Technology Fuels Tahoe Vending And Sonoran Services’ Growth

Posted On: 11/20/2019

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SITE VISIT: Checking a vending installation at Reno Tahoe International Airport are (from left) Sonoran Coffee & Food Services and Tahoe Vending partners Colin Watley, chief marketing officer; chief financial officer Diana Koether; chief technology officer George Caruso; and chief executive officer Jarrad Duxbury. The company entered the booming Reno/Sparks market a year ago, with an initial delivery of 14 truckloads of brand-new Crane Media machines. Above, Media 1 Bevmax model 5800 drink venders flank a Model 187 snack merchandiser.

Jarrad Duxbury credits much of his company’s swift growth to his start with a forward-thinking, tech-focused vending operation eight years ago. That experience taught him, among many other valuable lessons, that the only way to run a route is by prekitting orders.

The housing collapse that ushered in the Great Recession of 2008 and 2009 hit the southern Arizona building market hard and forced Duxbury, an engineering and construction pro by trade, to look for a new career path. His friend, Kevin Van Hazel, owned a leading vending business in the area, Ace Vending. Van Hazel, who had started an Ace Vending branch in Yuma, AZ, offered Duxbury a job and a crash course in vending at the small new branch. That chance opportunity laid the foundation for Duxbury’s launch of his own vending business, Sonoran Coffee & Food Services (Yuma, AZ) and Tahoe Vending (Sparks-Reno, NV).

The vending industry was evolving with the advent of a new round of technology, and Ace Vending’s  commitment to staying on the cutting edge to boost productivity and sales and enhance customer service set the course for Duxbury’s approach to running the Yuma branch that would eventually  become his own operation.

“I’m a rarity, because I never knew what it was not to prekit to the point of sale,” he said. Ace used Crane’s Streamware vending management system to control operations, gain efficiencies and increase sales. “I’ve never loaded a pallet into a truck, so all I knew was maximum productivity from the get-go,” he explained. “It was a fun time to get into the business, with all the technology that was coming to market, and it was evident to me from the start that I’d either live by the technology or die by not investing in it. I owe a lot of my success to my beginning as a rookie with Ace Vending and Kevin; he was instrumental in shaping my approach to my own company.”  Duxbury also became loyal to Crane Merchandising Systems machines and Crane Payment Innovations payment systems early on at Ace Vending, because of their reliability and seamless integration with Streamware. 

Ace Vending also was a partner in US Connect, a nationwide operator network that provides a loyalty, rewards and promotional program in conjunction with its nationwide cashless payment systems. It also was an elite member of Unified Strategies Group, a nationwide purchasing cooperative servicing independentlyowned vending, office coffee service, micromarket and foodservice companies.

“We had the advantage of being a small company with the vision of a big company through many of these partnerships,” Duxbury recalled. “We had a good view into the future of what was useful and coming down the pipeline at the national level.”

In 2014, with three years of Ace Vending know-how under his belt to give him a boost, Duxbury  purchased the Yuma branch and territory from Ace Vending’s original equity holders. He soon opened a second branch in Tucson and brought in three partners: Colin Watley, chief marketing officer; chief financial officer Diana Koether and chief technology officer George Caruso.

“Diana was there with me from the first day, and really has been instrumental. George loved our dedication to the technology that we were applying in our operations, and he dove right into them. Colin immediately targeted high-value customers. “They had the capital to push in equity and double down on technology, betting on what they saw and liked,” he recalled.

In 2017, Duxbury and his partners sold the Tucson branch to Compass Group USA’s Canteen division, and signed a franchise agreement with Canteen for the Yuma operation. In the same year, Van Hazel and his partners sold Ace Vending to Accent Food Services, (Pflugerville, TX).

OPPORTUNITY KNOCKS 

The Yuma branch was a $500,000-ayear operation with fully depreciated assets when Duxbury purchased it. Driven by a commitment to invest in the latest technology and with the funding to do so, the company has grown tenfold, to $5 million in annual revenue. It opened its new branch a year ago in the Reno/Sparks area of northern Nevada, which operates as Tahoe Vending. In all, the rapidly-growing company currently has 19 micromarkets and 1,000 vending machines on six routes.

