Coffee Service

Convenience services COVID recovery plan: acquisition versus organic growth

Image courtesy of iStock.

May 10, 2021 by Elliot Maras — Editor, Kiosk Marketplace & Vending Times

With customers starting to return to business as usual, convenience services operators have a chance to recover from the closures that have plagued them for the past year.

While operators are anxious to get back to business, many are finding there are more opportunities to grow by acquisition as some of their fellow operators are looking to sell their businesses due to the losses they suffered during the pandemic.

Operators looking to recover their losses should decide whether they want to focus on acquiring other convenience services businesses, focus on organic growth or pursue a combination of the two methods, said Tom Bauer, a convenience services veteran in addressing a recent National Automatic Merchandising Association webinar.

Bauer is a former coffee service operator who is now vice president of national accounts at Emerald Brand, a provider of utensils and ancillary OCS products.

"I think as we get into 2021/2022, we're going to see that type of (acquisition) activity again," said Bauer. "As small operators and medium size operators, there is opportunity for us to make acquisitions."

Acquisition considerations

Image courtesy of NAMA.

Growth by acquisition offers the following considerations:

Economy of scale.
Strengthening existing routes through tuck-ins.
Gaining key talent.

"How do you build a solid team? You could do that through an acquisition," he said. "How do we make sure that we're taking the knowledge, information, that some of these experts have that are going to be retiring? How do we pass it on to the next generation?"

Expanding the network.

"The more you can get out there and have more points of contact, the better your organization is going to be."

Better gross margins.

"Maybe you're able to take advantage of the buying power that you have now because you're a little bit bigger because you've made an acquisition."

Purchase price.

A key consideration in acquisition is always purchase price, which he said can be determined by various financial metrics.

"I would recommend for everybody who's not been through this before to reach out to one of the industry experts when it comes to mergers and acquisitions," Bauer said. "It's going to be worth the money to have somebody who's been down this road before so that when you make that purchase price. You're making it with all of the information you can possibly get."

The top 100 customers.

It is important to know what type of businesses the top 10 customers are.

"How do I operate against that customer base? Am I more allied to OCS versus foodservice?"

Type of accounts.

The type of accounts being served could affect the type of vehicles and routes you have.

Status of accounts.

With COVID, "We want to understand what percentage of the accounts right now are active," he said.

Contracts.

"What type of contracts does the company I'm acquiring have with suppliers and customers?"

Geography of customers.

The geography of the customers of the company being acquired also has to be considered, as it can mean challenges or opportunities.

Accounts receivable.

"Are there customers that consistently go beyond 45, 60, 80 days? What's that going to do to your cash flow?"

Payment method.

How will you pay for the acquisition — by cash or with a loan?

Physical assets.

The physical assets — the equipment, the building, the fleet, the inventory, the software and the human resources have to be considered. Bauer said it is important to view the equipment in the field.

Software.

Is the software compatible with your company's existing software? "Can I even merge the two without a big expense?"

Human resources.

It's important to interview all the employees coming with the acquisition to make sure they are aligned with your expectations.

"As you're looking at the acquisition opportunity, you've got to take all these things into consideration," Bauer said.

Organic growth option

Organic growth brings its own set of concerns.

It is important to hire sales people and possibly a sales manager, Bauer said.

"If you're going to make it to that next level, there's got to be a strategic plan in place that says how do I do this, how many do I bring on board, and what are my expectations?"

Leads come from the sales team, third party lead providers and websites.

"The cost of organic (growth) options is time," Bauer said. "If you've got somebody who's spending your time on one thing, you've got to get your return of investment on that."

Cost effective sales tools include pay-per-click advertising, internet search engine optimization, LinkedIn advertising, third party lead providers, route sales reps, telemarketers, supplier partners and account referrals.

"I think LinkedIn can be a fairly cost effective way to look at gaining some new leads and some opportunities," he said.

Should route drivers sell?

As for whether route service people should be selling, each company has to make that decision for themselves.

"Do I have somebody who can actually articulate and talk to an existing customer that they're servicing? If so, that individual might be able to give me some leads," Bauer said.

"Operators need to take advantage of the supplier partner relationship," he said. "Ask them for leads. They can grow their business in tandem."

Third party lead providers that provide key contacts at potential customer accounts usually have a 12-month agreement, he said. The cost can be $8,000 and up.

"You're getting good quality leads in front of your top sales representatives," he said. "Telemarketing should be part of the lead generation."

Before the sale call is made, it is important to learn about the customer, and to customize offers based on that knowledge.

It is important to set expectations for the sales team, in terms of quantity, quality and retention of sales, he said. A compensation plan can be based on these metrics.

You should know how many sales per month are needed to gain a return on investment of having a sales person, he said.

Every route should be reviewed as a profit center.

Part two of this two-part series will address how to attract and retain good employees.

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