CHEVIOT, OH -- What is the secret of keeping a tavern-based route operation successful, and in the same family, for more than a century? Ask third-generation operator Bill Westerhaus of Pioneer Vending and you'll hear a forthright answer. "It's not a mystery," said Westerhaus. "There are three basic strategies: invest, maintain, promote." Pioneer's three-pronged strategy must work. The company, founded on a shoestring 101 years ago, currently employs 50 people who manage approximately 4,200 machines in 950 locations in Ohio, Kentucky, Indiana and Michigan.
PHOTO: Pioneer’s executive team, from left, are general manager Terri Westerhaus, president (and owner) Bill Westerhaus and sales manager Luke Adams.
According to Westerhaus, Pioneer's first success strategy, investment, begins with the operator investing himself in the business. "There can be a personal cost when you dedicate yourself to a business," he conceded. "But there is no substitute for the operator's personal commitment to the company and its customers."
Westerhaus himself is a soft-spoken but chatty fellow. He doesn't thrust himself forward, but he clearly derives great pleasure from dealing with people -- employees, colleagues and especially customers.
He said one reason he has been able to balance family life with professional dedication is because his father, Joe Westerhaus II, turned over a thriving operation, upon his death in 1989. In fact, Joe had put so much energy into building the company from the 1930s through the 1980s that he sacrificed much of his personal life, his son said. As a result, Bill Westerhaus modestly describes himself as the "caretaker" of his father's achievements (although it was present management that oversaw Pioneer's growth into a four-state operation in just the past few years).
Another reason that Westerhaus is able to invest himself in his business, yet achieve work/life balance, is that several members of the family have labored at Pioneer over the years and continue to do so today. Bill's wife, Terri, is the general manager. All five of Bill and Terri's children have worked in the business. Oldest son Luke, 26, is Pioneer's sales manager.
The Pioneer investment strategy also means putting serious dollars into both new equipment and route acquisition. "New trends and technologies have always come along to give the industry a boost," said Westerhaus. "Operators have to be ready to try new things."
He cites the recent popularity of boxing novelty pieces as an example. "When I first saw one," he said, "I asked, who would play a game like this? The answer turns out to be mostly men from 21 to 35 and that is our prime demographic. Today, we have dozens and dozens of these machines. I've been around long enough to learn that whether or not I personally like something has no bearing on whether it is going to be popular with players."
At the moment, Westerhaus is enthusiastic about the potential of a new Bay Tek machine called Beer Ball Alley, an alley game for bars that features a printing device for printing location-customizable prize coupons. "While it's not for every account, in the right place it will do really well," the operator predicted.
The Pioneer investment strategy also means buying routes. "Buying a route is our preferred way to expand," Westerhaus said. "We have purchased eight routes in the last 15 years." According to the Pioneer website, this emphasis on "mergers and acquisitions" is the most important factor in the company's becoming the premier operation in the Greater Cincinnati area.
Westerhaus said Pioneer had been buying up routes in its original Ohio trade area for some time when he was contacted about routes for sale in Kentucky in 2005 and Indiana in 2008. He jumped on those opportunities, and the Indiana route led to some locations in Michigan.
"I don't think it's any accident that we were contacted about those route purchase opportunities," said Westerhaus. "We'd already been known for acquiring routes. At a certain point, the business starts coming to you."
Westerhaus said he firmly intends to keep Pioneer in acquisition mode. "We have several possible route purchases pending as we speak, with letters of intent signed and delivered," he said. "We are waiting to hear back from people who want to get out of the industry or are retiring."
Strategy number two, "maintain," means maintaining both machines and strong business relationships. That translates into zealous service and commitment to customers, Westerhaus said.
"We consider our customers to be Pioneer partners," he said, "and we offer comprehensive repair, maintenance and service packages to keep our partners' equipment in top condition. We service what we sell, and we take pride in selling the best. We are straight up with our customers and employees. We try to run the business right."
Strong personal relationships with customers are a strength that Pioneer has maintained from its founding to the present day, Westerhaus said. "To this day, my favorite thing about this industry is satisfying the customer," he said. "The best compliments we get are friendships with location owners who trust us to do the right thing for their businesses."
Success strategy number three for Pioneer Vending is "promote." For Westerhaus, as for many Midwestern vendors with tavern routes, that means leagues and tournaments are indispensable marketing tools to keep players coming back and filling up the cashboxes.
