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The economics of vending machines
Japan has so many, but why? You can cite love of gadgets, etc. but I want something more general. After all, Japanese retailing has a very high ratio of small stores serving a local clientele; surely Japanese vending machines are another example -- albeit an extreme one -- of that more general trend.
First we must look to the shortage of storage space in homes. I suspect few Japanese want to buy big piles of stuff at Costco. So buy smaller "portions" and in the meantime the inventories are stored in the vending machines, where they are more or less at your disposal.
Cars of course are another means of storage and also a way to transport goods in bulk (NB: you carless people have a hard time pigging out at the public library, you poor souls). But most Tokyo residents don't use cars so again they buy goods in smaller numbers which again points us to the vending machine. Buy one disgusting sweet fizzy juice, drink it on the spot, and walk to your nearest vending machine when you need another one.
You'll notice that vending machines are especially popular for canned and bottled liquids, where the ratio of storage and carry costs to per unit value is relatively high.
This article associates vending machines with the nomadic lifestyle.
Posted by Tyler Cowen on May 20, 2008 at 08:49 AM in Economics | Permalink
Comments
The number of vending machines in Japan could perhaps be explained by the general anti-social/socially awkward behavior amongst the Japanese. Use a vending machine and you get to avoid human interaction. Prejudice? Maybe, since it does not explain why vending machines primarily hold beverages. It's probably an important explaining variable, though.
Posted by: Robert at May 20, 2008 8:48:22 AM
They sell cars door-to-door in Japan, so I doubt it has much to do with anti-social retailing techniques.
Posted by: Ted Craig at May 20, 2008 8:57:10 AM
Total stab in the dark, but could it have anything to do with the fact that it's been easier to carry coins in Japan since they're hollow in the middle?
Posted by: Ted Craig at May 20, 2008 8:59:50 AM
How are the prices in these machines? Similar mark up (compared to a shop) as in the US?
Posted by: Greatzamfir at May 20, 2008 9:03:28 AM
We have cheap labor to serve fast food and drinks from immigrants and teenagers. Japan has few immigrants and I don't think their teenagers work.
Posted by: joan at May 20, 2008 9:15:50 AM
Joan: "We have cheap labor to serve fast food and drinks from immigrants and teenagers. Japan has few immigrants and I don't think their teenagers work."
Good point. We also have relatively cheap land in the U.S.. People-friendly space of convenience stores and large fast food buildings should be cheaper for mst of the U.S.
Posted by: John Dewey at May 20, 2008 9:26:03 AM
I would also look at the storage space for humans in stores. Shops require expensive ground floor space. If you can eliminate the space the human takes up to manage the store and space shoppers use to enter and browse, you can store more compactly. It's seems a little counterintuitive to think that the storage space could be more valuable than a human occupant.
Posted by: Market Urbanism at May 20, 2008 9:34:06 AM
I've read for years that crime rates - especially vandalism - are much lower in Japan.
My brother, whose cerebral palsy liimited his occupational choices, owned a small vending machine business in the early 1970's in Louisiana. He had to give it up due to vandalism and theft losses.
Posted by: John Dewey at May 20, 2008 9:38:35 AM
Tokyo has more restaurants per capita than any city in the world. Most urban Japaneses rarely make a meal at home (I've observed that its nearly the same in Hong Kong). Could it be that there isn't enough restaurants? I think cheap labor is also an issue.
I've never actually bought anything from a vending machine in Tokyo as the average restaurant is so much better than in the states (although I confess on my last day of my last trip I ate at a mcdonalds).
"Shops require expensive ground floor space."
Never been to Tokyo have you? Shops and restaurants are frequently 3, 4, 5 stories off the ground.
Posted by: tim at May 20, 2008 9:45:00 AM
I think Robert's explanation is best. Sad to say, but if you think "socially awkward teenage male",
that is a very convenient way to remember most Japanese social interaction customs. I don't think
the door-to-door car sales thing contradicts that, it's just another thing sold in person.
Posted by: Person at May 20, 2008 9:57:16 AM
Whoa! Haven't been to Tokyo, but always wanted to.
Are the vending machines only on the ground level?
