Business Forecast: Variable to Cloudy

The rising price of fuel, the weather-related tragedies afflicting the Gulf South states and higher prices of goods have all affected vending and OCS operators, but so has a recovering economy.

Some companies have seen profits dwindle while others are having record years. Utilizing new products, smarter route management programs and diversifying product mixes are all methods that have been proven to work. Others are undergoing the difficult task of raising prices to save margins.

Automatic Merchandiser interviewed a random sampling of vending and OCS operators nationwide in early October to assess the present mood throughout the country. Following are excerpts from these interviews.

Galaxie Coffee
West Babylon, N.y.

Alan Robbins, Vice President
15 routes — office coffee service

Fiscal 2005 has not been as good as previous years because of higher fuel costs. "We have increased fuel surcharges to every account."

Unfortunately, customers have accepted the surcharges. "People read the news and have to fill up their own cars so they understand." Robbins has also consolidated routes which have been in place for the past 30 years. "We offer next-day service and offer over 1,000 items." The firm also delivers goods in its own route trucks rather than using courier services.

Expanding coffee equipment is one area the company is looking into. "We plan on looking into products like single-cup and pod brewers."

Outlook for 2006 — "I see improvement for 2006." Galaxie will put out more salespeople next year to increase business.

 

L & L Vending
Houlton, MAINE
Scott Proulx, General Manager
3 routes — mainly full-line vending

"We are holding even compared to last year in vending, and the OCS side is doing really well." Proulx attributes this to providing a good response time to service issues. The company has been challenged by continuing layoffs and downsizing. L&L Vending is in the process of raising prices to help counteract declining profits. Dasani water has been a strong seller this past year as well as New England Coffee branded coffee in his OCS accounts. Proulx is expanding into more point-of-use water systems and dedicating more efforts on the OCS side of business.

Outlook for 2006 — If high gas prices and account downsizing continues, 2006 will mirror 2005.

Michigan Vending and Payphone
Pinckney, Mich.
Jack Dunn, owner
2 routes — primarily full-line vending

The economy is sluggish because people are watching how much they spend. Sales are slightly lower this year compared to last year. "We have grown 145 percent in equipment purchases from last year, but the use per machine is down at all accounts." Michigan Vending and Payphone has not raised prices and will not implement a fuel surcharge. The uncertainty of people’s employment is affecting the economy. Dunn also sees sales being negatively affected at his seasonal locations because of the drop-off of leisure travel. He has diversified his product mix to include larger size snacks in order to increase profits. Another profit center he is finding success with is campfire wood vending. "We built a vending machine that vends fire wood and are having tremendous success with it."

Outlook for 2006 — About the same as 2005.

B&F Coffee
Northbrook, Ill.
Sid Kahn, president
12 routes — mainly office coffee service

The Chicago economy is recovering, but very slowly. "All in all, I see the economy getting a little better, but it is slow." Location sales have been stable. "We are doing more in sales this year than last year, but not a significant increase." He attributed the slight growth to accounts spending a little bit more on employee benefits like office coffee as opposed to holding back as in previous years. He is having success with the Flavia portion control, single-cup system, but he has been disappointed in the pod brewers. Kahn is very hesitant to raise prices in reaction to the high fuel prices. "We are just absorbing it now."

Outlook for 2006 — Hopeful.

North Suburban Vending
Ham Lake, Minn.
Rob Marcus, owner
1 route — full-line vending

Having just started his business in July of 2003, Marcus has a very positive outlook on the industry. "This is a great business so far, and I’m hoping I just continue to grow." North Suburban Vending has managed to increase business by 5 to 10 percent over last year. "Because of the increase in gas prices, people don’t want to drive around on their lunch hour." He also attributed an increase in sales to the personal attention he pays to each account. "If the account wants something different or new in the machine, I will change it immediately. The key for success of a small vendor is being versatile."

Marcus has maintained all of his accounts despite just having raised candy prices in reaction to higher prices from manufacturers.

One segment that has been doing well is hot beverage sales. "Hot coffee sales have doubled in the past four months." He attributed this to upgrading his coffee to whole bean and using a regional brand name, Caribou Coffee.

Outlook for 2006 — Positive.

WSC Enterprises
Fouke, Ark.
Wade Chapman, owner
10 routes

WSC Enterprises operates 10 routes in Southwest Arkansas and Northeast Texas. Owner Wade Chapman sees business as about the same as last year.

Accounts have not been impacted by the rise of fuel prices. The company has added new machines and expanded its current routes.

Outlook for 2006 — Positive.

El Venture Vending
Houston and Austin, Texas
Ed Lucas, owner
2 routes — full-line vending, OCS and concessions

"We have seen a dramatic increase in sales and location placements over last year, due, in part, to our growing reputation in the industry, our aggressive pricing strategy, and our CPC advertising (cost per click). We also contribute our rapid growth to more businesses needing employees on-site throughout breaks and lunches during shift work."

Rising fuel prices have affected El Venture Vending. "Our margins have decreased significantly due to these two factors (higher fuel and product costs), but we remain optimistic that with larger volume locations and consistent cost-cutting strategies, we can continue to survive."

In order to combat the higher cost of doing business, Lucas has implemented many changes. "We have begun to seek out more volume discounting and entertained buying larger, shorter coded lots to drive down costs in order to offset the astronomical cost of fuel and rapidly increasing cost of product. "With our aggressive pricing strategy, we must continually cut our bottom line as much as possible to remain competitive and profitable. We have also begun ramping up our monthly and quarterly promotions to increase sales. We are also stocking machines fully and delivering less often."

Despite the tough economy, El Venture Vending has seen an increase in sales. "We have increased same location sales by 425 percent over last year and increased placements by 950 percent. This is due to effective promotional signage and contests, our pricing strategy we embarked upon in April, 2005, our freshness guarantee, our growing reputation, and our CPC advertising."

Outlook for 2006 — Positive.

Tri-R Coffee and Vending
San Marcos, Calif.
Jeff Leider, vice president
6 OCS/vending routes

Tri-R Coffee and Vending started as a family-run coffee business in 1984. Brothers Scott and Jeff Leider eventually expanded into full-line vending and now have a six-route business which has grown an average of 35 percent every year. Jeff Leider attributes this to client retention that is a direct result of superior customer service. "Any growth that we have goes directly to the bottom line."

Higher fuel prices have forced the company to take a closer look at route scheduling. "It made us look at the profitability of our accounts. It helped us weed out the unprofitable ones."

He also sees the high fuel costs as a way to legitimize higher prices. "Accounts don’t see the higher prices from Coke or M&M/Mars, but they do know about the rise in fuel costs."

Tri-R did increase prices for the first time this year — and retained all their customers nonetheless. "We sat down with each client and told them about the increase and the reasons behind it."

Outlook for 2006 — Continued growth.

Pop ’N Stuff
San Diego, Calif.
John Townsend, owner
11 routes, primarily full-line vending

Business has greatly improved this year compared to last year. Townsend has seen a positive byproduct of the higher gas prices. "Higher gas prices keep people closer to the office and our machines."

Outlook for 2006 — Positive.


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