From machines that dispensed holy water at temples in first-century Greece to the mini tech stores containing iPods and other electronic gear at airports, the contents of vending machines have changed greatly since their invention. But the technology behind managing them was for a long time an inexact process based on intuition. Cantaloupe Systems, which develops wireless and cashless vending solutions in the United States, is making the vending machine business more efficient through the use of cellular networks and the cloud.
Founder and CEO Mandeep Arora stocked his first vending machine when he was 13 and always wanted to make the industry smarter, faster, and better. At UCLA, Arora met Anant Agrawal, who also wanted to create innovative technology and help shape the future of the vending industry. They founded San Francisco–based Cantaloupe in 2001.
At the time, if owners wanted to know the status of their vending machine, someone would have to go to the machine and check the inventory level. Vending operators needed to guess how many times they would need to send a truck driver to a vending machine, which items needed to be restocked, and how much money that vending machine would have generated. With no cash accountability or insight into how quickly a product was sold out and a limited operational system in place, the operators were almost entirely dependent on the truck drivers.
Cantaloupe’s founders recognised that developing a system to give operators full real-time control and visibility of all of their machine activities with an easy-to-access software service was revolutionary. The company’s product is Seed, a wireless device that is placed in vending machines, where it harvests data from the DEX serial port of the machine. It then sends the information wirelessly to the cellular hub using its antenna. The hub is responsible for relaying all of the information it receives from the machines to Cantaloupe Systems’ home base. Once the data has been transmitted to Cantaloupe headquarters, the information is encrypted and stored in SQL databases. Vending machine companies can then access any current or historical information. The primary benefits are dynamic scheduling, where companies can restock machines based on demand; pre-kitting; where drivers can stock trucks with exactly what is needed before leaving the warehouse; cash accountability where operators know exactly how much money a machine makes; planograms, which help operators to understand which products are selling the best; and alerts to let operators know of unusual activity.
Seed costs about $150 per machine per year. According to the company, operators using Seed average $35,000 in annual savings per route, can replenish 80% more machines per week, and can reduce their carbon footprint by 40% through the elimination of unnecessary truck travel and smaller loads per truck.
Arora and Agrawal estimate Cantaloupe Systems’ market opportunity at over $1 billion. This estimate is based on a growing worldwide base of 15 million vending machines, of which fewer than 6% have been automated. At present, the primary target is the U.S. independent vending company segment, which represents approximately 1.5 million vending machines. These machines are serviced by independently owned vending companies that typically do about $50 million a year or less. Cantaloupe has about 200 customers and services about 65,000 machines.
Competitors include established players Mars Electronics and Crane Merchandising Systems, part of the Crane Company. Mars has developed Easitrax software to go along with its telemetry management system, and though its company Streamware, Crane sells VendMAX software. Cantaloupe believes that its focus on cloud-based software that is up and running fast gives it an advantage over these players.
Cantaloupe has used a combination of bootstrapping and VC funding: to begin, the founders pooled about $60,000 between savings and student loans and used that develop its first prototypes in 2002. A year later they were able to secure a small business loan of $150,000. With this they started creating traction with some key players in vending. This included a positive test with Frito-Lay and North County Vending, the largest independent vending company on the West Coast. In 2004, they did a $1.5 million friends and family round. At the end of 2005, they raised a $5 million Series B with the Global Environment Fund. Finally, in early 2010, they raised a $12.4 million Series C with the Global Environment Fund and Foundation Capital. There are no plans to raise funding at this time.
Cantaloupe’s 2010 revenues were $8 million, up from $1.61 million in 2008 and $3.66 million in 2009. The company plans to continue to grow by always building on its Seed technology. It recently launched the Seed Cashless device, which is an added feature that transitions technology to a true Seed platform.
The growth strategy is focused on improving and challenging the vending industry to be more efficient and generate more profits. Arora and Agrawal believe that the vending industry should be at the forefront of the retail industry, and they plan to continue to work on innovative solutions that will help vending operators to achieve this goal.