How a young upstart makes it happen

Kathy and Al Smosny always knew their son, Adam, would make them proud. As a teenager, Adam started a landscape maintenance business while attending school and working part time at McDonald’s. But they never expected that by the time he was in his early thirties, they’d be working for him.

In 13 years, Adam Smosny built Imperial Vending Co. in Cleveland, Ohio from two machines to four and a half routes, offering vending, coffee service and janitorial and sanitation supplies. The company employs all four members of the immediate family, a sister-in-law and two full-time route drivers.

Smosny’s enthusiasm is obvious to everyone he meets. He tries to emulate his role model, Jack Welch, one of many business authors whose books line a bookcase in his office.

It’s easy for people in Cleveland to feel depressed, given the area’s high unemployment. But spend a few minutes with Smosny, and his upbeat attitude gives you a whole new take on what’s happening in the local economy.

“Cleveland’s a good city,” Smosny proudly affirms from his office in the company’s immaculate warehouse in an industrial park in Middleburg Heights, a Cleveland suburb. “People don’t grasp how much manufacturing there still is in the city.” The marker board in his office lists the sectors of the economy that are growing: manufacturing, aerospace, health care, printing, polymers, non-profits and services. He’s done his homework on the local economy as he pores over the company’s marketing plan with his sister-in-law, Kelli.

Smosny proves that an ambitious individual can still make it in vending. Given that he has at least 30 more years ahead of him, there’s no telling how successful he will eventually be.

Humble beginnings

Smosny was exposed to vending as a child when his dad worked as a route driver for a large independent vending operation. The owner of that company became friends with many of his employees, and the younger Smosny had the opportunity to spend time with his father’s boss. This experience motivated Smosny to want to own his own business some day. He had no idea it would be in the same business.

Smosny didn’t think much about vending for a while. One day, while still in high school, he saw some empty vending machines in a bicycle shop.

He asked the shop owner what the machines were doing in the store, and she told him she wanted to sell them to someone.

Smosny was already running a small lawn maintenance business, but he wanted to do something else since he suffered from plant allergies. He told his parents about the vending machines for sale, and they offered to help him buy the machines.

Smosny and his brother, Al Jr., rented a pickup truck and bought the two machines. They knew very little about the business as they went knocking on doors in search of a location for the machines. Their first nibble came from a machine shop with around 30 employees.

There was one caveat. In addition to the snack and soda machines, the machine shop wanted a hot drink machine. Not knowing where to find one, they went to the phone book and saw a listing for D&S Vending Inc., the Cleveland-based aftermarket company. This was the start of a key business relationship.

Don Greene, owner of D&S Vending, sold the Smosnys a used hot drink machine and told them they could get water soluble coffee for the machine at VSA (forerunner of Vistar). The brothers were delighted.

In retrospect, Smosny would not provide a hot drink machine in a location with 30 employees. “I had no idea,” he said. “It was a shot in the dark.”

Nonetheless, after a few weeks, they saw they would recover their investment in the equipment and product in a few months. They were encouraged.

Smosny was still working at McDonald’s full time and attending a community college part-time when he started his vending business in 1997.

Vending education continues

Smosny soon came across an advertisement for a vending opportunity seminar. The company offered new equipment, financing and a locator service. In retrospect, Smosny was naive to believe the company’s pitch. He ended up paying for a manufacturing location with 150 people equipped with a soda machine, a snack machine, a hot drink machine and a slave food machine.

He realized that while the equipment was new, it was not as good as the used machines he already owned. He reasoned that going forward, he would stick with used machines from reputable sources.

Early expansion into OCS

That second customer also made Smosny aware of the need for OCS. He and his brother offered OCS to all prospects. They delivered OCS products along with their vending deliveries.

The third customer was a plastic manufacturing company where Smosny’s mother worked in inventory management at the time, although he insists she played no role in his winning the account.

The customer required a full bank of equipment and performed better than the first location but not as well as the second. This all changed when the company expanded to three shifts and needed additional equipment.