Opening the northern Nevada branch was a strategic move, prompted by the opening of the Tahoe-Reno Industrial Center. This is the largest of its kind in the U.S., and home to more than100 companies and their warehouse logistics centers and fulfillment centers, including PetSmart, Home Depot and Walmart. A “gigafactory” is being built there for Tesla Motors and Panasonic. Once completed, it will reportedly be the largest building on the planet.

“Silicon Valley took notice that this new hub is only a 35-minute flight from San Francisco, and of the savings it can provide on labor, taxes and real estate,” Duxbury pointed out. “Google, Apple, Microsoft,Facebook – all the tech companies are investing millions there. The economy has become much more diverse, beyond gaming and tourism, with Silicon Valley tech companies. A rising tide lifts all ships; that’s what brought us here.”

Confident about the volume of business available to Tahoe Vending, the company entered the Reno/Sparks market in a big way – with 14 truckloads of brand-new Crane Media machines, all equipped out of the box with the latest CPI payment systems and telemetry and point-of-sale digital screens built in.

“We knew the only way to grow, given the trend of mom-and-pops being acquired by big companies, was to commit to doubling down on technology. That included making the decision to have cashless payment acceptance and telemetry on all equipment. With that decision made, we wanted 100% of our hardware and software to be Crane,” the operator commented. “As we’ve invested in new technology, we do not want to deal with a lot of different manufacturers. No other factory has every piece of hardware that integrates with everything else you need the way Crane does.”

Tahoe Vending also paid close attention to making a good first impression. “Our CMO Colin Watley and CTO George Caruso decided it was important to establish a strong brand in the market, and that we wanted our brand to be recognized as both ‘local’ and ‘quality,’ Duxbury told VT. “When we started Tahoe Vending in Northern Nevada, we started with all ‘crate-new’media machines which looked a lot better than any of the other vending machines around, so we felt it was worth wrapping the machines with our brand and graphics because the customers were already excited to see state-of-the-art equipment. We wanted to be associated with that excitement in a way they would remember. We did the same thing with our trucks … and it worked better than we had ever hoped for.”

In southern Arizona, the company has more legacy hardware and equipment, but it has upgraded all those machines with CPI telemetry and payment systems to enable coin and bill acceptance and cashless and mobile payment. 

Duxbury also has largely transitioned from Streamware to Crane Merchandising Systems’ Simplifi next-generation cloud platform for enterprise and connectivity software. The mobile-friendly platform allows users to access their data and perform key actions from any device, anywhere. “I prefer Simplify to Streamware for frequent routine use,”


 IT “ADS” UP: Tahoe Vending and Sonoran Coffee and Food Services boost per-machine revenue with onscreen advertising at the point of sale across fleet of Crane Media machines, a task made easier by Crane’s Media Network. This manages advertising campaigns over the air, helping vending operators and brands augment consumer engagement and sales. Ads also lift same-store sales at its micromarket kiosks, and the company is banking on this becoming an ever-larger revenue stream as the company grows.

Duxbury added. “It’s well-named, because it is easier to pull up key information without every detail.” Streamware’s power and versatility are always available for detailed analysis and reporting.


The vending company has been upgrading machines with CPI’s new Talos bill validator and Gryphon coin changer, which are equipped for USB connectivity for seamless updates, and are the first of their kind to be equipped for mobile connectivity when paired with the new CPI Synq connectivity module. With Synq, real-time data, alerts, diagnostics and troubleshooting are available through the Simplifi mobile app. Sonoran Coffee and Foodservices and Tahoe Vending also use Crane’s Cora telemeter, which features integrated Bluetooth connectivity and offers seamless compatibility with all Crane-connected readers and touchscreens.

SEAMLESS INTEGRATION

“Crane is integrating more and more of its technology, and upgrading and acquiring its competitors who are all leaders,” Duxbury commented. “They are always upgrading, and they make it seamless; we don’t want clunky bolt-ons that require two pieces of hardware and software. Just as with Ace Vending, it’s a big benefit to work exclusively with Crane. We have the benefit of the biggest manufacturer in the industry to keep us on the cutting edge. It’s a no-brainer to us.”

