In-house Food Packaging Allows Expansion into New Business Opportunities

The world of the vending operator is constantly changing. The industry has gone through hundreds of changes since its inception. One of the early innovations was the in-house commissary, which continues to offer operators growth opportunities.

Some operators think the commissary has outlived its usefulness. On the contrary, however, changes in packaging equipment have created a new set of opportunities that some operators may not be aware of.

In order to understand how these opportunities have evolved, it helps to first understand the history of the in-house commissary in vending.

How commissaries evolved

The traditional candy to snack to gumball vendor moved into the hot and cold drink business in the 1950s.

As demand grew for more services, the vending operator established cafeterias in business and industry locations, and the offshoot of that idea was the set-up of the commissary kitchen to service the new cold food machines that could be situated in unmanned areas to serve the public 24 hours a day.

To fill these cold food machines, the vending commissary was begun. Food could be made off-site and brought over by the same route driver that originally just placed the candy and bag snacks in the rest of the machines.

Commissaries became critical factors

There were no store-bought sandwiches that came already packaged in those days. And if there were a few of these resources out there, they didn't reach out to serve the vendor that handled factories and offices in rural areas.

The commissary became the heart of the vending operator's business. Some operators not only packaged sandwiches, but also started the off-site catering that is part of many vending companies today.

The reasons to have a commissary today are as valid as they were 20 years ago. Even in the wake of the new commercial kitchens that have sprung up in the larger areas, the traditional commissary still holds its own.

The advantages have not changed

Let us look at the business as it is today, in relevance to the competition and where it could be going in the future.

First, consider the advantages to having an in-house commissary for your vending customers.

Unlike the new commercial kitchens, the local commissary chooses its food items from its local customer base and what is important in their particular area.

It would be a difficult sell for the national sandwich maker to have a "pepper and egg" sandwich, but the local vendors produce them in the Chicago area because that is where it is popular.

The local vendors do smaller runs, producing the correct products at the correct time. The local vendors know what their customers want.

The commercial sandwich maker has an impressive array of offerings, but does not have the local appeal for all of the items it manufactures.

On average, a sandwich from a national sandwich kitchen will be competitively priced with most of the other sandwiches in the area. But the cost to the local vendor is high and the sales margin is lower compared to a product produced in-house.

It is estimated that the margin at a vending company from a commercial sandwich can be around 25 percent, but a sandwich made in the operator's own kitchen is around 50 percent. The returns which are computed in the selling price are about the same for both.

Consider packaging costs

We have heard of modified atmosphere packaging (MAP) which keeps a sandwich fresh for a month from the large commercial kitchens. The taste is not quite the same as a fresh product made in the morning and delivered the same day.

The prices of those MAP products are high, and someone has to pay for them. So the local operator loses a lot of margin to put out a product that was made hundreds of miles away.

Don't discount customer satisfaction. There could well be a difference in satsifaction between the commissary sandwich and the commercial kitchen's product, although this is not as easy to quantify. The local vendor produces sandwiches the same day they are put into the machines. Customers like the freshly made product.

The commissary as community resource

There are other advantages. A busy commissary may employ seven to 15 people in his kitchen, which is good for the community, good for business, and good for the operator. The vending operator who operates a commissary becomes an asset to the community, and this is good for the operator's public relations.

Of course, the operator has to provide a good quality product. Like the commercial sandwich maker, the local vendor faces certain challenges inherent in vending. That is, the customer cannot touch the item before it is purchased. The old adage that "people buy with their eyes" is especially valid in the vending industry.

When a customer buys a product from a vending machine, he has to know that the price charged is worthy of his money and his taste buds.

When the button is pushed, he expects to get a product just as good as he perceived it before the sale. That goes for a commercial sandwich or a locally made product. Trust is a must, and it must be fulfilled.

Who's the real competition today?

For years, the vending operator thought his closest competitor was the vendor across town. This is no longer true.

The main competitor to today's vendor is the convenience store, where the customer can view and touch and closely examine the very same sandwich that the commercial sandwich makers are producing. The commercial makers sell to everyone.

The local commissary gives the vending operator the ability to offer a sandwich that the convenience store does not carry.

The commissary enables him to meet the onslought of new competition.

So how does a small operator do it?

Some start literally in their home kitchen, making sandwiches one at a time for a single cold food machine in their first location.

Operators can begin small

A beginner can still do this cheaply. A small Teflon-coated sealer costs only $80, and the cellophane wraps with an FDA-approved board attached costs only 4 cents each. And the product has a 3-day shelf life before it needs to be changed.

You can still get cellophane (or polypro) sandwich bags for about a nickel each. The hot plate to seal it costs about $120. Square cellophane and poly sheets with a backing board are about a nickel as well.

All things considered, it is not a great capital outlay to begin a commissary. In most states, however, you have to produce an identification label, which could add another 2 cents. You can do those on your computer. But all of this is for the beginner.

