Sell more stuff: Everyone Is Talking About A Recession. Are You Ready?

by Paul Schlossberg
Posted On: 12/9/2019

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Are you prepared for the next economic downturn, whenever it occurs?

Not long ago, the news media was buzzing about an impending recession. The stock market had some down days. Lots of folks were close to a state of panic because of that one economic indicator. That had "everyone" talking about a recession.

What happened? According to Bloomberg Businessweek, "On March 22, the U.S. bond market flashed a warning sign when the yield on 10-year Treasury notes dipped below the yield on three-month Treasury bills. That reversal in the normal pattern of interest rates -- known as an inversion of the yield curve -- has generally been followed by a recession, although the length of time before a downturn varies widely."

There was a highly appropriate comment we heard on CNBC[1] (without recalling who said it). It seemed to make sense. "There will be another recession. We just don't know when it will occur." That’s relatively good news. We get it. There will not be a recession next week. Or maybe not next year. It is obvious now, but the news media will always feed us economists, academic researchers and financial experts. Each pundit will have a uniquely divergent opinion about the trend line and timing of the "next" recession.

Our industry had some difficult years during and following The Great Recession (which began in 2007 or 2008). Almost every operator experienced news from clients about layoffs and/or location closings.

The good news, and there really is good news, is that the economy recovered and so did our sales at many locations. Our industry adapted and innovated effectively even as the economy improved.

Some of those initiatives included, but were not limited to: (a) new and functionally enhanced vending equipment; (b) the addition of payment alternatives including paying with credit/debit cards, smartphones and other cashless capabilities; (c) the deployment of micromarkets and pantry services; (d) expansion of single-cup brewing for OCS and the emergence of other product categories in hot and cold beverage line-ups; and (e) investments in technology -- hardware and software to enable remote machine monitoring, pre-kitting, etc., leading to productivity gains and operational cost savings. There was more, much more, innovation leading our industry to renewed growth.

The past is history. The future is tomorrow morning. What are you doing now, today, to be prepared for the next recession? That question is not meant to frighten you or cause you to panic. It is a warning -- an alert. You, your business, our industry must be ready and well-organized, in advance, for the next recession -- whenever it occurs.

What got me thinking about this subject was an Aug. 29 article in USA Today – “How to survive a recession if you're a small business: It may be rocky but it's possible.”

The article’s focus was on small businesses -- a category that probably applies to many of you reading this article. One key point made: “For small businesses that may not have the financial reserves of a larger corporation, weathering an economic downturn could be particularly unnerving. But there are some steps entrepreneurs can take to prepare.”

There were five “survival tips” presented in the article. These are actions you should be aware of and can decide to apply them in your business if appropriate or necessary. Specifically:

  1. Broaden your offerings: Our industry has done well in this realm. We’ve added and found success with new lines of business as noted above. For the future, be sensitive to adding even more healthier food, snack and beverage products. Those products are described as BFY (better for you) and GFY (good for you). Continue to work on your food menu to make it even more appealing to the shoppers you serve daily.

  2. Set up a line of credit: This is a very localized and personal financial matter. It depends on your own business situation. You might want to confer with your banker and accountant to see if this is right for you and your business.

  3. Trim the fat: Think about productivity and cost savings opportunities. Have you been using remote monitoring and pre-kitting? Are these tools going to help your business run more efficiently and effectively? Be certain that you understand if investments like this will help your bottom line. Another cost-related subject is your product menu. Be very careful here. Don’t be fixated on buying “cheap” products. A product might be lower in cost. That does not automatically translate into being a good (or better) seller versus what you are buying (and selling) now.

  4. Speed up payments: This generally applies to businesses with outstanding accounts receivable. We are fortunate in our industry -- most of our revenue is derived from immediate payments from shoppers at our locations. Maybe you do have some receivable balances -- from catering, OCS or pantry service locations. Be aware of laggards and slow payments in those lines of business. Don’t let any account, no matter how big or small, get "too far" behind. Be diplomatic in pursuing accounts to remain current with their balances.