The brothers didn’t have the funds to buy the extra machines. D&S Vending provided flexible financing that allowed Smosny to meet the customer’s needs. Sales at that location jumped tenfold.

Their mom, Kathy, helped out with bookkeeping on a part-time basis.

After one year, Smosny’s sister-in-law, Kelli, became the next family member to come on board. He taught her selling skills, giving himself and his brother more time to focus on servicing existing customers.

The move to larger quarters

In three years, they moved the business out of their parents’ house into a 6,000-square-foot warehouse. Imperial Vending took regular deliveries at this warehouse from local bottlers, VSA and a couple of fresh food suppliers.

Smosny learned quickly that in vending, customer relationships hold a big key to success. He was slowly gaining accounts through word of mouth, and after his first year, he had six locations.

The late 1990s was a good time to get into vending for a company that could deliver good service. The economy was growing. Some of the larger independents in the area were acquired by competitors, which created opportunities to new players like Imperial.

Smosny developed a tag line, “Feeding America’s Work Force.” The company logo was emblazoned on its truck and on the uniforms.

Smosny hired his first full-time non-family member in 2000. He compensated this driver based on a combination of salary and commission. He offered full health insurance and a uniform, in addition to training.

Smosny instructed the driver to record machine meter readings, which he compared with cash collections. He instructed the driver to load the truck with core products but allowed the driver to select most of the products from the warehouse.

His dad, Al Smosny, Sr., joined the company part-time in 2006 when he retired from his full-time job, handling machine repairs.

Expansion into jan/san

Around this time, they decided to expand into janitorial and sanitation (jan/san) supplies. This move was in response to what some competitors were doing. Smosny sourced jan/san supplies from VSA and delivered them in the same vehicle as the vending and OCS products.

Operationally, delivering jan/san supplies worked out for Imperial, but pricing was an issue. Many vending and OCS customers wanted jan/san supplies, but being a small company, Imperial was unable to buy these supplies for the same price as many of its competitors.

The company ended its first foray into jan/san supplies after about three years.

In 2007, businesses began laying people off as the economy became more challenging.

Smosny didn’t sit and wait for problems to take him by surprise.

He sent out satisfaction surveys to all of his customers. In the survey, he asked in confidence if the company anticipated any layoffs in the next six months. He said customers were honest about their intentions. This alerted him of the need to adjust his buying plans.

Imperial lost its biggest account in 2008 due to relocation, but the loss carried a blessing in disguise. Smosny’s mother, Kathy, worked at the company. Since she suddenly found herself unemployed, she joined Imperial full time as vice president of operations. She came at a time when her skills were most needed.

Bringing experience in inventory management, Kathy reviewed Imperial’s inventory and recognized some inefficiencies.

She mandated specific areas for different product categories in the warehouse. She also reviewed the sales of all products and eliminated the poor sellers.

Investment in software

It was around this time that the company invested in an industry specific software package, Vending Essentials, a Windows-based package which Smosny found on the Internet. The reports include inventory control, food forecasting, sales per machine and sales per location. Imperial uses a separate software package from Peachtree for managing OCS.

Smosny said the most helpful report is sales per machine, which he reviews weekly.

Kathy established inventory turn goals which reduced the amount warehoused. The company has not yet achieved the goal of turning all product every seven days, but it has come close: inventory turns every 8.2 days.

“We have on hand exactly what we’re going to need eight days out,” Kathy said. “We don’t want money sitting on the floor.”

This performance surpasses that of the average vending firm with more than $2 million in annual sales, according to the National Automatic Merchandising Association (NAMA) 2010 profit report. The report notes that the typical NAMA member turns inventory every 10 days while the high profit firm turns every 8.3 days on average.

“We’re running out of items just as they come in on the truck,” Smosny said. “It freed up cash flow.”

Investment in direct mail marketing

When the recession hit, the company made a strategic decision to hire a direct mail marketing firm. Smosny reasoned that he needed an ongoing marketing effort to ensure there would be a steady supply of new customers. The direct marketing firm happened to be a customer.

