NORRISTOWN, PA - The past year was marked by a flurry of mergers involving key vending industry suppliers. While operators will likely continue business as usual, filling machines with their favorite products, vending brokers stand to gain big, or lose big, once the smoke clears. Veteran vending broker Gellman Associates sees the formation of the new food-and-beverage powerhouses as an opportunity.
"ConAgra purchased International Home Foods and Hunt-Wesson; Kellogg's bought Keebler; Nabisco sold to Philip Morris; Pepsi bought Quaker; Cadbury Schweppes purchased Snapple; the list goes on, and it will continue to do so," commented Dave Gellman. "The reality is that a line we've had for years could be acquired tomorrow. There's a bright future for brokers, as these new larger companies are willing to reinvest in the vending market, and we'll meet the challenges as they come; but the only certain thing in this market is uncertainty."
"Consolidation among major companies is a real concern to us as brokers," added Dave's son, Barry Gellman. "It's happening everywhere, with banks, utility companies, and airlines; and it's hit our industry hard. With massive consolidations, the big lines get bigger, so there's more dollar volume in each line, but they also can make or break us as brokers , gaining or losing a line has a greater effect than ever before."
Dave Gellman was a pioneer vend broker when, in the mid-1960s, he took the helm of a brokerage with roots in retail candy launched by his father, Harry. Barry Gellman joined his father in the business in 1989.
Gellman Associates' policy on dealing with the consequences of the past year's acquisitions is not only to continue meeting its clients' needs, "but also to make every dollar for the brand we possibly can, until it's taken away. If they say we'll be losing the business on April 1, as much as we hope we don't find ourselves in that situation, we'll be out there selling in full force until March 31," stressed the senior Gellman.
To brace for the unpredictable near future, Gellman Associates has ramped up its administrative and sales personnel to ensure the company is in a position to service the largest suppliers. "We are prepared to take on any size manufacturer that doesn't already use brokers, and give its marketing team the ability to drill down to the smaller operators that it couldn't afford to reach directly with its own personnel," said Gellman. "That's why I think brokers in this industry survive and continue to expand: because more and more suppliers are looking to outsource sales, rather than absorbing the personnel and administrative costs of maintaining their own vending sales forces. A broker is the only solution; we cover a five-state area and we do the work for them." That territory encompasses Pennsylvania, southern New Jersey, Delaware, Maryland and Virginia.
"We blanket a large territory, and we have enough sales people to call on even the smallest accounts; we make 100 live, face-to-face sales calls a week," added Barry. "We have long-standing operator relationships, and we know the industry thoroughly. We reach those operators who fill their own trucks each day, on a cash and carry basis through smaller distributors. We take the time to visit them, and bring a snack bag so they can sample the lines we represent."
Barry added that the vending industry is recognizing the merits of menuing and planograms. He, as a broker, plays an integral role in laying out planograms for his operator customers, and in doing so, securing a place in the machine for the products represented by Gellman Associates.
The brokers are committed not only to selling product to operators, but ensuring it is well-merchandised in the machine and that it turns rapidly, he emphasized. "If there are menu slots for cookies, we help the operators improve their efficiency," noted Barry. "If lemon cookies sell, they should be in the machine; if they don't, then replace them with a more popular variety. It shouldn't be up to the driver to let the stuff go stale on the shelves; it has to be planogrammed into that machine."
To demonstrate the benefits of this approach, Gellman Associates has developed a program to offer its vendor clientele. "We sign operators up to menu our items in all their machines. With the help of manufacturers such as Keebler, we're able to create incentive programs that help the operators menu multiple facings and categories in all their machines," said Barry. In many cases, the brokerage's products are menued in one-third of each machine.
"This works well for our operator customers because of the breadth of the strong lines that we represent," the younger Gellman explained. "With a planogram, we show them the benefit of making the commitment to hitting target case volumes, and establishing goals to gauge performance, by providing sheltered revenues or free goods in return for that mandated space in their machines."
"Most of the industry relies on business-and-industry accounts where there is a constant population," added Dave. "No one eats ham and cheese five days a week, 52 weeks a year. Merchandising, and product rotation, are critical to maximizing dollar sales from the machine with snacks and with food."
Gellman Associates also encourages its operator clients to designate at least one $1 slot in their snack machines. "The majority of our accounts are tremendously receptive," said Barry. "A 3.5-oz. theater box of Jaret International's 'Swedish Fish' costs the operator 49 cents, and he can sell it for $1; Old Dominion's 3.5-oz. Butter Toffee Peanuts have also proven popular in the $1 slot. Now that we have the 'golden dollar,' we want people to use it as change , because people don't care about change! The green, "foldy" dollar has a perceived value in their head. A dollar coin is easier to part with than a dollar bill. Putting more $1 items in the machine, and getting the patrons accustomed to inserting their money and not expecting change, will help alter that perception."
The Gellmans are finding that the manufacturers they represent are becoming more savvy in their use of data to develop worthwhile real-world industry information, and thus require more detailed input from their brokers.
