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Operators, Suppliers Battle Price Increases With Various Strategies

Posted On: 2/16/2005

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Operators, Suppliers Battle Price Increases With Various Strategies

U.S.A. - As the journalist Frank P. Adams once said, "There are plenty of good five-cent cigars in the country , the trouble is, they cost a quarter." Bulk vendors today are finding themselves in a similar position, except they happen to be the ones selling cigars to the esteemed and cantankerous Mr. Adams.

With the cost of merchandise rising, operators are finding themselves steadily squeezed between suppliers and customers. What has become all too obvious to many operators as well as suppliers is that bulk vending's distinct disadvantage of not being able to pass increased cost of goods on to customers is beginning to become an issue that is impacting both large and small operators.

"It's getting tough out there," said one operator. "It's getting tough to find even 50¢ merchandise that makes sense for a lot of my locations."

According to numerous operators, price hikes at the wholesale level are damaging more than just the bottom line, but also long-time operator and supplier relationships. The increases, claim the operators, are due almost entirely to the greed of the suppliers and manufacturers. Indeed, listening to some operator accounts, it isn't difficult to imagine suppliers twirling their mustaches as they prepare to raise prices on capsuled merchandise, but only after foreclosing the mortgage on the local orphanage and banning puppies.

Of course, while evidence doesn't support many operator claims it is easy to see why they would be made. Over the past several years, the industry has experienced an unprecedented and nearly continuous upgrade in the quality of capsuled merchandise available. Quality, along with perceived value, rose steadily while imports from India benefited from a strong dollar. And China, while its currency doesn't fluctuate against the dollar, was ramping up exports at an impressive rate. Add to that inexpensive oil, which made the cost of shipping goods and the cost of petroleum-based products , including both capsules and merchandise , relatively cheap.


Then it stopped. The fashion jewelry recall that occurred this summer ended, at least temporarily, the importation of toy accessories from India. The price of oil climbed at an alarming rate, while the dollar slumped somewhat in international markets. China too, according to suppliers, has become less bulk vending-friendly as the number of products that fall within the price range of suppliers continues to dwindle.

"These are some of the things facing this industry right now," said one supplier. "And it's a major dilemma for the operators and distributors in this industry. If we don't raise profitability, we can start producing junk and go back to what the industry was seven or eight years ago."

Not surprisingly, almost all of the operators and suppliers interviewed for this story didn't want their names to appear in print. However, at least a few VT spoke with related strategies that included switching back from "straight mixes" to those that include a variety of different items, including multiple levels in quality, reversing the trend toward "straight mixes" that has consistently grown over the past few years. Other operators are holding on to the "premium merchandise" concept by converting machines to 75¢ and $1 in select locations.

Both strategies have met with mixed results, depending on the type of location, region of the country and traffic patterns within locations.

"I want [pricing] to go to a dollar, and we need it to go to a dollar, but do we have the product for our prices to go to a dollar?" queried NBVA president Frank Lavecchia, Jr., of Tropical Vending (Cataño, PR). "Unfortunately, people don't carry four quarters in their pocket. People don't carry three quarters in their pocket, either. So even if we're offering an item that's really knocking you off your feet how do we ask them to change a dollar? It's difficult to go to a dollar unless we have the dollar changer, a machine with a dollar bill acceptor, or go to the dollar coin, which we are not able to do unless the dollar bill is eliminated."

Battery-powered changers, which entered the market in the past few years, seem perfectly suited for bulk vending. Low-cost and compact, they can easily mount on a rack of machines. And, while the jury is still out on these devices, several operators have reported good results when changers were installed along with a price increase. However, as one operator explained, both the dollar bill acceptor and dollar changer are still too costly for the majority of locations. And, too, both are capital intensive for an operator, tying up a good chunk of change for extended periods of time on an already cash-strapped small businessperson.

"What I'm doing is taking some of my quarter items, and there are a lot of good quarter items, and getting 50¢ for them," explained another operator. "I'll give you an example: I took the A&A lizard that sells for a quarter, made a large display front and now I'm selling for 50¢ the same item I used to sell for 25¢. And it is selling. I'm also selling a large and small sticky hand collection for 50¢."

The same operator also explained that in addition to converting 25¢ items to 50¢, he's also hunting out less expensive 1.1-in. capsuled items, including some flat vendibles, that he's selling for 25¢. And, apparently, this strategy of lowering quality as opposed to raising prices has worked successfully in many locations. Other operators have reported similar results or only a small drop-off in sales.

Another problem with raising the price of premium merchandise to $1 is the quality of merchandise now available in so-called dollar stores, which regularly stock low-cost toys amid other closeout items. However, at least one operator has taken the "if you can't beat 'em, join 'em" approach and reported that sales of 50¢ and 25¢ high-bounce balls, as well as sticky hands and ball gum, are doing well in a dollar store location.

Operators who have taken the plunge and raised prices have reported that although their racks are averaging less vends on the higher-priced merchandise, sales from bottom-rack machines offering 25¢ ball gum and other confections and high bounce balls have increased. In the case of Tyler Sumner of Service Vending (Aurora, MO), the increase has been significant, rising more than 30%.

Other operators are remaining wary of price increases. Citing the lack of "quality" merchandise available for $1, they continue to hesitate. "You can't sell 50¢ merchandise for $1," said one operator. "The customer is too smart; kids aren't stupid. They may only have that 50¢ their mom gave them and they're looking for good stuff."

One supplier strategy that seems to be working is Tomy-Yujin Corp.'s approach. The company, which markets licensed figurines and other vendibles, has reported steadily increasing sales since introducing its "Gacha" vender and line of dollar-priced licensed products.

"We believe it's picking up," said Yusuki Tokashiki, Tomy's vice president of sales and licenses. "Consumers of capsule toys, they still pursue the value of the product, such as quality, collectibility, licenses. [With 'Gacha,'] we wanted to create a new market. We're trying to do something new in the industry."

According to Tokashiki, Tomy's collectible strategy is based both on the quality of the merchandise as well as the perceived value of the license. Currently holding licenses for some of the most well-known characters in popular culture, Tomy's line includes products based on "Winnie the Pooh," "GI Joe," "Barbie" and a host of other properties such as the upcoming "Robots" movie.

However, Tomy's licensed products are only available for a short time in order to increase desirability. "They learn that these products will only be in machines for a limited time," Tokashiki explained. "We have a property out before the movie is released, and then after the release. As we sell out, the pieces are gone."

Other operators have found that moving away from "straight bulk vending" into other areas has proven profitable. Cranes, kiddie rides and other related equipment has recently enjoyed an uptick among traditional bulk vending operators as they try to maximize the real estate within locations. And, too, operators have reported moving aggressively into non-traditional locations, such as car lots and office buildings. Typically these locations, while not high-traffic, only require a minimum of equipment and provide steady sales.

"Of course everything goes up over time, but you can't put 26¢ in a coin mech," observed one operator. "It's a constant battle to keep your costs down. You have to constantly monitor your expenses, try to increase the number of stops, but not increase the cost to service the route." This means targeting locations already within the parameters of the route and wherever possible clustering locations along a route.

"Also, work with your suppliers to keep your costs down," he added. "If you can grow, then you can get better price points on the buy. So, hopefully, you can grow out of the problem."