Unattended Retail Lessons From Caviar Dreams

Travelers who visit many airports, college campuses or shopping malls are bound to find vending machines dispensing the usual fare, such as sodas, snacks and candy. Those who travel to some of the wealthier parts of the world, however, will discover the well-to-do have much more expensive unattended retail tastes.

In fact, in various global markets, high-end luxury items can be purchased from both ATMs and unattended machines. Consumers can find a vending machine dispensing gold bars and coins at a five-star UAE hotel. Meanwhile, a 15-story structure packed with exotic cars such as Ferraris, Porsches and Bentleys — all for sale in an unattended luxury car vending machine — opened in Singapore earlier this year.

A few years ago, U.S. shoppers got their own taste of unattended luxury retail when vending machines dispensing caviar were installed in several Los Angeles-area malls. The machines, developed by Beverly Hills Caviar, a California-based international supplier of high-end fish eggs, offer opulent delicacies including various caviar options, escargot, Italian truffles and gourmet salts, as well as accoutrements like mother of pearl plates and spoons. And, yes, the machine also dispenses caviar for pets — of course.

In addition to its vending machines, Beverly Hills Caviar also sells caviar online. The caviar comes from several global markets, including Belgium, Canada, China, France, Germany, Italy, Peru, South Korea, Spain and the U.S.

PYMNTS recently spoke with the company’s owner, Kelly Knight, about her efforts to develop the vending machine technology, her experience offering caviar through unattended retail solutions and issues around accepting payments for high-end transactions.

Hatching a new idea to dispense fish eggs

Knight’s family has been in the caviar industry for several generations, dating as far back as the formation of the Soviet Union. When she took over her family’s company, she decided to modernize the business by selling caviar online in 2001. While Knight wanted to maintain a physical location, she determined that maintaining the company’s existing brick-and-mortar store was no longer cost-effective as someone would have to be on-site to sell products. As such, Beverly Hills Caviar closed its physical location.

Knight saw vending machine technology as a way to both shake up the caviar market through newer technology and reduce the overhead costs of a physical retail location. Existing vending machine technology would not support the temperature requirements to store caviar and ensure it was kept fresh, however.

“You can put caviar into a vending machine but, the question is, how do you guarantee the caviar will be good when people are purchasing it?” Knight asked. “Caviar is a high-end and expensive item, and our customers expect good products.”

To address this problem, Knight, who has a background in computer science and business, designed a caviar-specific vending machine herself. Working with a team of builders, she created a machine that both dispenses caviar and refrigerates it properly. It is also equipped with sensors to provide real-time temperature monitoring and trigger alerts to the company if levels rise above or drop below prescribed ranges.

Due to customer expectations and the specific requirements involved in storing caviar, Knight said she was determined to oversee the construction of her vending machine to make sure it was done correctly. She also ensured she knew how to make repairs to the caviar dispensing machine in case it needed maintenance.

“I never wanted to specialize in mechanical engineering or robotics, but I ended up learning it,” she said. “I already spent the money making it, so I had to keep it going.”

Serving up a new spin on caviar

In 2012, the company’s caviar vending machines made their debut in three Los Angeles-area malls: Westfield Century City, Westfield Topanga and Burbank Town Center. Prices range from 10 dollars per ounce for the company’s Wasabi Tobiko Caviar to as high as 500 dollars per ounce for Beluga Caviar. Knight declined to disclose a specific amount, but said the machines have helped Beverly Hills Caviar take in “a few hundred thousand” dollars in the five years they have been operational.

The machines, Knight said, made quite a splash with shoppers upon in-malls arrivals. In some cases, the machines even introduced caviar to shoppers for the first time, she said.

“Even though [some] people didn’t know what caviar was, they clicked on the machine because they were interested to see what it was selling,” Knight explained. “People who [had] never had caviar in their life [before] ended up buying it from the machine, filming it and sharing it on social media.”