Some operators may be tempted to cut back on marketing and promotions budgets in tough times, but Pioneer Vending views that as a short-term savings that costs more in the long run. "In this economy," Westerhaus said, "it's tougher to get people to make the commitment to show up every week for league action, but it's also more important than ever. That's why we still have strong dart and pool leagues. And we continue to run successful tournaments with video golf."
The company is right up to date in the promotional field, using its Facebook page to keep players informed about the latest tournaments.
ONE HUNDRED YEARS AGO
Pioneer Vending was established in 1909 as Westerhaus Amusement Co. It was the same year that the U.S. Mint first began turning out Lincoln pennies. Teddy Roosevelt was president of the United States; the Model T Ford had been coming off production lines for only a few months.
That was the business environment for Joseph George Westerhaus, a first-generation American born of German immigrants. Westerhaus was a factory worker by day, but at night he moonlighted as a guitar-playing tavern entertainer. He also carried a bartop novelty vender with him to his singing gigs. He decided to quit his factory job and expand his coin-operated machine into a small route. Soon, Westerhaus Amusement Co. was born.
His timing wasn't ideal. In 1909, the first jukeboxes were quickly becoming outmoded thanks to the brand-new Victrola phonograph, which made recorded music affordable for private homes. Also that year, the American Mutoscope and Biograph Co. of New York decided to halt production of its signature peep-show machines because motion picture theaters were coming into vogue. In addition, state governments around the U.S. began outlawing slot machines and other risk-reward games and novelties at about that time.
Despite these unpromising conditions, Westerhaus found a market for his trade stimulators and early vending machines. The company grew into a small but viable business through the era of the 1920s, when cranes were America's hottest amusement machine, and into a golden age for the jukebox, which began in 1928 with the addition of electrically amplified sound.
By the time America entered the Great Depression, Westerhaus Amusement Co. had a profitable route of 20 tavern locations. The founder's son, Joe Westerhaus II, helped his father on the route on a part-time basis. But Joe preferred his bread wholesaling business to arguing with his father over which machines to buy. ("In that respect, father and son partnerships in the amusements industry back in the 1930s were no different than they are today," Bill Westerhaus quipped.)
With the founder's death in 1934, however, the son gave up his struggling bread route and took over the little amusements company -- and clearly found the role he was meant to embrace. Joe's timing was better than his father's had been. Prohibition was over; taverns were opening their doors in every city and town, seemingly on every block in the Midwest. Joe Westerhaus supplied them with jukeboxes, pool tables, bowling machines, photobooths, novelties and even started a league system called Dime-N-Bowl.
Over the next 50 years, Joe Westerhaus II threw himself heart and soul into building his company into a regional powerhouse that he renamed Pioneer Vending. He made it what the family describes as "the leading vending machine provider in the Greater Cincinnati, Dayton, and Louisville areas."
In 1941, Joe built a two-story building for Pioneer in the town of Cheviot, about seven miles northwest of downtown Cincinnati, with 3,500 square feet on each floor. The ground floor was dedicated to the company, while the upstairs was designed as apartments for Joe's mother and for his sister Mildred, whose name is still chiseled in stone over the main entry. After a the Second World War, an 8,000-sq.ft. expansion was built to house a bigger machine shop.
In the early 1960s, Joe opened Royal Distributing as a Bally distributorship, enabling him to purchase the brand's products at wholesale prices. Eventually his son and namesake Joe Jr. (Bill Westerhaus's brother) took over Royal, which expanded its lines to include NSM and Wurlitzer jukes, Bally and Gottlieb pins, Fisher and Valley pool tables, plus Midway videogames. Royal sold all these brands to local operations, including, of course, Pioneer.
Bill Westerhaus said he knew back in high school that he wanted to work in the family amusement business. He worked part time at Pioneer while attending Xavier University in Cincinnati. After taking his degree in 1975 he joined the company full time.
"I got into the business because I wanted to be around my dad and I love taking care of customers," he said. "There is no greater satisfaction than a happy customer."
In 1989, following the death of Joe Westerhaus II, company ownership passed to his children: Joe Westerhaus Jr., Nancy Baxter and Bill Westerhaus. Bill purchased Joe's and Nancy's shares about a decade later.
