— The search for ways to apply or adapt vending to locations with small populations has been under way for more than half a century. Rising costs began “marginalizing” smaller sites in the 1960s, and the shift from an industrial to a service-and-information economy with less populous, more decentralized workplaces that got under way in the next decade lent new urgency to the question.
Current industry thinking on the subject was explored at a seminar during the 2006 Atlantic Coast Exposition in Myrtle Beach. Moderated by Ben Ginsberg, Vending & OCS, the panel consisted of Steve Sprinkle, Crane National Vendors; Jeff Thweatt, Anchor Services (Chesapeake, VA); Jim Dreisbach, Greensboro Vending & OCS (Greensboro, NC); Brent Cromer, Cromer Food Service (Anderson, SC); and Alan Plaisted, Southern Refreshment Services (Tucker, GA).
Ginsberg asked the panelists to outline the nature and scope of their activities. Plaisted reported that Southern Refreshment, in business for 27 years, began as a “cooperative service” venture, back when CSV was seen as an attractive new alternative for serving smaller sites. The company now runs 40 vending and 11¼2 dedicated coffee service routes. “We don’t have a commissary,” he added. “Our expertise is vending.
“For the first few years, we had ‘accidental’ coffee service, business we took on in order to get a vending account,” he added. “We bought a coffee service operation, and we sold it; we’ve begun building up the OCS business again. We service 13 metro counties in Atlanta, with about 600 accounts. Atlanta is a growing market; the locations we serve range from 2 to 1,000 employees. We like the opportunity to serve large clients, but not always the investment needed to do it! We’ve been lucky to build a base of mid-sized accounts.”
ROLLING WITH THE PUNCHES
Cromer explained that Cromer Food Service started by seeking smaller accounts, and it covers a large territory from its headquarters, strategically located near the Georgia-South Carolina border. “That strategy worked well with 75¢ gasoline,” he recalled. “We place less emphasis on small sites now.”
Dreisbach noted that Greensboro is, at present, a shrinking market. “We zero in on the 50- to 125-person account, and we offer water and coffee service as well as vending,” he said. “We now have one coffee service, one food, three drink and five snack routes.”
Thweatt explained that Anchor provides vending and coffee services in its Virginia market area. The emphasis lately has been on OCS, and the company has put two OCS routes on the street in the past two years.
Sprinkle reported that he joined Canteen Vending Services in 1979, departing after 10 years to pursue opportunities on the supply side. He worked with Brady Distributing (Charlotte, NC) for nine years, and has been with Crane National Vendors for seven.
Ginsberg asked the panelists to define a “small” location.
Plaisted agreed that this is a good question. “We have 250-person accounts that buy less than some with 75 people,” he said. “Which is smaller? Most of us define location size by population and by the investment needed. Under that definition, 75 people constitute a small location. Can you run a snack and a drink machine in a location that size? Well, does it work three shifts? Is there a fast-food restaurant across the street? What’s the average age of the workforce? Older employees usually spend less. All in all, I’d say 60 to 80 people.”
“So you take demographics into account when you solicit?” Ginsberg inquired.
“Yes indeed,” Plaisted replied. “Also the geographic location. It makes a difference if it’s down the street from another account; you’ll know what it costs you to stop the truck – about $55, in our case. And how will a new small account fit into a route? Will the driver accept responsibility for a place that does $150 or $200 a week?”
Cromer agreed. “A machine-shop with 50 people can generate more volume than a white-collar account with 100,” he said. Volume, not population, is the determinant; “We look for at least $300 a week in sales.”
Dreisbach added that, in his market, a location with 75 to 80 Hispanic males will do as much volume as a white-collar account with twice the population. “And we always ask, what else can we sell in a smaller account? Can we install a Gevalia countertop single-cup machine and charge rent?” In general, he said, 50 to 100 people make up a “small” site.
“We’re in agreement here,” Thweatt said. “You have to take the type of location and the demographics, into account – not just the size.” As a rule of thumb, he suggested, a population of 75 to 100 is “small” for a vending operation running a drink and a snack machine.
“And everyone wants food,” he added. “It’s tough. We can do a trial for 90 days, and let them know whether it’s going to work.”
Dreisbach noted that Dixie-Narco’s BeverageMax glassfront cold drink machine can be equipped to sell sandwiches too, and a mix of food, premium cold drinks like SoBe, milk and, for the Hispanic market, juice can generate much more revenue than a single product type. “The idea is to provide as much as possible with a minimum investment. But we won’t put food in smaller sites; there are too many stales.”
Cromer pointed out that, in certain markets, the smaller operator really doesn’t compete against larger ones, but against the mom-and-pop enterprise. “We get calls all the time,” he said. “We’ll evaluate any prospect, and we may try food, with a contract specifying that the food machine must do $X after six months or we’ll pull it.”
