Micro Markets

How to make pantry service profitable amid growing demand

The labor shortage has boosted the demand for pantry service for many employers. Operators must recognize that while sales potential is high, profitability is more challenging. Customer communication is especially critical.

Image provided by Seventh Wave Refreshments.

December 7, 2022 by Elliot Maras — Editor, Kiosk Marketplace & Vending Times

With the labor shortage pressing businesses like never before, employers are looking for ways to better satisfy existing workers while enticing new ones.

This is why astute convenience services operators are expanding into pantry service, a service that allows an employer to offer free food and refreshments to employees.

While pantry service is hardly new, convenience services operators are finding more customer interest in the amenity, and they are recognizing the need to be up to speed on its nuances.

Kim Lenz of Associated Services Co. describes the economics of pantry service.

"Right now, a lot of our customers are actually using the pantry program to bring people back into the office," Kim Lenz, director of sales at Associated Services Co. in Concord, California, said during a panel session. The panel, "Profitability as a Pantry Service Operator," was given during the recent Coffee, Tea & Water Show in Las Vegas sponsored by the National Automatic Merchandising Association.

Lenz and her fellow panelists — Art Siller, senior vice president of operations at Evergreen Refreshments in Tukwila, Washington, and Linda Saldana, CEO at Seventh Wave Refreshments in Atlanta — agreed that pantry service is in high demand, but convenience services operators need to recognize this service has some unique requirements.

What's unique about pantry service?

When offering pantry service, the client organization pays for the products the operator delivers. In this regard, pantry service is similar to coffee service and dissimilar to vending and micro markets, where the employee pays for the products.

Lenz presented a chart showing that gross sales for pantry service for a typical 250-person location significantly exceeded that of coffee service and micro markets.

But while gross sales are potentially higher, so are costs, since pantry service requires more frequent delivery.

Higher sales, higher costs

"You're dealing with higher revenue, but you may be dealing with lower margins," Siller said. "There's lower gross profit per pantry item."

The service will also require additional work for the warehouse staff and the purchasing staff, he said.

The panelists agreed that while sales potential is greater with pantry service, the higher delivery costs, compounded by the current variances of employee head counts at customer locations, require operators to pay extra attention to profitability.

Linda Saldana, Art Siller and Kim Lenz discuss the importance of being transparent with customers about cost when providing pantry service.

Where Evergreen Refreshments previously reviewed its prices quarterly, it now does so monthly, Siller said. If you don't raise prices to keep pace with rising costs, he said, it's hard to stay profitable.

This being the case, operators need to be prepared to approach clients about changing the service model if the one being used is not profitable, the panelists agreed. Evergreen Refreshments has a monthly minimum revenue for each account.

Evergreen Refreshments had one pantry service account that had two full-time attendants on site at night.

"It made perfect sense pre-pandemic," Siller said. "Now they're serviced two times a week during the day…We had to make that change." The customer agreed to this change once Siller's team had a conversation with them.

Because the client is the one paying for the product with pantry service, he said, the client usually takes more interest in the quality of the service compared to other services.

"They have more opinions; they want to know who's on the team," Siller said.

Don't overpromise

While one of the advantages of adding pantry service is that it's easy for a full service convenience services operator to add, making changes to the service will not sit well with the customer if the operator wants to cut back to keep revenues in line with costs.

"It's easy to add this," Siller said. "It's a heck of a lot harder to dial that back" once the commitment is made to provide the service.

At the same time, "If you're not doing it (offering pantry service), somebody else will," he said.

One of the biggest challenges that clients have post pandemic is they don't know what their head counts will be, Lenz said. Hence, operators need to make sure they don't overpromise what they will deliver.

Customer communication is critical

Because of these uncertainties, the panelists agreed that it is important for operators to be transparent with customers about their costs in providing pantry service.

"Transparency of service is so key," Saldana said. "This is where you tell your customer, this is how much I'm going to invest on this."

"There's a different level of communication that you have to engage in with your customer," she said, compared to other services. "You can have a conversation if the service is there."

"With pantry there's so much transparency when you're like (saying), 'Hey every time I come to see you, it costs me this much money.' Don't be afraid to have those conversations," Siller added. "Normally when you have those conversations early on, you look like more of an expert anyways."

Because software allows operators to share data with clients, Siller's company shows sales reports and presents the opportunity to offer additional items based on what items are selling best.

"At the same time, you highlight slow movers and you explain to them if an item's not moving and you're giving it away for free, nobody wants it," he said.

Because of supply chain issues, "stock outs" are the biggest complaint Lenz's company receives. She discusses these issues with the client and explains she is working on alternative products.

"We've gone direct (with suppliers) more than we ever have," she said.

The right product mix

When the client requests new items, they need to know how the change will affect the budget. Most clients have a monthly budget in mind that will determine the products offered, the panelists agreed.

Siller said it is better to apprise the client about budget changes immediately than wait for upper management to react to a big change in their invoice, which can jeopardize the account.

"More variety probably lowers their overall cost," Siller said. The variety in product translates into a variety in price.

"Having a mix of items that costs a little less and costs a little more is probably pleasing more people because everybody in the office has more to choose from."

Oftentimes, because the client company is subsidizing the purchase, they might want lower-priced items.

Aesthetics matter

Unlike coffee service, the aesthetics of pantry service is critically important, Lenz said. The pantry has to be merchandised just like a more standard retail environment. Hence, management needs to train employees how to merchandise an account.

"You really do need to work with people or train them in a way that they are focused on detail, detail, detail," she said. "They (the customers) care about the colors, they care about aesthetics."

Siller agreed, noting that the delivery driver in most convenience services is servicing as many stops early in the day as possible and not interacting with customers a lot. With pantry accounts, the driver is spending more time at the accounts; therefore, it is important that they have good customer service skills.

Photos: Networld Media Group.