People who run trade magazines sometimes are invited to speak, as experts, with prospective suppliers about industry conditions and needs. So when a client recently asked me to address the major issues that have been affecting our industry, and offer suggestions on how we might turn these challenges into opportunities, I was very happy to do so.
It seems to me that the economic dark cloud casting a shadow on business today just may have a silver lining. “What?” you ask. Operators who have been feeling the squeeze, and who have been studying potential solutions, are finding the marketplace more receptive than ever before. Perhaps this is because everybody is feeling the squeeze, and this may finally allow the industry to do what it knows must be done.
To be sure, with the Jewish holidays upon us, I’m inspired to view the world optimistically. If you think about it, we really don’t have another choice. Even if you don’t observe Rosh Hashanah and Yom Kippur, there is no time like the present to reexamine your spirit both personally and professionally.
The basis of the problem facing the vending industry is that, while service costs continue to rise, the average workplace population has decreased. The shrinking workplace is not new; it dates back more than three decades, and was predicted to intensify as the U.S. economy began to shift away from heavy industry. But the situation has deteriorated in other ways over time, as delivery costs (especially fuel prices) have gone up. Vend prices and commission practices have not kept pace. This all has turned from a nagging annoyance to a major issue.
In response, operators have been moving more quickly to adopt innovations that can reduce route costs by decreasing the frequency of location service. I view this as a very positive sign. Many of the approaches to achieving these efficiencies have been around for a long time, but today’s technology makes them easier to implement, and the state of the marketplace gives everyone an incentive to do so. The longer-term good news is that innovative equipment designs (such as combination machines) have reduced the investment required to serve smaller locations.
Of course, the other way to help the bottom line is to raise prices. I think it’s pretty obvious that if you have a machine on location that is being patronized by half as many people as formerly used it, it would be worth trying to get each of them to spend twice as much. More responsive menuing, made easier by alert category management, can help. And, while operators have tended to believe that products priced higher than $1 encounter stiff sales resistance, some have reported success with premium cold drinks selling for $2. This clearly demonstrates that the price ceiling can be broken.
Offering payment options such as debit or credit cards may also help overcome much resistance. Vending is just about the only surviving retail channel in which the customer has to count out money for each purchase, and many believe that this calls undue attention to price. What’s more, people are likely to accept a higher maximum price if the machine is stocked with a variety of products at widely differing price-points. And cashless vending finally offers a practical method of odd-cent pricing. The ability to offer many different prices has been thought to alleviate the human tendency to associate a particular product with a certain price. My colleague Allan Gilbert cites McDonald’s varied menu pricing as an example of this winning strategy.
When dealing with increasing costs, we should also look to our friends in the OCS business. Coffee service operators have been grappling with higher green coffee prices for many years – since the memorable Brazilian frost of 1975, at least. They came to realize that newspaper publicity about rising commodity costs helped them persuade their clients that pricing adjustments were necessary. And vending operators today are finding that the same principle applies to snacks and food – yet another encouraging indicator that the price ceilings may not be as impenetrable as we once thought!
Much like vending, the coffee service business has been affected by a decline in workplace populations – and it’s not the first time. The difference today is that OCS operators have been able to offset the effects by offering higher-value programs that command fair pricing, and thus fair profit. They’ve done this successfully by making use of electronically controlled “thermal” systems and single-cup brewers. In this, OCS is reaping its reward for helping to start the “specialty coffee revolution” way back in the 1980s.
Today’s workplace service providers increasingly are turning to “total refreshment service.” This concept can match an operation’s vending, OCS and pure-water delivery capabilities to the specific needs of each location, and has effectively completed the fusion of the vending and coffee service industries.
Enterprising OCS operators always have found ways to sell cookies and other coffee-compatible snacks to their larger, more upscale locations. Nowadays, a snack machine is very likely to be placed next to a service stand supporting a single-cup brewer that delivers premium coffee. Why not stock that machine with premium snacks, priced appropriately? One might assemble a mix of upscale pastries that could be marketed as complementing a hot beverage, thus spurring sales of both product types. There seems to be a real opportunity here for suppliers who offer a diverse line of products, but operators don’t have to wait for someone to offer a formal program.
The good news is that demand for vending never has been stronger. Given the technology, the equipment and the operating doctrines available today, operators can meet this demand. We’ve faced very similar crises in the past, and benefited from them.
We can turn obstacles into opportunity. Let’s hope that the sense of urgency brought about by today’s economic difficulties will reinforce motivation for change. And during this time of reflection, I wish everyone the courage, strength and vitality to meet life’s challenges – myself included.