Alas, the world has changed; the number of obtainable vending accounts has shrunk dramatically, accompanied by a precipitous drop in discretionary consumer spending. This double whammy has wounded all vending operators, some fatally.
It is time to get serious about replacing the lost vending revenue, and OCS is a logical option.
In seeking OCS accounts, there are many more doors to knock on than vending. However, there is also more competition. While I endorse a separate but equal business model for OCS and vending, there certainly are synergies in warehousing, purchasing, occupancy costs, etc.
The need to expand into new areas of business has been accepted as a prerequisite to sustaining profitable operations. The question is, how?
There are a number of ways a vending operator can get started in the OCS business:
- Go it alone. Become a serious student of OCS; read everything you can get your hands on; memorize all the best practices others have used; scour your competitor’s Websites; reach out to your suppliers and trade associations.
- Hire a partner (not an employee) who is an OCS pro and give him/her your unconditional support in financial and management matters.
- Buy an existing OCS company and use its personnel and practices as a foundation for growth multiples. Note: you’re not buying it to run it; you’re buying it to grow it.
- Hire a consultant to help with the startup. Caveat: Use this approach only if you can answer “yes” to all of the following questions:
- Can you afford it?
- Are you serious about a meaningful change in
- After you pay your consultant a lot of money, will
you take his advice?
- Are you sure you won’t waffle when it comes time
to make the hard decisions?
- Will you personally participate in the process?
- Can you guarantee that you will keep the progress made in place after the consultant leaves?
If you can answer “yes” to these questions, then use of a business consultant could be a wise move.
There are some comparisons/analogies regarding
relationships between vending and OCS:
- Recognizable brands are powerful.
- A vending company merchandises, an OCS company sells.
- Account retention is more dependent on relationships than contract enforcement.
- Marketing cannot promise what operations
- The low-cost producer usually wins the day.
- Just as not every vending account needs a food machine, not every OCS account needs a single-cup brewer.
- Nutritional awareness and healthy products are to vending what sustainability and green products are to OCS.
There are certainly costs to consider to add OCS to an existing vending business.
To secure bank or SBA financing, you will need a carefully crafted business plan from startup to profitability and every step in between.
The capital required for startup can be minimized.
You will need some equipment and product for demonstrations and free trial promotions immediately. Beyond that, don’t buy the product or the equipment until you have
Equipment, depending on your market, can sometimes be scoured on a loaner basis. Some product brokers will work with you on consignment inventory for coffee and allied products.
COSTS TO CONSIDER FOR EXPANDING INTO OCS
The printing of sales aids and mailers plus Web page design, software, computers and the addition of a vehicle to the existing fleet are some of the necessary costs that must be considered.
The largest cost is labor. Understanding and accepting that you are going to be incurring payroll expense without offsetting revenues in the beginning is very important. I recommend calculating this cost over a period of one year.
Here are a few of the common mistakes that vending operators new to OCS make:
1) Combining the OCS route with the vending route.
This seems perfectly logical; after all, the vending driver goes to the same location. But in the end, it just doesn’t work.
2) When vacation time rolls around and a driver or two quits, the OCS people are pressed into service to run the open vending routes. In these situations, the OCS deliveries schedule can always “slide” for a while, or so you think. Don’t let it happen.
3) Underestimating the competition. No matter what market you are in, the competition in OCS is every bit as fierce as vending.
4) Failure to manage receivables. The average vending company in OCS will not fully understand the critical importance of staying on top of accounts receivable until they are forced to write off bad debts.
The best way to manage receivables is not to have any. Today, most companies use credit cards for purchase transactions and it is the preferred method.
5) Lack of an organized marketing program. Playing by ear never works. You need a formal plan, complete with a budget and action steps.
6) Booking bad business. Stay away from coffee clubs and honor systems. Even if you are paid in full, these accounts are usually the first to cheat and will soon be using your free equipment and getting their coffee from the local big box store. If you insist on taking these accounts, it’s good idea to lease the equipment to them.
In the OCS business, everybody has to sell. Nobody in any sales or service position should be on straight salary or hourly. The “drop the product and run style,” often used for OCS by vending operators, will destroy the account base over time. A passion to sell coffee and allied products has to be spread throughout the organization.
The best way to do this is through strong commission and gain-sharing incentives. Spiffs are often overlooked in OCS pay plans. This is a one-time incentive, payable in addition to the normal commission.
The best advice I can give any new OCS operator is to place a high priority on inside sales. Telemarketing is one of the most underrated elements required for a successful marketing program. I promise you that if you combine a skilled telesales person with a vibrant e-marketing program, you will produce magnificent results.
Ideally, the OCS telemarketer is prospecting for new accounts as well as upselling existing accounts. Using an outside telemarketing firm to upsell existing accounts is not a good idea because you are relinquishing too much control. You should have your own telemarketer, and good ones are hard to find.
As a combined vending and OCS business, it is possible to gain an additional synergy from having a telesales person. The telesales can support both your vending and OCS businesses. He/she finds out all the vital statistics, who has the account now, products used, volumes, unfulfilled needs and wants.
He/she then sets the stage and helps the closer with a written call plan, which generally includes demonstration, trial offers and introductory offers, all designed to get ink on paper in a face-to-face meeting.
Don’t be cheap; pay the inside sales person what you pay your outside sales people. New account sales, route sales and telesales positions all need different pay plans. However, no less than 20 percent of total compensation should come from earned commission and gain-sharing incentives.
OCS IS A MATURE INDUSTRY AND HIGHLY COMPETITIVE
OCS is a mature, well-established distribution channel. Historically, most pure-bred vending operators’ approach to the OCS marketplace has been so dysfunctional that large OCS companies never really consider vending operators as competition.
Well-established regional and national OCS companies have refined their market approach to a science. As with vending, the only accounts to get are those which someone else already has.
Do not expect to dislodge the competition if you are peddling the same stuff the client already has. Find out what your competition is unwilling or unable to do, wrap a persuasive story around it, and attack. Those who are most successful in the OCS business apply unrelenting marketing and innovation.
OCS trends come and go with greater frequency than vending. To gain new accounts and keep them, an operator must be keenly aware of new trends and constantly stay out in front of them. Catching up from the “back of the pack” is not being an innovator and will not achieve growth.
OCS REQUIRES PASSION
No matter which approach you choose, there is one undisputable prerequisite common to all: you must fall in love with the OCS business. If you do not think you can do this, do not even begin. You will be wasting your time. If you approach this new opportunity halfheartedly, as many before you have, your customers will know and your employees will know.
When the OCS business is operated only as a sideline to the core vending business, it is doomed to failure. There are certain synergies that make sense, but ultimately, stand-alone operational capabilities and accountabilities are the key to long-term success.
Vending and OCS Require Different Employee Personalities
A key difference between vending and OCS is the need for outgoing personalities. Don’t hire introverts for OCS. While an industrious, honest worker who is shy and withdrawn might fill the bill as vending person, he/she should not be employed as an OCS person. Front-line account relationships are desirable in vending; they are crucial for success in OCS.
About the Author
Tom Britten is an analyst, intermediary and consultant to the vending trade with more than
30 years industry experience. For a free, no-obligation introductory phone consultation, he can be reached at 813-469-5437 or email: firstname.lastname@example.org.