As the volume increases as well as your income, demand will grow for product variety. A lidding machine might become necessary to meet product requests. For about $1,200 plus the cost of containers and film, you can get an "all-in-one" manual lidding machine that with a plate change, you can put in several different containers.

Your vending machines now have sandwiches, a salad or two, and a two-compartment meal entr?e, and your commissary is still small by industry standards.

Consider your community role

As you increase your business and add a few more routes, your commissary will grow to the point that it is as large as some of the commercial kitchens that service your area. You are now becoming a significant employer.

You have joined the local chamber of commerce, and through leads and your new status as an important local businessman, you get more leads for even more business.

Now you can confront the issues that bothered you during the time that you were starting out.

Consider expansion opportunities

During a chamber meeting, you meet the man who just happens to own a chain of convenience stores you have been competing against. It seems he has been having trouble this season because his customers are asking for a "pepper and egg sandwich" that his commercial sandwich provider does not offer.

You can do it. Because you are local and know your market, you have what the c-store guy needs. You begin to deliver your sandwiches on your routes to the small c-store chain.

You have turned your former competitor into a customer.

Now, two of your factories have just moved to Mexico, and your cafeteria and vending base have been slashed by a third. You need new sources of income to keep your employees working. At this point, many operators just give up and start laying people off and close the commissary.

The day the commissary closes is the day that the heart goes out of your business. Your control of those sandwiches belongs to a commercial kitchen hundreds of miles away. Your freshness appeal, the look of your product that you and your customers were satisfied with, are replaced by a product that no longer has your name on it.

You need to see the possibilities

If you just sit there and lament the fact that you are defeated by those businesses that are out of your control, you have lost your business edge. But there are answers to your problem out there; just take your blinders off and look outside of your traditional customer base. Here is an example of what you can do.

You joined the chamber of commerce because as a responsible member of your business community, you wanted to keep on top of everything happening around you.

You discover the local hospital that has been using its kitchens in their off hours to run a meals-on-wheels program and the demand for meals in the county has doubled, due to the economic situation in the area, like the closing of the facilities that you used to service. The hospital needs more food production space.

There are hundreds of meals-on-wheels agencies in this country. Some are federally sponsored and some are local or church sponsored. Some use basic kitchens while others are using a specialty kitchen set up for meals-on-wheels.

Whatever type of kitchen being used, the demand is certainly growing throughout the country as the baby-boomers age.

The demand for commissaries is growing

For years, this industry has been dominated by one manufacturer who supplies lidding equipment as a lease, or lease-to-own arrangement. While the agency providing the service might be non-profit, the food production requires equipment that is provided to the agency on a for-profit basis.

Your commissary equipment is actually similar to that manufacturer's machines, and the containers that you already use for your vending meals are quite similar to that manufacturer's as well.

Your commissary does not operate past 9 o'clock in the morning, so you certainly have your equipment available, and you have the personnel to man your machines. You may even have to employ a few more townsfolk to run them.

Examine government and charity programs

You can use your commissary to produce meals-on-wheels in the early afternoon. Volunteers from the agency can deliver them to their clients. You get paid, and your employees get paid. Those who need food will get food, and you and your vending company become a more valuable member of the community. Your commissary remains the heart of your organization.

There are still more opportunities to consider. You could become a "packer processor" for specialty carryout items at restaurants in town. Just talk to people and find out what they need, and supply it. Make phone calls wherever there is an opportunity for takeout food.

You could make "pepper and egg" for the grocery stores seasonally and deliver them on your route trucks, or prepackaged slices of pie for patrons to take home from the restaurant. As your routes get bigger, there are locations you cannot get to for two weeks. There is now a simpler solution.

There are now available tabletop modified atmosphere machines for under $20,000 in the U.S. that could be used for those routes that you do not want to visit every three days. You could use these machines for those routes only, and use your traditional machines everywhere else.

The technology you have is versatile

The commercial sandwich makers are using $60,000 versions of these machines. Why not have the same technology for your business?

Remember, do not be limited to just the traditional vending customer base. Your commissary food has a market that extends to other locations as well. It is up to you to discover and sell it to everyone who needs it.

While you have been busy running your business the same way you have for years, packaging equipment manufacturers have found new ways of packaging like that modified atmosphere machine, or special containers that display products better for the consumer, or brighter labels with a business logo on them.

Keep up with packaging technology

If you are doing the same thing for the past five years, it may be time to call your equipment distributor to see what is out there to improve your product and save money. If your distributor has no new answers, find another one who does.

Remember it's your business, and you are not only responsible to your community and your customers, but also to your family, and most importantly, to yourself.

The commissary is the heart of a successful vending business. It is good to protect it with a little exercise and a checkup once in a while.

Bruce Duguid works in sales and marketing at Lingraph Packaging Services Co. in Glendale Heights, Ill. He previously served as vending and national accounts coordinator for Clark Products' Chicago branch.

Benefits of the in-house commissary

  • Respond to customer requests faster
  • Ability to cater to local tastes
  • More control over production
  • Fresher product
  • Proprietary food brand
  • Potential for local business relationships