Smosny provides the marketing company the factors he is looking for in prospects: the number of employees, the zip codes, and the business type. The marketing company then sends a mailer to those companies. The mailer includes a testimonial from an existing customer about Imperial Vending.

Smosny said the mailings generate a 2.5 percent to 3 percent response rate. His sister-in-law, Kelli, follows up with a phone call to prospects that indicate an interest in learning more about Imperial.

Smosny said the direct mail marketing costs between $15,000 to $20,000 per year. He said this has worked out better financially than hiring an additional sales person. “You’ve got to spend money to make money,” he said.

As the company has grown, Smosny has targeted customers with 150 to 300 employees. He has culled the smaller accounts, with the exception of his first customer, the machine shop, which he continues to serve in honor of its being Imperial’s first customer.

The Internet has also proved a useful marketing tool.

The most useful marketing tool of all continues to be word of mouth. “I can’t tell you how important that is,” Smosny said.

Most prospects are looking for better service, Smosny noted. He said only a minority ask for a commission. For those who say their prior service provider paid a commission, Smosny asks them how the service was. To those who want a commission for other reasons, he asks: “Do you want to make money off of your employees?”

In lieu of commissions, Smosny offers customers a certain amount of free product over the course of the year. This takes the form of a party or a special event. “They have a bank account with us,” Smosny explained.

Imperial also has some sales partnerships. The company partners with a uniform supply company and a bottled water distributor.

Move to a larger warehouse

Last year, 2009, was the most challenging year for Imperial. Smosny expected the downturn would be short lived, so he opted to move to a larger operating facility. His instincts have proven correct; 2010 has been a much better year. Sales are up more than 25 percent this year, driven by gains in same location sales and new clients.

Smosny said many employers are running longer shifts rather than employing more people. This has boosted his same location sales. “They’re working the ones they have harder,” he observed.

The company also returned to the jan/san supply business this year after finding a new product supplier. The new supplier has minmal warehousing requirements for Imperial. The expansion has been beneficial to both the top and bottom lines. One client spends $800 to $900 a week on jan/san products.

The only product that is not delivered on the regular delivery truck is soap, due to temperature requirements. Smosny delivers the soap on a separate truck.

The company’s management staff holds strategic planning meetings quarterly in addition to weekly meetings every Friday to share concerns about customer issues and new prospects.

Fresh food: an ongoing challenge

One of the biggest challenges has been finding a fresh food supplier. Smosny worked with two suppliers over the years, both of which closed due to declining sales from vending customers.

He presently sources his food from Johnson’s Catering in Columbus, Ohio, which is more than two hours a way.

While Imperial uses some frozen food, fresh food continues to be a much stronger seller.

Finding a good private label coffee roaster has also been a learning experience. Smosny learned the importance of having private label coffee for his OCS customers early on.

He currently sources private label coffee from a roaster in Brecksville, Ohio; Caruso Coffee.

The growth in the number of snacks with high health and nutrition association has helped drive sales, Smosny noted. He uses the green spirals from Vendors Exchange International Inc. to highlight healthy offerings.

Customer promos boost sales

Customer promotions have proven a good way to drive sales. Imperial Vending offers a “scratch” card, giving customers a chance to redeem a winning card for free product from the machines. An entry coupon must be completed and turned in to an Imperial route driver or mailed to the business address. Winners are randomly selected.

Smosny asks his product suppliers to donate products to be used as prizes instead of providing him product rebates.

Finding new customers continues to be the biggest challenge Smosny faces. He thinks growth by acquiring another company makes a lot of sense, but so far, he has not found a company interested in selling that he was interested in buying.

Smosny recognizes that to realizes his long-term growth plans, he will need to invest in new technology. He is studying DEX handhelds, pre-kitting routes and cashless transaction tools.

Meanwhile, he loves the business. One thing he likes is the caliber of people he gets to interact with as customers. “They’re all down to earth people,” he said.

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