Pioneer's mainstay has always been tavern amusements, but the company has not been afraid to experiment with other ventures and venues over the years. Some experiments have succeeded; others failed; and some were successful for a time, but faded as market conditions changed.
Vending has been part of this experimental approach. The company operated 500 cigarette venders at one time. But as of November 2010, this business was down to 110 venders.
"We have also tried full-line vending two or three times, but not with great success," said Bill Westerhaus. "Today we're back to amusements only, with one exception. Several years ago we got into the bag-in-box beverage business, providing syrup and fountain dispenser equipment to many of our tavern locations. We're still doing that and we may expand it."
Another experiment in reaching beyond tavern amusements came in the early 1990s when Pioneer launched several standalone FECs. The venues performed well for a time but eventually closed. Two years ago, Pioneer bought a pull-tab machine route that served Ohio charitable organizations and Indiana bars; they soon sold it. Most of the company's locations remain taverns, supplemented with some bowling center lounges and a few restaurants.
Royal Distributing closed its doors in the early 2000s but Pioneer's route earnings hit their all-time peak, in terms of weekly sales, just before Sept. 11, 2001. Bill Westerhaus believes the tragic events of that day profoundly changed the national psyche and that the hospitality business, at least in the Midwest, has never been the same.
"It has had a big impact on our revenue and we've never quite come all the way back," he said.
Like other routes in the nation's heartland, Pioneer saw revenues drop sharply after smoking was banned in bars (Ohio's ban took effect in 2007). "The smoking ban took away 35% of our revenue," Westerhaus said simply. "In 1990, a bowling center lounge could generate $2,000 a week from music and games. Now it's tough to get $200 from that same location. The smoking ban has been very tough on our industry."
The spread of legalized gambling, with big casinos in Indiana and Michigan, has also hurt amusements, said Westerhaus. He said he expects this form of competition to increase. "Ohio's casinos will open in 2012 in downtown Cincinnati, Columbus, Toledo and Cleveland," he said. "I think they will siphon off a lot of entertainment dollars from amusement machines."
Ohio operators are permitted to award players of skill games $10 worth of merchandise. Legal prizes may not include gift cards or other items that can easily be converted to cash. Pioneer operates fewer than a dozen of these devices.
"My customers don't want any legal risk and neither do we," said Westerhaus. "We make our money the old-fashioned way. The Ohio industry hopes that one day we can have skill games with awards that can be redeemed for cash, but right now it's a problem."
The year 2009 was bittersweet for Pioneer. Bill's brother, Joe Jr., died but the company marked its 100th anniversary. At present, the Pioneer building in Cheviot comprises some 18,000 square feet. Downstairs is still the company's headquarters while the three upstairs residential apartments are rented out to private tenants. Company route operations across four states are run from this center, with individual staffers working from home in other cities.
Westerhaus remains a strong believer in the viability of taverns as the focus of amusement and music operations. "Our machines need patrons to be in that place of business for a while to play the games and music," he said. "That is the traffic pattern in taverns, which is why they're good for amusements. So after trying FECs and other things, we are back to bars. People want an alcoholic beverage and something to eat. In order to survive, our customers need to serve food. The more food they serve, it generally makes it less of an amusements account. A bar that serves food is a good account; a restaurant with a bar is a lousy account."
Although bars remain solid revenue opportunities for amusements and music, Westerhaus acknowledges that "we are looking at several obstacles." In addition to the smoking ban and legalized gambling, he said consumers' personal entertainment technology may pose an even greater threat.
"In a bar, people are using their iPhones every minute," he said. "They are Facebooking, reading email, sending texts or surfing the Web. At home, people have flatscreen TVs and home video systems. People are changing their entertainment habits and it is a real challenge for music and amusement operators to compete."
Yet Westerhaus remains optimistic that new technology, properly promoted, will send the amusements trade into another rebound as it has so many times in the past.
"When Golden Tee Golf came out, it was a huge hit for us; we promoted it as aggressively as anyone in the country," he said. "We had at least 250 units and they made big money. I'm hoping to see that again. We've all been through the booms and we are all searching for the next big thing. When it comes, whatever it is, we'll be right here in position to offer it to our customers."
Not a bad way for a family-owned company to begin its second century in the amusements business.