Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

A New Hot Business: Investing in Industrial Vending Machines – Fastenal Company (FAST), W.W. Grainger, Inc. (GWW)

Page 1 of 2

It’s not chips and soda that maintenance, repair, and overhaul (MRO) shops such as Fastenal Company (NASDAQ:FAST) and W.W. Grainger, Inc. (NYSE:GWW) are stocking vending machines with, but rather nuts, bolts, work gloves, and WD-40. Although the functionality of an industrial vending machine is similar to consumer versions — controlling access to the goodies locked inside — they’re becoming big business and could come to redefine the maintenance, repair, and operations industry.

Fast forward
Fastenal has led the way forward in the space. It began installing vending machines three years ago and today has more than 21,000 installed, a base of sales that helps offset an otherwise slowing business environment. In the fourth quarter, daily sales growth to vending customers was 28.6%, down from almost 34% in the first, but overall sales were off 12% between the two periods, so the vending business continues to grow inside the company and remains an important driver for it.

Fastenal Company (NASDAQ:FAST)Both Grainger and smaller rival MSC Industrial Direct Co Inc (NYSE:MSM) have picked up on the potential of the niche and have begun offering vending programs of their own. Grainger had more than 14,000 customers in 2011, and MSC, which doesn’t break out the business just yet and is newer to the scene than its rivals, says vending contributed 3 points to sales this past quarter. Like Fastenal, though, it represents a slowdown from prior periods, but it’s still a growing opportunity within the company. It says vending for the first quarter exceeded its internal targets and should help it gain market share and grow revenues when the economy improves.

A coin-drop business
Industrial vending has a lot of benefits to MRO distributor customers. It provides control over inventory they didn’t previously have, so instead of having employees merely pull a new pair of gloves from stock every week, access to them is controlled and recorded so that management knows who is using what, when, and in what amount. When inventory isn’t under lock and key, it’s easy for employees to simply take a new part or item instead of being accountable for what’s already in circulation.

MSC, Grainger, and Fastenal all hope the cost savings of the controlled-access inventory management system will make them “sticky” with their customers. Although the upfront costs are substantial, total cost of ownership ought to outweigh the initial outlay, and having to restock those machines has the MROs hoping the customers return to them again and again.

The MRO market is highly fragmented, with many very small players. Grainger is the industry’s biggest, with about a 6% share of the market while the top 50 MRO shops control less than 30% of the market. A vending program like the big three are rolling out serves to distinguish them from the competition and could help keep, Inc. (NASDAQ:AMZN) at bay. The e-commerce leader has made a big push into the industrial supply business and could represent a tough competitor down the road. By making themselves indispensable to their customers with an inventory dispensing system, the MROs can blunt whatever edge the e-tailer brings to the game.

As beneficial as these systems are to both parties, however, the MROs are seeing a decline in orders because there is better control on the customers’ end. Not as much is wasted, so stock doesn’t have to be replenished as often. But profits are also being hurt because these are lower-margin products. MSC reported gross margins of 45.9% last quarter but said the vending program ate about 50 basis points from it, and Fastenal has dedicated personnel to work on shoring up margins in its program.

Page 1 of 2

Biotech Stock Alert - 20% Guaranteed Return in One Year

Hedge Funds and Insiders Are Piling Into

One of 2015's best hedge funds and two insiders snapped up shares of this medical device stock recently. We believe its transformative and disruptive device will storm the $3+ billion market and help it achieve 500%-1000% gains in 3 years.

Get your FREE REPORT and the details of our 20% return guarantee today.

Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.
Loading Comments...

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 102% in 3 years!! Wondering How?

Download a complete edition of our newsletter for free!