  5. Hunt for more clients: We are in an industry where "account churn" is relatively common. You should ALWAYS be looking for new accounts. We’ve written often about this subject in articles and blogs posted at Vending Times. You should also be intensely focused on account retention. There is a high cost to acquiring new business. Then you’ve got be working on building sales at those new sites. Do the hard work necessary to keep your current accounts. That means business reviews -- especially with your “best” accounts. That means going to your account locations and being a shopper. That means observing and timing shoppers who are in the breakrooms and lunchrooms. And, while you’re working on account retention, work equally hard on shopper retention. Think about loyalty programs. Never disappoint your shoppers. Fix out-of-stocks -- you do not want to be out-of-stock on best sellers.   

    Getting ready for the next recession is critical. Understanding what the next recession would “do” is equally important. Another USA Today article, from Aug. 23, pointed out what the next recession might be like.

    One thing to expect is job losses. Companies lose business and face the challenge of cutting back. Maybe there are fewer production shifts or layoffs. There are serious, maybe disastrous, consequences for those personally impacted. If our accounts must cut back, how will we adjust routes and other operational responsibilities and staffing? You should consider scenarios, in advance, for how you might deal with problems like this.

    Some of your attention should be on your inventory. Generally, product cost is our largest expense category. Hopefully you’ve been managing your labor costs by using remote monitoring, pre-kitting and other relevant tools.

    How fast is your inventory turning over? You can ask your accountant to assist you in measuring it. See if it is trending favorably versus year-ago -- that means faster.

    Wikipedia defines inventory turnover as “a measure of the number of times inventory is sold or used in a time period such as a year. It is calculated to see if a business has an excessive inventory in comparison to its sales level. The equation for inventory turnover equals the cost of goods sold divided by the average inventory.” If you wish, use Net Sales instead of Cost of Goods Sold.

     

    Convenience stores and other retailers typically turn their stock much faster than we do. If you can speed up your inventory turnover rate, you’ll have less cash sitting on the warehouse shelves. That cash will appear to be the cases and boxes of the SKUs you’re buying and selling. This is certainly good advice for an economic downturn. You should consider being much more aggressive about inventory management right now.

    This subject requires that you dig deeper than the overall averages. You’ll want to examine product categories (candy, snacks, cookies, cold drinks, etc.). Don’t forget to look at inventory turnover by supplier -- the distributors and product manufacturers who deliver to your operations. Are there opportunities to change order frequency to speed up inventory turns?

    My blog, “How Profitable Is Your Business? How Profitable Should It Be?” was posted on Feb. 13. Benchmarking was pointed out as “…the practice of comparing business processes and performance metrics to industry bests and best practices from other companies.” You might want to revisit this concept. There might be profit potential in good practices from other industries. If you can see that your operating performance is better (or worse) than other relevant businesses and industries, you can take action to drive increased sales and more efficient daily operations.

    Is a recession coming? The answer is yes. That’s easy to say. When it will it get here? Will it impact the whole country or just some regions? Will there be a worldwide economic impact?

    Will it be a major or minor event? How long will it last -- a few months or much longer?

    The challenge we all face is that no one knows can answer the questions directly above with precision and certainty. Therefore, it is incumbent on each and everyone of us to get ready for the next recession well before it arrives.

    Get organized for more efficient and effective operations. Keep your attention on your best accounts and locations. Make sure that you understand your income statement (P&L) and balance sheet. Manage your business with data -- not gut feelings.

    If you want to sell more stuff, you’ll be prepared and ready for the next recession.

    PAUL SCHLOSSBERG is president of D/FW Consulting, working with clients to merchandise and market products in impulse-intense selling environments, such as vending, onsite foodservice and convenience stores. Based in the Austin, TX area, he can be reached at
    Paul@DFWConsulting.net or (972) 877-2972 or DFWConsulting.net. 

     

    Links:

    How to survive a recession if you're a small business: It may be rocky but it's possible

    https://www.usatoday.com/story/money/2019/08/29/recession-5-steps-prepare-your-small-business-downturn/2139883001/

How will we know we're in recession?:What could the next recession feel like? Stories from past downturns are a guide

How Profitable Is Your Business? How Profitable Should It Be?” was posted on February 13th. https://www.vendingtimes.com/articles/how-profitable-is-your-business-how-profitable-sho-12292



[1] CNBC is the NBC network station dedicated to business news and real-time financial market coverage.