Tuesday, January 23, 2018 | Today's Vending Industry News
Is It Time To Re-Think Commissions?

Posted On: 9/21/2012

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TAGS: vending machine commissions, location commissions, vending, concessionaire, vending industry, coin machine business, coffee service, office coffee service, vending machine operator, micromarkets, Alicia Lavay, Vending Times editorial

Alicia Lavay

Last month, Tim Sanford and I spoke about the future opportunities for vended coffee and food vending. Branded marketing efforts in both coffee service and vending, along with the advent of micromarkets, have opened new doors for operators and are solidifying the vendor's role in today's economy.

This got me thinking. With today's new service methods and the changing perception of vending among location owners and consumers alike, might some of the old rules regarding commissions be apt to change, too?

It's helpful to remember where this idea of "commissions" in vending originated. A "commission" is commonly paid by a concessionaire to the location that grants the concession. If I start a baseball team and build a stadium for it, I probably will not want to set up a whole foodservice organization to do the food and beverage preparation and sales for it. Instead, I will contract with a specialist who sells food and beverages, and who will be glad to have a more or less captive audience and no expense for site selection or facilities design and construction. He will be using my utilities, and besides, I am giving him valuable access to a market he otherwise would not reach. So, in return for my "conceding" him the right to conduct his business on my premises, he will agree to pay me a percentage of his sales -- which can be thought of as my "commission" for having brought him the customer.

For as long as I can remember, this is the way things have been done, and nobody seriously argues with the model, which long predates vending. Unfortunately, it is susceptible to abuse and misunderstanding, and so (of course) it has been misunderstood and abused. Once you establish the principle that the location has something of value to offer, you implicitly permit the location owner to get the best price he can negotiate for it. Thus, I might grant the concessionaire a three-year contract to serve my ballpark. At the expiration of those three years, I may choose to put the concession up for bid, making a "request for proposal" to the sort of specialists who provide refreshment services at sports stadiums. In an ideal world, the organizations that submit proposals in response to that request would describe the ways in which their proposed services will make the people who attend my ballgames much happier, which will encourage them to come back, and to recommend the experience to their friends. In the real world, they all try to get the concession by offering the highest commission they can afford, while still making any money at all. And this, of course, tends to raise prices and lower quality for the people actually buying their products. This raises the old question (in vending, as well as the concession industry, as it's usually defined): What does the location want -- top service, top-quality merchandise or top commissions?

But however they are viewed, for whatever reason, they are paid. Commissions have always been an important cost of doing business in the coin-op industries. Their effect has been magnified by the difficulty vendors have had in adjusting prices, which is less of an issue for classical concessionaires -- as illustrated by the price of a hot dog at a baseball game. People at entertainment events accept premium prices for refreshments; in work environments, prices tend to be sensitive and subject to negotiation. The traditional nickel increments mandated by vending have not helped, either.

Some interesting things are happening that are worth discussing. First, you have "coffee service" (now, increasingly, total refreshment service) replacing "vending" in many locations. This chiefly involves hot beverages; many locations -- now downsized, no longer with large blue-collar workforces but with well-compensated specialists working long but irregular hours -- prefer single-cup portion-pack machines to traditional full-house fresh-brew hot beverage venders, however sophisticated those may be. They are willing to spend 45¢ a cup to give free beverages to their employees, paying for it from the savings they effected by shipping their manual labor overseas. This situation probably won't last forever; it never has. But while it does, it is good for the operator, who can price the portion-packs the way he needs to, and pay no commission.

The new micromarkets are pure profit centers, too: operators market them as valued amenities for which nobody would think to ask for a commission. Could the introduction of modern high-end machines (coffee, again, is the obvious example) help operators break the commission habit? After all, vendors bring in-demand products to a location. Back when "cooperative service vending" was a hot topic, the question was raised: does your business machine service pay you a commission for allowing your employees to use its copier?

The commission question is a recurrent topic, and it may be time to visit it again.