One of the biggest decisions a vending operator has to make today is how to source the food products for clients and customers. There are a multitude of questions to be considered that have both long-term and short-term ramifications.
Should you operate your own commissary? Should you contract with a third party provider? Should you opt for a frozen food program exclusively or simply supplement fresh food options with frozen food? How can you supplement food offerings with authentic ethnic choices and/or healthy choices?
Let me begin by taking a look at the potential benefits of operating your own food production facility.
Most vending operators look very diligently for a way to differentiate themselves from their competition. Since most of the products that our industry sells are not unique to any operator, your self-operated commissary may be one way to separate your company from other vendors.
Another advantage to operating your own commissary is that this allows you to operate carry-in manual food operations and other food programs such as senior citizen or summer lunch meal programs. This capability will allow you to sell in this market segment when a vend-only approach does not.
An additional benefit for having food production capability is the ability to provide catering services for both your own customers and non-traditional sources. The catering business has historically generated large profit margins which can supplement slower periods of activity in the vending business like the holiday seasons and summer vacation period.
Lastly, operating your own commissary gives you flexibility to respond rapidly to changes in business conditions which can necessitate adds or cuts in the amounts of food required to best service your customers. It also enables you to decide the quality of products you purchase, the portion sizes that you will offer and the look that you want to present in the merchandising and appearance of your food products.
If you were to open a non-cooking facility and already have adequate refrigeration and freezer capacity, you could get into production for less than $50,000. This investment would be for packaging equipment, tables, labeling machines, and at least three compartment sinks.
If you were going to do cooking, the price would skyrocket as the cooking battery, ventilation and fire protection systems, proper flooring, automated wrapping machines, adequate drainage, etc. are very expensive.
BENEFITS OF OUTSOURCING
There are potential advantages of purchasing fresh food from a third party purveyor. Some of the benefits are financial in nature, others are centered on increasing sales and lastly, quality and/or risk reduction related.
From a financial perspective, I have always experienced a lower cost of goods via purchasing from an outside source. This is primarily the result of the cost advantages they enjoy due to sheer volume of production.
They are typically more efficient in food cost due to better purchasing, portion control and product utilization. The labor advantages are the result of better equipment, production economics and unit volumes.
There will also be a significant savings in energy costs for your operation. It has been my experience that the vendors who operate their own food production facilities will see twice the utility costs versus those that do not. The amount of energy generated in cooking and from the additional refrigeration and freezers is that significant.
Another financial benefit gained by outsourcing is the improved cash flow gains resulting from having no commissary food inventory. Also, you eliminate the potential for product waste, product disappearance and excessive substitutions from overproduction.
Another major financial savings from outsourcing food production is reduced vended food waste. Because of the temperature controlled food handling process, they are able to utilize extended freshness dates on their products, giving the vending operators more time to sell their products.
In addition, many suppliers have nitrogen flushed products with up to 30-day shelf life for those low volume food machines that must be provided.
There are also online waste recording and waste reports broken down by a number of criteria that not only assist in the waste management process but also provide a professional and detailed report to deal with customers on the removal of low volume venders or service issues on food machines.
Another important element in waste management via using an outside food supplier is the fact that most of them operate on a Sunday-through-Thursday basis. This change in production gains at least two additional freshness dates for products that are loaded in machines at the beginning of the week.
Another advantage that I have experienced in outsourcing food production is increased sales volume in that product category. This comes mainly from increased variety as it is not unusual to be able to select from as many as 70 items on a daily basis as opposed to about 15 from a self-operated facility.
Also, they do a much better job of dealing with menu fatigue by introducing new items on a quarterly basis and changing the style of the labels and packaging to present new and different looks to your customers.
Finally, I am sure that all of us have had requests for increased healthy choice items or premium items such as salads, entrees and deli items. With today’s low volumes on these products, it is difficult if not impossible to provide them from your own commissary. An outside producer can deliver this due to the multitude of customers that they sell to.
The last area of potential benefits in outsourcing your food production is reduced liability in dealing with insurance issues and governmental restrictions. The major food production companies are required to have major levels of product liability coverage which shares risk with the vendor as opposed to being the sole responsible party.
As we are faced with increased governmental regulations, it is a benefit to not have to deal with the time spent and cost of the necessary compliance steps. If you operate your own commissary, you probably have had to manage truth in labeling issues and increases in the minimum wage.
Another benefit of the big producers is that many of them are U.S. Department of Agriculture (USDA) inspected and Hazard Analysis and Critical Control Points (HAACP) compliant.
If you are considering purchasing fresh food from an outside source, I recommend that you either go online to find out if they have a USDA certification or check with their representatives or customers for verification or contact NAMA for this information.
BARGAINING OPTIONS ARE LIMITED
Unfortunately, because of the limited amount of choices for outsourcing your fresh food, there is little room for negotiations with these companies. For the most part, they have established business matrixes that will determine your price, discounts and delivery days based on your individual product volume.
You may have the opportunity to negotiate with a third party provider to prepare selected proprietary items from your current food offering. They will typically look for a guaranteed level of volume to make this effort financially feasible for them.
Another feature that you should be able to obtain is the customizing of your own labels. Again, this is volume driven and you will need to achieve selected targets to obtain this benefit.
Like many industries, this business has seen consolidation and closures among the providers that has limited a vending operator’s options. Should there be a movement to establish new providers, there may be an opportunity to give vending operators more flexibility and competitive pricing.
Should you not want to operate your own commissary or contract with an outside provider or simply supplement your fresh food offering, there exists a wide variety of frozen food selections that are available and very acceptable to consumers.
Most of these items are packaged attractively, have name brand recognition, and deliver affordable cost and price point levels with the number of varieties increasing every year. You will be required to do your own freshness dating of these products, but you get the benefit of extended shelf life and reduced waste.
If you limit your offerings to frozen food exclusively, you may encounter customer complaints about a lack of fresh food and/or healthy choices and you risk your competition focusing on this service as a deficiency.
Another ever increasing customer request for food variety is focused on ethnic offerings. Most of these requests are for Hispanic or Asian food choices which are logical as those ethnic groups become an ever increasing segment of the American work force. If you invest the time in sourcing these products, you should be able to find local restaurants that can produce these items.
However, you must be careful to ensure that these products are produced safely, transported under constant refrigeration and dated to guarantee a fresh and safe sale.
Many of the large vending companies have negotiated exclusive agreements with national or regional food providers to sell their brand recognized products. While most local companies would not generate enough volume to negotiate an arrangement of this type, I would suggest that you investigate the possibility of partnering with popular local restaurant brands.
There are advantages and disadvantages associated with any option that you take. Some operators have made the decision to selectively utilize pieces of each source and try to offer the best of all worlds. This involves determining what is best for your customers, your financial health and your potential market share growth.
OUTSOURCING BENEFITS AT A GLANCE
- Improved cash flow
- Less food waste
- Extended shelf life
- Better variety
- Reduced liability
- USDA certification
- HAACP compliance