Cashless transactions now account for 55% to 56% of payments for Tahoe Vending in northern Nevada, where the entire fleet consists of Crane’s state-of-the-art Media machines.

In southern Arizona, where Sonoran Coffee & Food Services has retrofitted many of its legacy machines with Cleveland, OH-based Vendors Exchange International Inc.’s Revision doors and upgraded the payment systems in others, cashless payments account for 41% of sales.

“Cashless payment was 14% of sales the first time I ever did a calculation, and here we are at 40% to 55%,” Duxbury remarked. “Crane deals with cash and credit card and mobile payment systems like Apple Wallet and it’s now integrating Apple Pay Cash, so we can accept whatever our customers want to use – which, increasingly, is clearly cashless and mobile.”

Duxbury sees micromarkets as a way to keep a competitive edge and finds the ROI attractive, but he’s selective where he places them and remains a big fan of vending. 

“Once an account wants more than snacks and beverages, that’s when we look at markets,” the operator said. “We try to avoid fresh food in vending machines; we’ve seen the psychology and hesitation of consumers not wanting to buy fresh food out of a vending machine.” He added that an entry-level market requires only a beacon and a Bluetoothbased smartphone app, which makes it extremely affordable when compared with a vending machine or larger kioskbased self-checkout store, which can be a $5,000, $6,000 or $7,000 investment.

The company exclusively uses 365 Retail Markets for its micromarket technology, which Duxbury said provides every option from entry-level smartphone-based systems and tablets to larger markets with full-size kiosks and cash-handling capability that ties into its Streamware management software.

To present a unified, standardized look with modular flexibility and to build its brand, the company owns all of its micromarket fixtures: J&J Commercial Solutions’ (Chattanooga, TN) freezers and coolers with health timer locks, and cabinetry and shelving from idX Corp. (Earth City, MO). “In the beginning, the industry was the wild, wild west,” he observed. “It looked like a carnival, with Coke and Pepsi coolers and all kinds of fixtures and coolers, none of them matching.”

Duxbury said his company ran into the same logistical issues as many other micromarket operators have, in the beginning. While it seemed logical to service a micromarket location with the route truck that was already servicing its vending machines, it proved difficult to combine the different types of point-of-sale on one route and to train the driver properly. This prompted the company to employ separate trucks devoted to vending, micromarkets, office coffee service and water.

“There are some inefficiencies in overlapping geographies, but it’s worth taking that on to have better-trained personnel,” Duxbury remarked. “Focusing on service was the right path, because sales increased. We could see it in revenue and profitability when we made the change to specialized routes.”

Duxbury also pointed out that his vending route trucks are not equipped with full refrigeration. “We had coolers with inverters or cold packs, or a 3- to 4-ft. section built to keep in refrigeration,” he said. “Now our micromarkets are served from 16-ft. box trucks, and the efficiencies and control we get from ‘whole-box’ temperature maintenance are worth the investment. Micromarkets are such a young part of the industry, and we’re all experiencing more and more state and county health regulations. Inspectors check our buildings, logs and trucks. When they see a refrigerated truck, they thank us. We wanted to minimize our liability.”

Sonoran hadn’t ventured into office coffee service or water until Duxbury’s early days with the company, around 2012, when it began placing its first micromarkets. That inspired him to bring everything consumable he could into the locations that Sonoran served.

“It sounds so obvious, but it dawned on us to put out coffee machines at vending and micromarket accounts,” Duxbury recalled. “We started with Keurig machines and then fraction-pack small-batch and thermal brewers – and southern Arizona is a tough market,” Duxbury reported. “Hot coffee is very seasonal because of the area’s extreme heat, so we learned to focus on water.” The company became a Nestlé Waters distributor for Yuma County and then for Reno/Sparks, and found enormous demand for five-gallon water.

REFRESHMENT SERVICE

Sonoran immediately dedicated personnel and vehicles to water service, deploying six-bay trucks, each bay of which holds 40 five-gallon bottles. “We’ve been in love with five-gallon ever since and, by far, it’s the most profitable revenue stream we have,” he commented.

In northern Nevada, where the climate is cooler and the market for convenience services is thriving, office coffee service demand is booming for Tahoe Vending, which primarily places airpot brewers and single-cup equipment.