Plaisted agreed that it is important to be realistic; small prospects call all the time, having also called other operators. “They want as much as they can get for their employees,” he pointed out. “We have older refurbished equipment available for that kind of account; it’s not suitable for a 500- or 1,000-employee site, but there is a place for it.
Asset management also is a consideration; “Where will you get the equipment for the new small location?” he continued. “You may want to say something like, ‘At less than $200 per week, I can get a better return by moving this or that machine.’”
“We try to stay away from food,” he added. “If an account has potential for growth – if we can trust them – we’ll put in a food machine. We tell them, ‘we have to do $125 a week; you can subsidize the service if you wish.’”
Ginsberg asked for details on the most suitable types of equipment for smaller accounts.
Sprinkle replied that every manufacturer now offers some sort of combination machine, the basic kind being a cold drink/snack design. He advised that, whether purchasing a new machine or a refurbished one, the operator look to collect about $1 per year for every $3 spent on the vender, a return on investment of 30% or more.
A relatively new wrinkle is the combination machine that can sell cold drinks, snacks and a little food, Sprinkle added, and the concept is finding favor with operators. “These offer first-in, first-out loading and they hold down stales,” he pointed out. “We’ll see this kind of machine proliferating in small sites.”
Equipment manufacturers need their operator customers to make money, he emphasized; “we’re all in the same boat.”
“What about your coffee?” Ginsberg asked.
“In smaller sites, we steer away from vending coffee if we can,” Plaisted replied. “We try to keep our profitability up; in most cases, OCS is already in place. With the exception of blue-collar situations, we strive for coffee service.”
The moderator asked whether any of the operator panelists sells or leases equipment to smaller locations.
“We’ll lease equipment,” Dreisbach told him. “We’ll sell it, too, but we’d rather not. We do rent ‘Gevalia’ and ‘Cafe 7’ brewers; we lean more toward OCS.”
Thweatt concurred. “We push our coffee service,” he said, “and we try to upsell into coffee service accounts by offering them water, paper towels and so forth for their breakrooms.”
“What’s the service frequency for smaller sites?” Ginsberg inquired.
“There’s no ‘cookie-cutter’ for that,” Plaisted said. “You need to evaluate the needs of each. Is one visit a week enough for a 75-person account? Not necessarily, but two visits might be too many – often, once a week results in underservicing, but two represent overservicing.”
The moderator wondered whether there is any benefit in setting up a route dedicated to smaller locations.
“We’ve done that, in the past,” Plaisted explained. “We’ve grouped small sites onto a route, and then sold it to a smaller operation. We don’t do it all the time.”
Dreisbach explained that he runs a specialized small-site route consisting of snack machines in schools. “We group our accounts by volume, and we keep evaluating them,” he said. “Often, we’ll add another machine rather than increase our service frequency.”
“What do you do when a large location gets smaller?” Ginsberg asked.
Cromer replied that an important consideration when that happens is preventing it from reducing total route sales. “You may have to add some small sites to fill out the route,” he said.
Sprinkle recalled that, in his Canteen days, “we weren’t allowed to solicit a prospect that had fewer than 200 people. All that has changed dramatically now,” he noted. “What I’m seeing is that, when an account gets smaller, many operators will hang in there and accept a lower return, in order to keep their equipment in the field and earning.”
“Yes, and we’re willing to work with them, for a while, until they feel better about it,” an audience member added. “Then we can go back and renegotiate the contract.”
Dreisbach agreed. “Be tactful,” he urged. “But do look to negotiate a lower commission rate when volume decreases.”
In conclusion, Plaisted emphasized that small locations are here to stay; in fact, they always have been here, but there are fewer large accounts now. “If each of you looks at your Chamber of Commerce’s local business reports, you know that there are many, many more 50- to 75-employee workplaces than there are places employing 2,000,” he pointed out.
“When we started, we didn’t go out and try to land the biggest clients we could find. We built our business on $150 to $200 per week accounts; then we went after the larger ones,” the Atlanta operator reported. “There’s not a lot of turnover in medium-sized accounts. If you built your business on 1,000-person locations, it does hurt when you lose one! It’s good to have an account base of loyal, stable, midsize and smaller clients.”
Dreisbach emphasized the importance of maintaining the best possible communications channels with clients, not only in order to receive as much advance warning as possible if downsizing is in prospect, but for other reasons too. “We’ve taken to hand-delivering our commission checks, and we communicate regularly so our clients get a feel for what’s happening,” he added. “When you need a price increase, you want to go in with documentation – our customers know what we’re paying for fuel, but they don’t associate that with the price of merchandise in the machines. You can talk about the prices charged by your suppliers.”
“And, of course, if you’re in an area where a bottler will supply the cold drink machine and all you need to provide is a snack vender, it changes the economics,” Plaisted added.