Saturday, January 20, 2018 | Today's Vending Industry News
History Repeating

Posted On: 5/17/2009

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Jukebox, digital music, vending, vending machine, vending business, vending routes, coin-operated, coin-op, operator, Alicia Lavay-Kertes

My father always told me that if I hung around the coin machine business long enough, history would begin to repeat itself. This was his reaction to controversies that troubled the industry discourse; he always remembered something similar that had taken place years earlier. And that reaction was surprisingly calm, even nonchalant, given the intensity of the debate, and I often wondered whether I'd ever be as unruffled as he was. I also wondered whether or not I'd be around long enough to learn whether his theory is invariably true. Almost 21 years later, I'm starting to believe he was onto something.

The topic of location-owned equipment has surfaced once again, this time in the amusement and music segment, and -- again -- has aroused concern within the operator community. If you are interested in the details, I encourage you to read Marcus Webb's editorial, "The Great Digital Debate," here.

For our immediate purpose, the important thing is to recognize that as long as we have free enterprise, this issue isn't ever going away. It is a structural problem, like excessive commissions; but excessive commissions almost always are a symptom of antisocial stupidity. Location ownership of equipment may be a bad idea, depending on the circumstances, but it's not irrational. It's not hard to imagine a scenario in which the business model for vending, music and games might have resembled (say) that for business machines, which the client will buy or lease depending upon the frequency and difficulty of service required. A Martian tourist visiting a service station might be puzzled to learn that the location owns the gasoline pumps but not the vending machines. We must start by understanding that people not involved in our industry see nothing at all perverse about the decision to buy something, rather than contracting with someone to operate it. The prevalent model emerged because it has proven most advantageous for all the parties.

The same thing happens in distribution. Warehouse retail chains have been selling vendible products direct to operators (or anyone else who wanted them) for years. My first experience with the discontent it caused was at a National Bulk Vending Association trade show more than 15 years ago. I can remember distributors calling for a boycott of one of the two major gum producers that allowed a major "big box store" chain to sell its product. Because of its volume and its expertise at storage and handling, the chain was able to inventory very large quantities of product and offer favorable pricing to operators. This, of course, challenged the traditional distribution model.

And the distributors for the other principal supplier put on a full-court press against their offending competitor, charging that selling outside the established distribution channel demonstrated an arrogant lack of respect and support for the bulk industry, and therefore operators shouldn't buy from them. When I returned from the show to share what I thought was news with my father, he explained that this had been going on in the office coffee business for years. Around and around we go ...

It is important to keep in mind that it is not illegal or immoral for a vending supplier to sell product to a warehouse retail chain, or for a location to own a vending machine. In fact, a manufacturer or supplier who refused to sell to a creditworthy applicant willing to meet its price might face legal action. So today, these large retailing outlets not only sell product, but also commercial vending and amusement equipment. Because the machines now are so readily available, it is not uncommon for vending and coffee service equipment to be owned or rented by the location, usually backed by a service contract made with a local operator.

Manufacturers and distributors have always sold to any customer willing to pay their price; the law obliges them to do so. But the location gets real benefits from working with an operator rather than trying to "self-operate." Financial editor Allan Gilbert put it best when he said that operators need to justify their place in the distribution channel by offering value that the direct supplier cannot.

The old-timers around here recall when street cigarette operators confronted the challenge of tavern-owners being approached by salesmen -- "wearing long, pointy shoes" -- who pitched them on the supposed advantage of owning the cigarette machine and keeping all the money. Those salesmen did not mention the parts about menuing the machine to conform to location demographics, ordering and storing an inventory of valuable merchandise, securing it against theft, unjamming the coin mech, and all the other things an operator did to maximize the value of his service.

In that era, too, while pioneer coin-op pool table manufacturers were developing player leagues that their operator customers would run to benefit their accounts, alert operators already were talking up all the things they did that location management did not notice: periodically replacing the rails and the cloth and the cue tips, making sure chalk was available and generally dealing with all the service issues that never occurred to a tavern owner.

Coffee service operators also encountered prospects who saw no need to contract with a professional service; the $19.95 brewer they'd bought at the hardware store worked fine, and they sent their secretary out for supplies. One operator told me that he always replied: "Sure, and you could send your secretary out for roach powder, if you had an infestation problem; but you'd probably call an exterminator. It's better to let your personnel do the jobs you hired them for, and to let me handle your refreshment needs."

During the last economic downturn, I spoke with a few vendors who reported getting calls from account contacts with whom they had enjoyed long, cordial relations, explaining that top management had ordered them to bring the vending in-house. The contact usually thought that was a bad idea, had no idea what to do next, and turned to the operator for advice. The adaptable vendors pointed out that if the location simply bought equipment, it would be an expensive wasting asset. A better plan would be to lease it from the operator, with a service contract, and to come up with an arrangement under which the operator would deliver supplies.

It's also important to remember that there are locations that want a vending machine or a jukebox but, because of their geographic situation or their volume, cannot get an operator to put one in. A distributor who sells the desired equipment to a location like that is not betraying the industry at all, but is demonstrating its ability to meet the needs of all kinds of clients. It would benefit local operators to work with those distributors to provide contract repair and maintenance services; after all, the account could get larger, or might be in an area that will grow into a neighborhood that can support a profitable route.

The vending, recreation and office refreshment industries always have known, in their calmer moments, that service is what we really sell. In my opinion, it makes a lot more sense to focus on adding value that way, and to lower our voices.