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Small-Site Market Growth Fosters Operator Creativity

Posted On: 2/25/2001

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USA - The steady increase in the proportion of smaller workplaces in the nation's business-and-industry mix continues to challenge operators to find successful methods for serving sites that would have been considered sub-marginal four decades ago, during the first flower of the full-line vending revolution.

The dilemma in providing full service to smaller locations was recognized in the early 1970s. The need for route productivity appears to dictate installing high-capacity equipment that can be filled and collected on a relatively long service cycle. This need, however, appears to conflict with the requirement that the machines be inexpensive (and thus small), so they can return their investment in a reasonable period of time.

Operators have found a variety of ways to work around this seeming paradox. Good smaller locations situated along an existing route can generate additional revenue more than offsetting the modest additional cost in service time. Upscale smaller sites where well-compensated workforces put in long hours can consume a surprising amount of product, and often want the service badly enough to accept arrangements that make the equipment more profitable than it normally would be.

And, of course, the United States market supports a great number of small operations that can serve small accounts profitably because they have very little overhead and no labor cost. These "mom-and-pop" or one-person operations benefit from ready access to good-working used equipment and a well-developed aftermarket support infrastructure. In many other countries, where vending has developed more recently, the circumstances are different.

One possibility for augmenting route efficiency to reduce the cost of service and enhance the profitability of smaller stops is to devise ways of servicing equipment on a "just-in-time" basis. This seems like a possible application for remote data reporting technology, and in Europe, Lavazza, a leading coffee roaster and manufacturer of small-site self-service espresso equipment, has announced plans to link suitably situated "Espresso Point" machines in certain European markets to the Internet. Initially, the plan will give patrons access to such services as local traffic and weather reports; in the second phase, however, the machines will report their sales to the operator through a secure website.


The present difficulty in applying telemetry to small-location vending equipment in general, however, is the same as the problem with using large, high-capacity machines: the added expense. With the current international demand for wireless connectivity of consumer electronic devices as well as a wide spectrum of commercial and industrial products, the technology is likely to become more versatile and cost-effective.

An alternative is some sort of participative service. Many years ago, an operator in the San Francisco Bay area developed an approach that raised competitive hackles, and never found wide favor. He purchased old dial-set soluble coffee machines, which were obsolete even by the standards of the day, at very low cost. He cleaned them up, styled them to complement office decor, and made a minor modification: a switch, mounted in the cup mech, which closed when the stack of cups decreased to a certain number. This activated a flashing lamp mounted behind a small aperture drilled through the door. The aperture contained a translucent "happy face" and the simple message, "Call for Service."

When the lamp began to flash, the location contact called the operator, who scheduled a delivery accordingly. This early approach to "flex routing" made his driver extremely productive. Coupled with the low equipment cost, the concept enabled him to sell hot beverages at a vend price much lower than his competitors could match, in smaller sites than they could serve economically. Thus the raised hackles. That approach could be described as a sort of remote communication concept working over telephone landlines.

A not dissimilar concept presently in the works is to equip a high-end countertop brewer with diagnostic circuitry that detects an error condition in any of the machine's subsystems, and illuminates a corresponding indicator lamp on the front panel. When the location makes a service call, the operator's customer service representative can determine the nature of the problem by asking which lamp is lit. If the problem is one that the location can solve, the caller can be given the corrective action to take; if it isn't, the technician sent out to deal with it will not need to spend much time in troubleshooting.


Another small-site service doctrine that has received considerable study is the combination of vending with another service, increasing the transaction value of the stop without incurring significantly higher cost. The development of office coffee service in the mid-1960s allowed operators to offer small-site vending to prospects who signed up for their coffee service. This had the additional advantage of providing OCS clients with an additional service, making it more difficult for a competitor to take the account.

It also had the disadvantage of requiring more frequent service and requiring a level of technical competence among service personnel that otherwise was not needed to handle a route of pour-through brewers. And, of course, a small vending machine required much more frequent service.

Cooperative Service Vending, in which the operator delivers product in quantity to the location, whose personnel actually fill the machine as needed, was seen a possible solution to the service frequency issue. While it has found a certain level of acceptance in certain markets, its full development has been impaired by two factors. The first is that most markets contain a very large number of very small, often part-time operators, who can provide some sort of vending service to an account of almost any size. While a good CSV program may provide more modern equipment, the local "mom-and-pop" operation frees location personnel from the need to fill the machine.