"Because we're so well staffed now, we can spend more time looking at figures and generating very useful reports; before, we were too busy with sales," commented Barry.
Manufacturers and distributors, in turn, supply Gellman Associates with a wealth of data. The three-way flow of information keeps everyone in the supply chain up to the minute on trends, such as increased or decreased case quantities, and keeps product flowing through the pipeline as efficiently as possible.
"The reports show us if sales are down, if we've lost SKUs," noted Dave. "We can analyze the data 100 ways to find out where we are in relation to where we need to be." Distributors share with Gellman Associates data regarding which of their operator customers bought which product, and the volume. "We show it to the manufacturers and we use those figures to compensate our salespeople," said Dave.
Manufacturers rely heavily on Gellman Associates to test-market programs before implementing them formally. One major manufacturer launched a test pallet program, offering additional cases to vend operators who purchased full pallets of product. The Gellmans' participation in the test alone led to an estimated 6,300 incremental cases sold during the test period.
According to Dave, "passive" participation in such a program is not enough. He developed incentives to reward the account executive who sold the most pallets, posted results weekly, and awarded dinner certificates to the winner.
"Suppliers also rely on our expertise to test the vendibility of a product," according to Dave. "In one case, with a very responsive manufacturer, we're in the process of developing a shim to make the product easier to vend." Manufacturers depend on the brokers' expertise with equipment and other industry-specific logistic issues involved in bringing the product to the end user.
One such area of expertise is the Gellmans' direct interaction with the route driver, without whom top-selling product can be doomed to grow stale on a stockroom shelf.
"I would sell 25 cases, and a month later, 20 cases would be sitting in the warehouse because the drivers were not pulling the product," recalled Barry. "I asked the operators to let me meet with the drivers and let them know what's inside those boxes. I'd bring a foldout table, and sit on the loading dock with the product laid out for them to sample. Sometimes we'll meet with all the drivers at once and give them a bag of goodies to bring home. I tell them, 'Maybe you or I don't like it, but dump it on the table and see what your kids like, what your wife likes. Not all customers have the same tastes as you do.'"
Gellman Associates also educates route drivers about the sales performance of top items in other retail channels, including convenience stores, and never misses the opportunity to offer drivers samples of new products. "With Poore Bros./ Wabash's new 'TGIF' potato skin chips, we knew if we let the drivers see it and taste it, they would want to sell it and they'd put it in the machine," commented Barry.
A LITTLE BIT OF SUGAR
Little perks can also go a long way. "Route drivers listen to 'Radio WIIFM' , What's In It For Me?" commented Barry. "Keying into that simple fact has paid off ten-fold for us. We pass along all the premiums we can from manufacturers, be they T-shirts, soda huggies or box cutters, and it motivates them to put the products in the machines."
The brokers also host contests, encouraging drivers to write their names on each empty box of a chosen product that they sell. Gellman Associates then draws winners from all the boxes entered in the contest, and awards various levels of prizes.
"Change for change's sake alone does not get the job done at the route level. You have to give the driver an incentive, especially when it comes to changing a product out," emphasized Dave. "At least 80 percent of operators still don't use a planogram. They leave it to the driver's discretion, so we realize it's up to us to get to the driver. General Mills is paying attention to this reality, and in 2001 they are having an operator redemption program as well as a route driver program for premiums."
The manufacturers the Gellmans represent provide the brokers with marketing funds to use at their discretion to promote the brand. "Through our expertise and relationships in the industry, they rely on us to help with marketing the brand," Dave explained. "We know the business, and what sells, and how to get the brand into the market."
PLANNING FOR SUCCESS
Looking ahead, Dave sees a bright future for Gellman Associates "We've grown every year we've been in business, and we're ready to increase our staff again," he told V/T. "We're continuing to grow our existing lines to compensate for major supplier buyouts and acquisitions, and we'll continue to take on new brands."
A current example of a supplier who recognizes vending as an attractive outlet is Bob Evans, a frozen food processor. The company, new to this industry, has appointed Gellman Associates to bring its convenience line to the vending market.
A huge growth area is in frozen foods, according to Dave. "Frozen food is the next plateau, as more manufacturers redesign their packaging for frozen machines," he commented. "Years ago there was no cold food; today there's a tremendous variety. The same thing is happening at the frozen level. Anything you see frozen at the grocery store will be in vending machines, in time."
The veteran broker noted that he is seeing more vending operators pursuing non-traditional, "non-4C" accounts, which can lead them into unchartered territory and add incremental sales. "It's an opportunity for innovators, and I think vendors will recognize it , and that the sundries category will expand accordingly," he commented. "As vending becomes more prevalent in public and B&I locations, the operator can supply things like panty hose. People put in more hours at work; they need more sundries like shaving cream, emery boards, and toothpaste. Diversification helps operators; they have to overcome 'tunnel vision' and broaden their horizons. They're already in the location; there are 300 employees; what else can they sell? Where can we bring more value to customers so they can bring more value to us? Vending operators will begin to look beyond the norm for incremental business."