Fastenal continues to get closer and closer to the customer through our branch locations, and even more importantly, through our Onsite and vending programs. We're actually injecting ourselves farther and farther into the customer base where we see a lot of our competition retracting. And it's our ability to continue with that increase in contact time by being closer to customers that more and more solutions come into play. - Jeff Hicks, VP, FAST Solutions at Fastenal
When Bob Kierlin founded Fastenal (FAST) in 1967, the original idea was to dispense fasteners from franchised vending machines lining the walls of retail stores and manufacturing facilities. However, it quickly became apparent that the machine design couldn’t effectively serve the size and volume of inventory customers demanded. Kierlin was forced to pivot to a branch-based model which forms the core distribution infrastructure of the company today.
This pivot 50 years ago has proved critical for the success of industrial vending today. When Fastenal revisited vending in 2008, the company could leverage over 2,000 stores nationwide, a last-mile distribution system, and deep inventory management experience.
Over the last 10 years, the number of FAST vending machines installed has grown from 9,000 to 90,000. In Q3 2021, total FMI device revenue, of which vending is the majority, accounts for over 50% of branch revenue and ~33% of total revenue for Fastenal. The company currently has ~91,000 machine-equivalent vending devices installed and management believe there is a potential market for 1.7m devices globally.
We interviewed a former District Manager at Fastenal to discuss how industrial vending works and why it could be difficult for competitors to replicate Fastenal’s strategy.
Fastenal introduced vending to provide customers with inventory monitoring and control to improve productivity and reduce inventory cost. The company offers over 24 different machines which are installed at the customer’s location to provide 24/7 product availability for safety equipment and other consumables. Each machine is configured to provide employees with user ID’s to vend equipment which is programmatically tracked so customers can optimise consumption. After installing a FAST vending machine, the customer’s inventory spend decreases by 40-50%:
“If you’ve had their business for a long time and you sell them gloves, drill bits and anything they’d want to get out of a vending machine, if you are going to move it over into a vending machine, there is a good likelihood you are going to see your sales of those particular products go down 50%. That is how efficient vending machines become for customers; that’s why they love them so much...I had a customer that went from $2,000 a month in drill bits to $500 or $700 a month, because they were now coming out of the vending machine, in packs of two”- Former District Manager at Fastenal
The FAST 5000 Vending Machine, which accounts for ~40% of all machines installed, targets ~$24,000 revenue per device per year. If Fastenal installs two FAST 5000’s at a customer’s location, it would earn $48,000 in revenue which would’ve been closer to $100,000 if the customer purchased the inventory in the branch channel. When employees have to scan their personal ID to grab a pair of safety gloves, they will only buy the specific pair they need for the job rather than the 4 or 6-pack they may purchase in the branch.