For many vending operators who have not done so already, price increases might be inevitable this year. Higher operating costs, from food to fuel, coupled with persistently smaller B&I location populations, have marginalized many accounts, so vendors face challenging times in getting their returns on investments in equipment. Operators can go about raising prices several ways, but they should also take a close look at how margins can be improved at current pricing levels.
There are two ways to accumulate wealth: save money or earn money. I advocate the latter. Diligently turning off light switches won't save the day in view of the current pace of increased costs eroding your bottom line. The increased costs of wages, health insurance and wholesale products must be passed on.
If you don't offset the increased costs of doing business, either with internal efficiencies or by passing them through to the customers, you're slowly going out of business. Historically, the vending industry has been very slow to recover increased operating costs. A recent example of this is the failure of most companies to offset the increased swipe fees, as more and more card readers are installed.
But before looking to clients for financial relief, take a look internally. Are you asking them to subsidize your bad management? Are bottom-line dollars slipping through your fingers? Employee theft and low direct labor productivity are legendary profit drains in the vending and OCS industries.
A word about internal efficiencies: Some operators actually eliminated employee health insurance as a means to save money; with absolute certainty, this kind of "burn the furniture" rationale will lead to the eventual failure of a business. Take a hard look at places to cut costs, and be careful not to cut into muscle. Internal cost cutting is generally a one-trick pony that, when taken to extremes, will cripple a company.
Take a look at other ways to recover costs and offer options, including these basics:
» Reduce commissions
» Remove low-volume machines
» Expand services
Here is one option that is often overlooked. Commonly, services are shared at locations, with one company having the vending and another company providing OCS and breakroom supplies. The more aggressive of the two companies will always take a shot at dislodging the competitor or taking over all the business in return for foregoing the proposed price increase.
All of the large companies have sophisticated budgeting and forecasting systems. Some mid-size and small operators skip this process entirely. Some do not track profitability by account, which is a huge mistake. The sum of the parts will always equal the whole.
What are your profit objectives -- big picture and total company? I am sure there is a gap between what it is now and what you wish it to be. Important first step: measure that gap. Enter that number on the first line of your profit improvement plan. So before you go to the client to recover any increased costs, calculate the exact dollar amount of relief you need.
Sort your accounts on the above criteria, in descending order. First, do something nice for the top 10% without being asked (read account retention). Next, pay a visit to the bottom 10% and explain, in a firm businesslike manner, that your relationship must be revised if you are to continue services. Then present the timetable for the specific actions necessary.
The first place to start your cost-recovery plan is with your account contract. Location contracts will always provide a procedure for implementing price increases. Some samples of the common clauses are:
Mutual agreement. Vendor will stock the machines with quality products at reasonable prices as mutually agreed. However, approval for price increases to offset increased product and operating costs will not be unreasonably withheld, delayed or conditioned by Client.
Unilateral. Prices are subject to change at Vendor's sole discretion as may be required to offset increased costs in equipment, labor, distribution, wholesale products, line fees, tax increases and other operating costs.
Consumer Price Index. Client and Vendor shall mutually determine product prices; however, product prices may be adjusted by vendor annually at a rate equal to the then-current CPI rate. CPI means the CPI-U, U.S. City Average, All Items, published by the Bureau of Labor Statistics.
However, a large percentage of accounts served are not under contract. This is especially true of smaller accounts. So you go to the client, armed to the teeth with documentation and a flawlessly prepared verbal presentation as to why any reasonable client should grant your request for financial relief. Surprise! He or she is unmoved and, with a sneer, flatly refuses to go along.
Know when to quit, and realize when to let an account go. Vending operators are entitled to fair profits for good service and value, and they can't allow good accounts to subsidize the dogs.
Don't quit in anger; even the worst accounts are usually not out-of-pocket losers, they just don't generate fair returns. So take your time and find a way to redeploy the machines at this location to a more profitable location. Then pay your cold-hearted client a visit and let them know you're leaving.
You only get so many shots at the client. Approaching price increases, commission reductions and general cost relief with clients is guaranteed to resurrect distant memories of all you have done wrong. If you are in an adversarial relationship with your client, if you're back on your heels due to perceived poor service, don't expect much.
I come across snack machines in the field with six or seven price points, ranging from 60¢ to $1.50 in nickel increments. This is a deterrent to a fast and easy sale, which is what vending is all about. Three price points for the entire machine, in 25¢ increments is plenty -- make it easy to buy.
To notify or not to notify? Often times notices are posted on machines or in the breakroom explaining the price increase and giving a week or so advance notice. If the client insists, then do it; if not, don't. In some cases a price increase may be a significant emotional event, but then blows over. Don't call attention to it.
There are times when price increases should not be implemented. These include the last year of a contract, or when the account is under competitive threat (provided that this is an account you want to keep) -- it's better to focus on securing a new long-term contract. And keep in mind: Relationships don't count for much these days when the business goes out to competitive bidding.
There are some precedents in other retail operations to set minimum sales amounts for card purchases or an upcharge for the use of credit cards. I don't see this as a practical solution for vending.
TOM BRITTEN is a veteran of the vending and foodservice industries, having held executive positions at The Macke Co., Service America and the Canteen unit of Compass Group North America. He has been active in the National Automatic Merchandising Association, receiving its Chairman's Award for legislative action, and has served on the boards of state vending associations in Florida, Ohio, Pennsylvania and Washington. He founded Britten Management Services LLC in 2003. He resides in Florida and is available at firstname.lastname@example.org.