Those social media likes and retweets helped raise the vending machine’s profile and, in turn, boosted interest in Beverly Hills Caviar’s eCommerce business. It also helped the company attract the attention and interest of younger consumers, who might not have considered purchasing caviar before encountering a caviar vending machine. For the company, consumer interaction with the machine highlighted generational differences in how older and younger consumers react to purchasing unattended caviar.

“We saw the majority of our shoppers were younger,” Knight reflected. “Older people, I would say over 50 or 60, would not consider going to a vending machine and buying [caviar].”

The machines also created buzz for the company, helped in part by making a cameo appearance on Bravo’s reality show “Shahs of Sunset.”

Trouble with chargebacks

But, Knight has also learned that not all payment methods work well for high-end products dispensed from unattended retail systems. In particular, she found accepting credit and debit cards as payment methods became costly for the company because some consumers would dispute the charge and Knight would end up paying a hefty price.

“Because it’s an unattended retail location, the credit card companies will not stand behind the payment,” Knight said. “When you have a caviar chargeback for $1,000, because it’s an unattended retail location, you will have to give all that money back even though the [customer] got their merchandise.”

On top of that, these chargebacks also come with fees that add to the toll of lost inventory and lost sales.

To avoid losing merchandise and chargebacks, Knight said the company decided to limit its accepted payment methods to cash only. While the move helped protect the company’s assets and revenues, she noted the decision also prevented it from achieving further growth.

By moving to a cash-only payment option, Beverly Hills Caviar was only able to sell its products to customers who were carrying large quantities of cash — and who were willing to part with it. While the move helped the company avoid chargebacks, it also added a level of inconvenience by requiring consumers to stand by the machine inserting bill after bill, as one of the “Shahs of Sunset” stars did, to make their caviar purchases.

“The main reason that our machine didn’t grow exponentially is because we only accepted cash,” Knight admitted.

While mobile payment solutions such as Apple Pay require customers to use biometrics like fingerprints to authorize payments, Knight said she believes these solutions will not make enough of a difference for her unattended business because consumers can still fight charges. Instead, she said, credit card companies need to adjust their policies to accommodate high-end merchandise, like caviar, being sold at unattended venues.

“I am looking forward to [when] credit companies such as Visa, Mastercard, American Express and Discover change their ‘unattended retail’ policies so that expensive items can be safely sold in vending machines, without chargebacks,” she said.

A rent dispute and resolution

Recently, Beverly Hills Caviar machine customers were met with disappointment when they visited the mall with intentions of ponying up big bucks for Beluga caviar. In September, the company decided to pull the vending machines from the malls where they had been deployed, and all due to a dispute with mall operators over whether it should be paying rent.

Knight argued the machines had become tourist attractions because they generated publicity and were thus attracting shoppers and business to the malls. As such, she saw no reason why Beverly Hills Caviar should pay rent to occupy mall space.

During the dispute with the malls, Knight said she still made use of the machines by renting them out to wealthy clients. On one occasion, she brought the machine to a billionaire’s yacht and on another it was rented for an Oscar party aboard an airplane. According to Knight, the purchase function can be switched off during private rentals if the client wishes to do so.

Knight told PYMNTS she had since resolved her dispute with mall operators and agreed to let the caviar vending machines return to the Los Angeles malls for a limited time. Under new terms with the malls, Knight has agreed to pay rent for November and December — the company’s busiest time of the year. She is happy with the arrangement because she does not have to sign a long-term contract and will be able to place the machines in public spaces during the holiday shopping season.

For those who have dreams of living the high life but have yet to strike it rich, the machines, which will soon be back in the L.A. area malls, can offer an unattended taste of how the other side lives.

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The PYMNTS.com Unattended Retail Tracker™ serves as a bimonthly framework for the unattended retail space, providing coverage of the most recent news and trends, as well as a directory highlighting the key players contributing to the segments that comprise the expansive unattended retail ecosystem.