Also, here's an automat in NYC: http://www.bamnfood.com/
Posted by: Market Urbanism at May 20, 2008 10:13:17 AM
The Japanese minimum wages are still incredibly cheap, and moreover, something that struck me continually was the immense labour intensity of almost all service areas, including restaraunts and stores. Many service staff were continually idle or existed only as greeters, and the absolutely immense number of leaflet distributors and tissue distributors would hardly exist if labour costs were a huge issue. This is coupled with a large supply of young people whom, having left high school, have been unable to gain employment in the traditional graduate sense. The companies for the psat 15 years of low growth don't wish to fire staff, so they let them go via attrition and decline to hire new staff. This leaves a large surplus of cheap unskilled labour.
Just look at the prices of eating out in Japan. Considering the three main costs are ingredients, rent and labour, and we know rent is astronomical and food other than fish are also very high, the cost of labour must be low to allow us to eat out so cheaply there.
I'd have to say that vending machines exist despite the cost of labor, not because of it.
I would favour instead the pedestrian lifestyle, which vending machines cater for, the high cost of land (which doesn't prevent the huge number of overstaffed convenience stores that are barely less common than vending machines), and the fact that maintainence is so cheap because of low vandalism rates.
You could also cite higher demonination coins compared to the US at least (if not the equally vending machine sparse Europe and Oceania), but the machines also take high denomination notes.
If I was to cite a cultural factor, it would only be the intolerance for queues.
Posted by: Richard Green at May 20, 2008 10:14:27 AM
Surprisingly, Costco seems to have found success in (suburban, though not "suburban" by U.S. standards) Seoul. The wide selection of items both within and across segments at Costco compared to vending-machine items or convenience stores means that thousands of Seoulites every day brave harrowing traffic and parking conditions to visit the local Costco or E-Mart.
Posted by: Sean at May 20, 2008 10:17:08 AM
Answer: protectionist laws. The "high ratio of small stores serving a local clientele" There’s an easy answer: protectionist regulations. The "high ratio of small stores" is a byproduct of law: super-malls and big stores like Carrefour/Walmart aren’t allowed to be built there, and small stores are protected by a minimum distance between them, so the consumer is vastly underserved and the market responds with zillion of vending machines, effectively bypassing the regulations.
This distortion created by regulation is not the only one in Japan: the highly-unionized labour market in industry (much more in the past than now), caused a very deep labour-capital substitution, and now Japan is a worldwide leader in robotics, with the highest percentage of robots per worker. And currently, the highly-unionized and unproductive service sector is causing another labour-capital substitution: those crazy robots to take care of the elderly...
Posted by: David at May 20, 2008 10:54:28 AM
Sorry about previous post...
There’s an easy answer: protectionist regulations. The "high ratio of small stores" is a byproduct of law: super-malls and big stores like Carrefour/Walmart aren’t allowed to be built there, and small stores are protected by a minimum distance between them, so the consumer is vastly underserved and the market responds with zillion of vending machines, effectively bypassing the regulations.
This distortion created by regulation is not the only one in Japan: the highly-unionized labour market in industry (much more in the past than now), caused a very deep labour-capital substitution, and now Japan is a worldwide leader in robotics, with the highest percentage of robots per worker. And currently, the highly-unionized and unproductive service sector is causing another labour-capital substitution: those crazy robots to take care of the elderly...
Posted by: David at May 20, 2008 10:58:55 AM
A 1992 New York Times article gives two reasons why Japan has more vending machines per capita than does the U.S. Acording to T. Burke McKinney, director of marketing for Coca-Cola, Japan:
"The real issue is the Japanese life style. People are demanding the convenience."
McKinney also remarked about the prospects for outside vending machines in the U.S. vs Japan:
"Can you see one of these things lasting in Dallas or Jacksonville or New York?"
Another paragraph in the article mentions the difference in crime rates:
Japanese vending machines are significantly safer from crime. "We're not worried about bandits here, as I think you are in the United States," said Takashi Kurosaki, an official of the Japan Vending Machine Manufacturers' Association. "The companies have virtually no losses due to vandals or thieves."
Posted by: John Dewey at May 20, 2008 11:18:53 AM
Stab in the dark, but an aging population needs to bring in immigrants or robots to do its labour. I've heard before that Japan is one of the few countries to take the robots option seriously.