A long-time industry participant and astute observer once summarized the difficulty about CSV: "It enables us to tell the location, 'We can put you into the vending business.' But the location replies, 'I don't want to be in the vending business. I want you to be in the vending business'." It also has been pointed out that equipment leasing programs, which have worked well for office machinery suppliers, never found favor among U. S. vending locations, because someone always comes along who is willing to install some sort of equipment for free.

A more sophisticated solution that has been proposed, and that has worked in some situations, is to study the market area with extreme care, then build a route that permits the largest possible number of small sites to be serviced with the minimum amount of "windshield time." Studies conducted a decade and a half ago demonstrated that the ability to service 25 small machines a day, and to assemble 125 suitable locations into a route on which each account is serviced once a week, can be a profitable proposition. Operators in environments that permit this kind of grouping, and possessing the necessary sales and organizational skills, have made this approach work.


And operators experienced in snack box operations have developed ways to reduce service time. Organizing products in trays with dividers that correspond to the slots in the vending machine, and fitted with a receptacle for the collection, allows the driver to restock the machine very quickly. In this concept, all unsold product is removed and placed in the tray; the new merchandise is loaded into the machine; the collection goes into the receptacle, and the driver moves on to the next stop.

This offers a number of advantages beyond its contribution to route productivity. It assures the location that all the merchandise is in date. It gives the warehouse manager detailed information about what is and is not selling in each location, so menus can be adjusted. Returned merchandise that is still fresh and undamaged is sent back out on the route.

A very different approach also has enjoyed some success. This is based on finding personable local people looking for light part-time work, who find calling on nearby locations a pleasant afternoon occupation. The right sales force will build a very strong rapport with the client base, meet requests for specific products, and encourage maximum use of the vending machine by people who like and trust the individual who stops by to take care of it. Success with this sort of program obviously depends on a market that provides a pool of suitable candidates, and an operator skilled in recruiting, training and motivating them.

Despite the wide range of solutions proposed to resolve the small-site dilemma, no one doctrine has emerged that will work under all conditions. Innovative operators have reported successes with one or several of them, but none has found widespread mainstream industry acceptance to date. The "mom-and-pop" model is the most generally workable, but it presupposes an operation whose owner does not want to grow; the need to hire a workforce, buy vehicles and expand warehouse space would be fatal.

Nevertheless, the number of new small locations that want vending service continues to grow at a rate far outpacing the addition of new large enterprises. This is widely recognized, and continues to prompt experimentation and discussion.

National Automatic Merchandising Association chairman Dan J. Sofie, B&P Vending (Bellingham, WA), observes that the challenge is real, and there is no good overall answer at present. However, many operators can find one or several angles that will work in their particular circumstances.

As a general rule, he said, a successful small-site program cannot survive on candy and snacks alone. Cold beverages are popular, provide high gross profit and are readily available. Alternatively, "banking" a small-site vending program with one or several additional services can be profitable, the NAMA chairman added. Today's locations prize convenience and want vending; an operator who offers to deliver something else they need may find that the price of that additional product line need not necessarily be price-competitive with a high-volume discount retail outlet. There is a value to service. "Each situation is different," he said.


The recent upswing in demand for a wider variety of higher-quality coffee in the workplace has encouraged some new lines of inquiry into small-site solutions. A small gourmet-coffee machine able to deliver a premium product can command an attractive price for its products, and is not offered by most part-time and hobbyist vendors; many locations are receptive to a reasonable lease arrangement. Operators who have developed programs built around single-cup equipment of various types, delivering espresso or conventional coffee, have enjoyed considerable success in serving small sites profitably.

That success has prompted inquiry into the possibility of offering upmarket branded snack items, commanding attractive retail prices and offering high margins, as a complement to these upmarket hot beverage services. Although not applicable to many small sites, its success in suitable ones could intensify research into the overall opportunity.

The vending industry began as a niche, small-site business; office locations half a century ago could support wall-mounted tab gum and candy machines. And vending always has been extremely entrepreneurial, attracting imaginative individuals. It remains so today. The market is there, and the need is proven. Ways to meet that need are being explored, and the industry's track record inspires confidence that widely applicable solutions will be found.