Let's next consider OCS. This service goes almost unnoticed as a benefit in most offices today. Employees of most companies I have been affiliated with will offer coffee, tea and hot chocolate to their employees. There is an expectation that this service will be provided. Try to take away an existing OCS program and see what kind of feedback is given by the employees.
The question that needs to be asked is, "What is the cost of the OCS program from a tax perspective?" The cost of an OCS program in most cases is a legitimate business expense that can be deducted on a company's taxes. IRS Publication 535, page 3, gives a good definition of a business expense/deduction.
One caveat: I would not recommend dispensing tax advice unless you know what you are talking about. The following example can be used to convey the tax cost of an OCS program.
Take a company that has $100.00 in revenue, a 35 percent tax rate, and buys its coffee at $25 per case. Using accrual accounting, which recognizes expenses when incurred and revenues when earned, we would get on an income statement $100 in revenue, $25 in expenses and an operating profit of $75.
A second perspective is to consider the company's tax return. Taxes are calculated not on an accrual basis, but on a modified cash basis. Essentially, the cash that is received or dispensed from the company is recorded either as an increase or decrease in tax liability.
What cash did the company receive? $100. If the company does not have any deductions, it is responsible to pay the IRS $35 for the money it received ($100 times 35 percent). The cost of the coffee, however, is a deduction and can reduce revenue by its cost.
The company now pays $26.25 on the tax return (($100 minus $25) times 35 percent) instead of the $35. The tax difference is $9.75.
Another way to look at the tax difference that is created by the cost of the case of coffee is to take the deductible expense and multiply it by 1 minus the company tax rate. For example, ($25 times (1 minus 35 percent)) equals $16.25. A difference of $9.75 ($25 minus $16.25).
Notice the difference in this calculation is the same as the tax difference calculated above.
Once you have gone through the calculations with your customers, there is potential to expand the program that you are offering to your customer. They will realize that after tax break, the cost of their OCS program is not as great as they once thought it was. Take a look at the Coffee Tax Deduction chart for an illustration of the example just provided.
OSHA MANDATES SOMETHING YOU PROVIDE: PROPER HYDRATION
For many operators, blue collar industrial is a substantial portion of their business. Many of these locations are warehouse facilities that expose employees to the elements. In the summer months, this can create a situation that is dangerous as employees are exposed to long durations of heat.
The government, in an OSHA fact sheet dated 01/01/95 — Protecting Workers in Hot Environments — recommends that one of the key ways to prevent heat distress conditions is to ensure that employees are properly hydrated. Here is where the vending operator can help contribute to the welfare of its customers' employees.
An opportunity exists during the summer months to establish a program where a customer's employees can maintain their hydration using the vending operator's equipment. Develop a program with your customer where they can make purchasing your beverage products easy.
A popular method is to sell coupons to your customer that work in your beverage machine like cash and have them distribute the coupons to their employees. The employees use the coupons to buy product in the machines.
Another method is to have the customer subsidize the beverage machine. The price of the beverage products is reduced to a price point that is inexpensive. Say, for instance, 50 cents for a 20-ounce product. At the end of the month, the customer is billed the difference between what you normally charge and what was collected at the machine.
REPOSITIONING CAN WORK
Can repositioning work? Absolutely. I had the privilege of working for Frito-Lay as part of their sales force. I took products that were similar in nature but differentiated enough to make them unique and sold them to vending distributors and operators who were in my territory. In turn, the operators sold the products to the ultimate consumer.