Posted by: Matt at May 20, 2008 11:30:34 AM
Japan has more advanced vending machines than we do; they accept credit cards. And, according to the article, you will be able to pay on your cell phone bill eventually. Also, the machines are stocked with many different things, whereas in the US, they are owned by Coke or Pepsi and only carry coke or pepsi products. I think the answer is convenience. Vending machines in Japan must have better locations, accept currency in a better way, and carry products that are not easily accessible. US vending machines, in my experience are in poor locations, sometimes only accept quarters, and are frequently out of the most popular items. The Japanese must be better at running automated industries than Americans.
Posted by: brainwarped at May 20, 2008 11:30:51 AM
I have heard from expats that the painful level of politeness demanded of even small human transactions adds to the appeal of automation. this wouldn't be an issue when buying a car, but could be tedious when all you want is a coffee.
but the low crime rate must also be a contributory effect: the machines even sell beer, something no machine in London could survive with for more than two hours.
Posted by: Rory Sutherland at May 20, 2008 11:32:21 AM
you carless people have a hard time pigging out at the public library, you poor souls
With a backpack and bike, I can easily carry a dozen books to and from the library. The real limit on my pigging out tendencies is the hours - the branch library is only open two evenings a week, and not at all on Sunday.
Vending machines are, of course, always open.
Posted by: Psyche at May 20, 2008 11:42:31 AM
If the Japanese have more vending machines because of the difference in crime rates, as the New York Times article from 1992 pointed out, then we can see one more hidden cost of U.S. crime: U.S. consumers must wait in checkout lines at convenience stores rather than being able to grab and go as do the Japanese. Certainly Japanese consumers might experience brief queueing at their vending machines. But a Japanese consumer who wishes to buy a soft drink does not have to wait while the woman in line in front of him buys 4 lottery tickets using the birthdates of each one of her preschool children.
Posted by: John Dewey at May 20, 2008 12:02:50 PM
Weird question, asking why Japan has so many. I would ask in reverse why everywhere else has so few? Because I think that's where the distortion lies. The appeal of well designed, placed, and stocked vending machines seems self-explanatory.
As repeated in this thread already, the answer seems to be crime, but there is probably more to it than just that.
Posted by: BillWallace at May 20, 2008 12:18:43 PM
Awkward social interactions and levels of politeness have nothing to do with it. (Robert, you're right that your response betrays your prejudice.) My local convenience stores have impeccable and highly efficient service - nothing awkward about it. (I can't really see how interactions *among* Japanese people are socially awkward - perhaps you're thinking of Japanese tourists trying to speak a language that they're uncomfortable with, or people in Japan dealing with foreigners who don't speak Japanese very well?)
I tend to agree with others that one of the major factors is floor space. Japanese convenience stores are the same size as or smaller than those in the US, but they seem to carry a much wider variety of merchandise. Besides having about 30 kinds of beer, they have a lot more prepared foods, dress shirts (and loads of other Muji products), sometimes even iPods. Why not move some of the higher volume merchandise to a vending machine and save some floor space? The vending machines are also more appealing generally - besides being vandalism-free and having a good selection, they offer hot coffee, tea and soup in the winter and cold coffee and tea in the summer (both in the spring and autumn). One other thought: Japanese people, especially salarymen, tend to drink a lot. Being able to buy a sports drink or other means of rehydration every fifty feet comes in very handy after a long night out.
Brainwarped, you're right about the cell phone payment - except that it's not coming, it's already here. It's not widely used yet, but newer phones have Metro Cards built in - and you can already use prepaid Metro Cards to pay at many vending machines, stores in and near bigger stations, convenience stores and taxis. If you get a newer cell phone with the card built in, you can pay at those places by just swiping your phone at the sensor.
Posted by: bcw210 at May 20, 2008 12:23:33 PM
My favorite Japanese canned liquid is "pokari sweat."
Sounds yukky and tastes a bit odd, but great on a hot day.
Posted by: Barkley Rosser at May 20, 2008 12:43:33 PM
Pokari Sweat is good, but don't forget Calpis. Similar strange, but surprisingly good, taste. They had to change the name to "Calpico" on cans that are exported to the US (primarily, if not exclusively, to Japanese stores in big cities).
Posted by: bcw210 at May 20, 2008 12:51:04 PM
