Better user experience grows Houston, Texas operation

Before 2011, Chuck Olson of CNC Vending, serving Houston, Texas, would have said his company was just like every other vending company. He sold the same products, with the same equipment, as his competitors. The only selling point he could make was better service. However, at the Chicago 2011 National Automatic Merchandising Association (NAMA) OneShow, Olson came across three ideas that changed the future of his company: cashless payment options, self-checkout micro markets, and the NAMA industry growth strategy (IGS).

At the show, veteran operators were presenting a more positive and exciting consumer experience. That really spoke to Olson, who had been in business for only three years. And he saw that technology could make it happen.

First was credit and debit card acceptance, which offers users more payment options, allowing them the convenience they want, while allowing them to buy more product than they could afford using only the cash in their pockets.

Micro markets present a completely unique experience for vending customers with convenience store product variety, and value that can increase sales at a location.

The IGS, the association’s strategy to target new vending consumer markets and grow existing ones, especially Gen Y, led Olson into the realm of social media. He embraced it, and started his own social media campaigns, which won him the first and only NAMA operator innovation award, the 2012 Gold iSpot award.

Olson’s success in vending did not happen without previous business experience.

Drawn to vending’s cash flow

After a career as a successful accountant, investor, restaurateur, real estate owner and landlord, Olson found vending. He thought it would provide the positive cash flow he was looking for, and was somewhat recession proof. He bought a 4-route operation in 2008 with a silent partner. He spent the next year learning the business. “It’s not for the faint of heart,” said Olson. “But I love it. It’s fun.”

Olson had ups and downs at first. He immediately condensed the four routes into three, in order to be more efficient. He lost two large accounts in the first month. He then picked up another significant location. “There’s a lot more to this business than babysitting machines,” Olson said. He was surprised by how much maintenance vending machines require. He also decided the investment was too high for telemetry, so he kept a paper-based inventory management system.

In 2011, Olson attended his first industry trade show. “It’s the best thing this company has ever done,” he said. “It was a turning point.” It changed how Olson viewed the industry — no longer a daily grind, but something new and exciting, with opportunities to grow sales at every location.

Cashless— the first move

Olson chose the USA Technologies’ ePort for his cashless system in 2011. And now 250 machines have readers that take all debit and credit cards, as well as near field communication payments, including Google Wallet. It’s a selling point for CNC Vending, which also increases sales. “Every machine that goes out now has a credit card reader,” said Olson.

This June, Olson will start using two-tier pricing, with a surcharge for customers using cashless payment. He has already received some pushback from locations, but feels it’s a move he has to make to cover the cost of the transaction.

Micro markets drive sales increases

“I’m just so excited about the markets,” said Olson, who installed his first micro market five months after the 2011 NAMA show. He quickly added two more in early 2012, with five to be installed in June.

For Olson, the micro markets, which he calls “CNC Company Markets,” hold many positives he isn’t getting from vending. First, the drivers don’t handle cash. Second, it has real-time data, so he can see what’s selling and what’s not. It also allows him to adjust prices or give refunds immediately. “They’re operationally easier to manage,” he said.

While technology exists that would allow him to do many of these things in vending, he hasn’t wanted to spend the money on these back-end systems. Instead, he wants to invest his money where it will impact users most.

Olson uses the 365 Retail Markets kiosk for his markets. He likes that he can use his own brand on the machines, unlike some of the other market retailers, and it offers biometric payment options.

Another great advantage to markets is the high dollar margin on products, although the percentage margin is higher in vending. Olson breaks it down, explaining that he sells chips in a vending machine for $.95, with a cost of $.38, leaving him with a $.57 profit, 60 percent. In the markets, he sells a grab bag sized chip for $3.69 with a cost of $2 and profit of $1.69, 45 percent. In the market, sales tax is added to the customer’s final purchase amount, similar to a retail transaction. Olson sees this as a benefit because he doesn’t have to build the tax into the price, as he does with vending products.

Most astounding, however, is the increase in sales volume from the markets. He replaced a vending bank averaging $400 per week with a market that offers coffee, frozen food and deli food in a cooler. The sales are now $900 to $1,000 per week. Plus, the upfront equipment costs are lower, and maintenance can be done over the phone. Just recently, Olson had an audio malfunction on a kiosk. He called the service line and they fixed it remotely, charging him nothing.

Initially, Olson had vending route drivers stock the markets, but this did not work well. He finds vending drivers don’t make good marketers. “Vending guys are not c-store guys,” he said. Most drivers lack an understanding of the importance of facing products or of maintaining that “strike zone” of high margin products presented at eye level. Therefore, he recently hired a tenacious individual to focus on merchandising, inventory and customer service exclusively at the markets.

Branded hot beverage machines

While CNC Vending does offer OCS to customers who request it, Olson never wanted to enter that side of the business. However, he has found success offering branded hot beverage machines. He had a generic machine at a local community college, but swapped it out for a Seattle’s Best Coffee machine and saw growth.

“That (old) machine was selling maybe $50 a week,” said Olson. “Now it (the Seattle’s Best Coffee machine) sells $50 in a day.” He’s convinced it’s the branding that makes a difference. In his micro markets, he’s planning to place a branded Starbucks coffee machine.

