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For One Operator, Higher Price Points Change Bulk Rack's Sales Dynamic

Posted On: 6/11/2009

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Great Dane Cranes, John Honeycutt, bulk vending, vending, vending machine, vending routes, vending business, automatic retailing, retail prices, coin-operated, gumball machine, capsuled toys, candy machines, vender, vendor, small business success

CLEARFIELD, UT -- Although many in the industry agree that raising vending prices is a necessity, the hesitation on the part of most operators remains somewhat puzzling, at least on the surface of things. After all, it wasn't so long ago that the industry made the transition from 25¢ to 50¢ turns for products in 2" capsules with minimal fuss.

Clearly, things are different this time around. For one thing, there is the economy. With many operations squeezed, the large expenditure required to retrofit entire routes with new coin mechanisms represents a burden that only a few can easily undertake. And then there is the fearful uncertainty of the entire enterprise. Setting aside the highly improbable possibility that the government will eliminate the $1 bill and force widespread circulation of the $1 coin, many operators simply do not know what to expect when it comes to the cashbox.

However, the experience of John Honeycutt, Great Dane Cranes (Clearfield, UT), may prove typical for those making the transition to higher price points. Honeycutt, whose route extends throughout Utah and into Idaho, Wyoming, Colorado, Nevada and a small part of Oregon, began transitioning to higher price points two years ago. Since then, he has completed the move to 75¢ for 2" capsules. Honeycutt reported that more than 90% of machines vending 1" capsules have been upgraded to 50¢.

"The biggest obstacle I faced was selling the idea to my commission-based employees who collect from the machines," the vendor said. "They thought it was going to cut sales and therefore cut their paychecks. But we had very few barriers with our locations. I only recall one or two saying they didn't like the new price."

As it turned out, the employees' fears were unfounded. While increased vend prices initially prompted sales declines, particularly in those machines offering higher-priced products, the move to 1"capsules in 50¢ machines, along with smaller product sizes in equipment dispensing gum and confections, yielded higher profit margins.

"Sales through machines with 75¢ product did drop off," Honeycutt observed. "We sold 40% to 60% fewer pieces. It took a dive off, but we picked those sales up on the bottom of the machine on the 1" and the gum. All the confections were a quarter. So we picked up sales down there along with any spiral or sticker machine we had in a particular store. So sales were flat, but the margins obviously went up wherever they were made."

Honeycutt explained that he took a wait-and-see approach to the higher prices while actively seeking to maximize profits on the lower-cost items by switching from 850-ct. to 1080-ct. ball gum and stocking up on inexpensive pressed dextrose candy to boost the bottom line. "I did that and still maintained the quarter capsule, until I looked at that about a year ago," he said. "And then I said, 'you know what -- we have to move this along for the same reason.' So I invested a lot of money. And by raising the price on 1" to 50¢, it didn't seem to dip as much. It did dip, but the gum next to it has just gone gangbusters at 25¢."

Honeycutt has recently seen his sales of 75¢ merchandise begin to increase. "It's been two years and now 75¢ product has climbed back up," he reported. "We don't have in-depth technical or scientific ways to measure all this, but sales are strong and coming back. Good products are received well. We can sell heads out at 75¢."

As a business case study, Honeycutt's experience suggests initial resistance to the higher price points on the part of consumers followed by slow acceptance. What is interesting is the fact that his initial fears were dispelled by consumers' purchasing choices that boosted the profits by migrating to less expensive merchandise with a higher profit margin.

"It's a lot of labor and a lot of money, but doing nothing was even scarier," he summed up. "Looking at the higher prices I was paying for product and feeling the effects of a bad economy, along with hearing suppliers' concerns about rising oil costs and issues with labor in China, I could only see prices going up. And if I were stuck at 50¢, well, I would not be able to run my vending business."