“In one year, we’ve built $800,000 in coffee business in our Nevada branch; and we can see it in our warehouse,” Duxbury remarked. “We had to devote an entire line of pallet racking to OCS, with 20 to 22 pallet spaces, in less than a year. We couldn’t do that in Yuma, where it’s 120°F. for half the year. We mostly provide coffee service in the Yuma market to larger customers where we have the micromarket business.”

Tahoe Vending also provides pantry service on a limited basis, which Duxbury expects will expand with the influx of tech businesses known to splurge on all the amenities it takes to retain their employees and keep them onsite. Service to these accounts is handled on the micromarket route, since the trucks have refrigeration and staff is trained to handle and merchandise fresh food.

In southern Arizona, the company serves a largely agricultural base, Duxbury added; and the economy is sluggish even in the best of times, so there is currently no demand for pantry service.

“The big debate is whether vending machines will disappear in two, five or 10 years, and many operators are betting 100% on markets,” Duxbury reflected. “We had 30 markets before our first deal with Canteen, and there’s certainly a place for them; but I don’t see vending machines disappearing at all. They have a very solid place in our operation. A lot of customers don’t want an open platform like a market.”

He added that there is growing opportunity for operators to make incremental revenue from advertising anywhere there’s a screen, and that the number of vending machines Sonoran Coffee & Food Services and Tahoe Vending have deployed provide far more opportunities, in terms of volume, than micromarkets do.

“In Nevada, we can run five million commercials a month for $1 a commercial,” he instanced. “That’s one goal we have with our vending machines. Even if we have 200 or 300 or 500 markets, there’s only that many screens, compared with the total for vending machines. It gets pretty impressive. Crane is great about developing that whole other vertical revenue stream. If you have the hardware, there’s no cost of goods; it’s pure profit, and a hard thing not to like.”

Duxbury said his company averaged $3.73 a month in ad revenue per vending machine last year. “If you do the math on a vending machine generating $100 per month in sales, and your bottom line is 10% net, you’re earning $10 profit per month per machine. Now, if you add the $3.73 per month we are earning from advertisements, we’ve grown our bottom line on vending machin revenue 37%.” This is just one extra reason why I think vending machines will benefit operators and maintain a large presence for a long time to come,” he emphasized.

Another hesitation Duxbury has about going all in with micromarkets as a replacement for vending machines is the unknown reinvestment cost. “Operators like the return on investment of micromarkets better than vending machines, but no one has been operating micromarkets long enough to understand reinvestment cost,” he said. “New technology is constant for every manufacturer of kiosks and the enterprise software to run them, requiring swapping computers and credit card readers. There’s a lot of unknown hidden capital expenditure in micromarkets.”

He added that data breaches remain a real threat and take time, to resolve and that the exploit to which Avanti fell victim a few years ago required Duxbury to reinvest substantial capital to remain up and running and satisfy customers who were unwilling to wait for a resolution.

“I have more faith in Crane introducing new Media features that, at most, we will have to retrofit with small pieces of hardware. The capital expenditure for vending is very small over the long term,” Duxbury summed up. “The ROI with micromarkets is very attractive and there’s certainly a place for them, but I feel vending machines will hold their value better over the long term.”

Looking ahead, Duxbury is all in when it comes to any productivity improvements, including warehouse automation. The vending company uses Duluth, GAbased LightSpeed Automation’s pick-tolight system, which he says is pivotal to productivity and a game-changer when it comes to prekitting.

“Like I said, I’ve never not prekitted, so to me it’s the bare basics in this day and age,” he concluded. “The moment I needed two warehouse workers, I bought LightSpeed. If they figure out a picking robot or arm, I will put it in. With unemployment at 4% and wages up, the ROI on LightSpeed just keeps looking better.”


HELP YOURSELF: Sonoran Coffee & Food Services and Tahoe Vending has established a unified look for all of its micromarkets, and often incorporates locations’ logos to personalize them to the location. Pictured are self-checkout stores at SK Food Group in Reno, NV (above) and Costco in Carson City, NV (below). The company currently operates 19 micromarkets, serviced by a specialized route to ensure product integrity and optimize service.