Healthy products really work

Health and wellness items are a draw in the markets. “We’re becoming more than a vending company,” said Olson. “We’re becoming a health and wellness break room expert.” He uses health and wellness as a selling tool, offering to assist companies in achieving wellness initiatives while servicing their employee’s needs. Olson has co-branded the CNC Company Markets with expertise in health and wellness. “We create excitement around our new market openings complete with education, screenings and the like,” Olson beamed. “At one market opening, we had a technician measure how many daily calories an individual burns daily by screening their breathing patterns.”

The concept is fairly new. Previously, Olson believed the common thought that customers want healthy products in the break room, but won’t actually buy them. But, he proved himself wrong this year.

CNC Vending was approached by a large location that needed to offer a 1:1 ratio of healthy items to unhealthy items. Olson agreed, deciding the variety required a market. He balanced traditional candy bars with granola-type bars made by Kind. Because the account was mostly blue collar, and the healthier bars were priced significantly higher than other candy bars, Olson didn’t expect them to do well. He was wrong.

He sold almost as many Kind bars as candy bars. This inspired Olson to add nutritional bars to all accounts, and even baked chips or similar healthier alternatives.

“And sales didn’t go down,” said Olson, although he admits they didn’t increase either. “But now we know we’re meeting a need.”

Food has a place in markets

According to Olson, offering food makes a big difference in sales, but it is only effective in micro markets due to the 3-day shelf life and the fact that consumers really want to physically examine the food products and read the labels.

CNC Vending outsources its food. However, it puts its CNC Company Market labels on the products to build its brand. The products offer variety, including soups, gourmet sandwiches, salads, entrees and even organic foods. Olson admits the margin on food is minimal. He makes his money when the customer also buys a snack and drink to go with it.

The selling cycle on markets is a little longer than for vending banks, Olson said, because customers are less familiar with them. He finds he has to explain what the market is and how it works to several people at a potential location, including the location manager, the facilities manager, etc. He’s hoping it will be easier and faster now that he can take potential customers to an existing market.

Theft not an issue in markets

Theft is everyone’s first concern when they see a micro market. But Olson said it hasn’t been an issue. “No employee wants to lose their job over a Snickers bar,” said Olson about why he doesn’t think more employees steal from the markets. He experiences about 1 percent shrinkage, which could be accounted for, at least in part, by mishandled inventory. Even so, when Olson compares the 1 percent in shrinkage to the 250 percent lift in sales he averages from a market, it loses all relevancy.

Another advantage to the markets is the stored value account, which helps Olson avoid the transaction fees associated with debit and credit cards. When Olson opens a market at a new location, he gives every employee $2 in their account. Customers can authorize the stored value purchase with their finger using the biometric scanner on the market kiosk.

He also offers occasional promotions. During the grand opening week, if the employee puts $20 in their account, he’ll add an extra $5. Or, Olson will authorize buy one, get one free promotions, which he can’t do with a vending machine.

The stored value account gives employees an opportunity to add their email address. Olson will use those emails to send special offers.

Because Olson can access the market remotely, he can correct prices or give refunds. Staff at locations, who used to handle refunds, enjoy being able to email Olson about a refund request instead of doing the refund themselves.

Currently, 5 percent of Olson’s business is micro markets, but he’s aiming for 50 percent in the coming years.

Growth strategy leads to social media

Last year, when NAMA announced the IGS, it opened Olson’s eyes to the need to communicate with customers and really set himself apart from the competition.

He took advantage of NAMA’s Facebook contest, Vend.Love.Win., by placing signage and clings on machines at his locations. While he felt it was worthwhile, it was hard to determine how successful the campaign was because he couldn’t see analytics of the NAMA Facebook site. So he came up with his own campaign, “Connect for Cash,” where Facebook and Twitter fans could enter a drawing for product tokens or credits redeemable for products.

Olson enlisted his daughter, Cami, to launch CNC Vending’s social media campaign. He made his own signage for the Connect for Cash program, started checking Twitter a number of times per day and began posting comments on Facebook.

Facebook is especially useful to Olson, due to the built-in reporting features. As of this article, he had 250 fans on Facebook. According to the analytics, when those fans comment on his company, there’s a potential 115,000 people who will see it.

Olson finds social media useful, whether it’s getting people to like CNC Vending on Facebook or guess how many fumbles would happen during the Super Bowl. He got immersed in tweeting during the game, and soon noticed a group of customers talking back and forth.

Another example is when Olson received a tweet from a customer explaining how he loved the blue Monster energy drink, but wished there were more in the machine because it was always running out. Olson asked the route driver to add an additional spiral of blue Monster. The next day’s tweet had the customer expressing his amazement and gratitude. “Before, he just dealt with a machine,” said Olson. “Now, he knows it’s a real person.”

Olson admits getting his social media campaign started was costly. He figures it cost $2,300 in Q1 to run the campaign, including the giveaways. He’s hoping to partner with suppliers for his next round of social media campaigning. Still, it was worth it. “It (social media) gave me a better understanding of what they want,” he said. “I can’t quantify it, but I know there’s value in the knowledge.”

At the 2012 NAMA OneShow, Olson decided to build a new Website to strengthen his online presence and leave behind a “Mom and Pop” impression his old Website conveyed.

A business for the future

Olson loves the vending business, especially with the exciting addition of micro markets. All the changes he’s made are real tangible points of difference. “We have a future, a plan, a purpose,” he said. “And it’s to be the highlight of the break room. And we can do it.”

Plus, he gets to work with his wife of 25 years, Cari, every day. “That’s been a real joy,” he said.

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