Commentary

Ice vending finds its niche in 2023

While self service in general is expanding, ice vending machines are growing driven by several unique market factors. An industry veteran offers his perspective.

June 5, 2023 | by Dan Doromal, Everest Ice and Water Systems

Ice vending machines have been around now for a few decades, and plenty of consumers have grown accustomed to purchasing ice from these types of machines instead of the traditional convenience store merchandisers.

However, while growth has been steady throughout this period, there are currently a number of supply side and demand side factors that could have an outsized impact on ice vending over the next few years.

Falling costs

One of the key factors on the supply side is the falling wholesale price of ice vending machines. There are a few things driving this. Firstly, commodity prices for machine components such as steel have been steadily declining since the middle of last year now that supply chains have recovered from post-COVID bottlenecks.

Secondly, ice vending technology has been gradually maturing for more than a decade, leading to the development of more efficient and cost-effective machines.

And finally, there have been a lot of new entrants into ice vending machine manufacturing and wholesaling over the last few years, which has increased competition and pushed down prices. This has been reducing the barrier to entry for operators moving into ice vending.

Expanding use cases

As ice vending machines have become more efficient and economical, they've also become smaller and easier to operate. This has unlocked new use cases as these machines can now be set up almost anywhere provided they have access to an electrical outlet and a water main.

For example, in recent months, our customer data has shown a significant uptick in purchases from multifamily housing managers. This is part of a wider trend within the multifamily industry to improve the resident experience.

Similarly, we've also seen an increase in buyers from construction companies that have installed ice vending machines on work sites to provide better amenities for their workers.

Rising costs of pre-packaged ice

Rising fuel and labor costs have cut into the profits of traditional pre-packaged ice wholesalers, forcing them to charge more and supply less product. For instance, most grocery or convenience stores now only offer 7- and 16-pound bags, compared to the 10-pound and 20-pound bags that were offered previously, all due to supply chain inflation.

Ice vending operators, being insulated from supply chain shocks, have much lower production costs, and many are passing those cost savings onto their customers as a way to undercut convenience stores and other retailers in their area.

What's more, the opportunities created by these market dynamics are increasing the attractiveness of ice vending machines among investors, with the profitability of a machine significantly outpacing inflation.

Supplemental revenue, white labeling

As ice vending machines have become more sophisticated, they can now be fitted with digital displays that can be used as ad spaces that are managed by a third-party. This allows operators to earn ad revenue from these displays as a supplemental passive income revenue stream.

In addition, many convenience stores are now customizing the exteriors and packaging of their ice vending machines with their own branding to increase their brand awareness. Some of our clients are even wrapping their machines and packaging with advertisements for other businesses to earn further ad dollars.

Growing interest in alternative investments

We've noticed that a lot of demand among prospective machine operators has recently been coming from folks interested in alternative investments and passive income opportunities. This has particularly been the case over the last 18 to 24 months with movements such as the "great resignation" having led many people to quit their jobs and try something new.

We expect this trend to continue as more and more people seek low touch business and investment opportunities that fit around their lifestyle. This could add further demand for ice vending machines, given the relatively low startup costs and small space footprint required to install and operate these machines.

As the industry continues to mature, it will be interesting to see how these trends develop and what impact they will have on the ice vending machine market. A key factor to keep a close eye on is inflation. Prolonged higher-than-average inflation will see traditional convenience store pre-packaged ice become even less competitive, while a slowdown in inflation could help convenience stores claw back some market share.

Dan Doromal is co-owner and vice president of operations for Everest Ice and Water Systems.

Self-Service