standards.


Operational Considerations:Operational Considerations:

• Bill breakers- adding recyclers to a bank can eliminate bill breakers- The impact to capital deployed can be significant

Removal of bill breakers costing $1200 or more; plus $400 float ;plus $400 in cash room for each = improved profitability AND customer satisfaction

• We recommend that at least 60% of the machines in a bank have a recycler

- Too few recyclers could overwhelm capacity- Placing machines in force vend can also avoid recyclers being used as changers

only

• Increasing vend prices thru recycling- No longer faced with changer starvation concerns, increasing vend prices is now

more easily accomplished. MEI CashFlow coin mechs make it easy to alter tube configurations as you adjust UP your vend prices


Operational Considerations:Operational Considerations:SummarySummary

• Accepting $1, $5 & $10 while recycling $1s has few significant operational consequences.

• By comparison, accepting $1, $5, $10 & $20 while recycling $5s has operational consequences to consider:

- Need to refill $5’s and $1 coins - As much as $383 in working capital increase in machine

• While the $383 in working capital could be reduced in many machines, at a cost of capital of 10%, it is only $38.30 in annual opportunity cost. There may be more relevant costs including cash handling costs (particularly for $1 coins) and added operational controls

• If a site is already using $1 coins, then $20 acceptance / $5 recycling should be implemented.

- A two case a week machine at a $2 vend price and a 6% expected lift from $5 recycling acceptance yields almost $300 per year in incremental high margin sales.


Deploying Recycling: Deploying Recycling: Site FactorsSite Factors

• Open Site vs. Closed Site:- In early deployments of recycling, closed sites will produce superior returns to

open sites: Superior awareness of recycling via repeat use. Closed site experience leads to open site experience Importance of the High Visibility Bezel to “connect the dots” between the

closed and open site use.

• Multiple vend possible Sites:- In environments with family experiences that could lead to bundled vend

opportunities, recycling will help unlock the potential of the machine.- The “entertainment” category in a recent trial produced the highest results:

29% lift for $5 acceptance, 4% lift for $10 acceptance at vend price range of $2.50 to $3.25.

• Site Security:- While $1 recycling doesn’t dramatically change total “cash in machine”, $5

recycling decided ly does. In less secure sites, credit card acceptance is better.

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Conclusions: Key TakeawaysConclusions: Key Takeaways

• Consumer Satisfaction:- Note recycling first and foremost is a technology to

improve customer satisfaction.- Enables a retail experience for vend patrons

• Sales Lift:- The improved customer experience translates

directly to sales lifts of 15% or more!

• VNR and Consumer Adaptation:- The VNR and the High Visibility Bezel build

consumer awareness, trust and experience to accelerate adaptation.

• VNR Modularity:- Enables vend operator to maximize investment ROI

• VNR Deployment considerations:- Vend Price is the strongest driver, followed by

volume and site considerations.

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mei vending note recycler

Documents

higher note acceptance

consumer value experience

future bill acceptance

consumer payment experience

consumer awareness

improved consumer experience

consumer perspective

higher denomination