September 23, 2008, 10:30 am

By Catherine Rampell

When I joined The New York Times, a couple of things surprised me. One was the collegiality of the newsroom (let’s face it, everyone expects this
place to be a snake pit). Another was that a vending machine candy bar costs $1.25. Yes, $1.25. At other places I’ve worked, the same item typically would have been 75 cents. That’s an increase of 67 percent! I’ve been wondering if the mark-up is simply because of higher New York prices; before coming to The Times, I had worked mostly in Washington. (By the way, I’m temporarily working from the newspaper’s Washington bureau, where a candy bar costs 75 cents.)

My leading theory, though, is that unlike most vending machines, those in The Times’s New York office take prepaid debit cards. Pretty much any food item on sale in the New York building — through the cafeteria or the vending machines — can be purchased through FreedomPay, a cashless card system in which employees and guests pay with the swipe of a prepaid card. I wonder if the resulting absence of cash from the transaction makes buyers less sensitive to pricing.

We’ve already put the money on our cards, so it feels like a sunk cost; and besides, we aren’t physically fumbling around for nickels and dollar bills, so we’re missing the tactile cues that make us conscious of how much we’re spending. Credit and debit cards have been known to make people more footloose and fancy-free. And studies have shown that the installation of E-ZPass, an electronic, cashless toll system, has led to higher tolls.

Then again, maybe the vending machines I’d previously battled had unusually low prices. So I’m hoping you all can help me unlock the mysteries of candy-bar economics. Some question for our readers:

(1) In the vending machine nearest to your workstation (if there is indeed such a machine), how much does a standard-size Snickers bar cost? How about a bag of chips? (Leave convenience stores, pharmacies and cafe aside; their prices should be higher because these establishments have higher overhead costs.)

(2) What city do you work in?

(3) Does your vending machine take credit or debit cards of any kind,
or is it cash-only?

COMMENTS by Tom Britten (the vendor defender)

I was bothered by your vending machine cost comparison direction to “leave convenience stores, pharmacies and cafe aside; their prices should be higher because these establishments have higher overhead costs”

With all due respect to your well established expertise in economics Catherine, maybe, you could use a little lesson in the seldom understood field “candy bar” economics.

The vending business is a “buy it by the mile sell it by the inch” business that involves huge numbers of small transactions over wide distribution areas. This involves precise logistical planning and management of how candy bars are moved, especially in metro areas such as New York and Washington. This required micro distribution of products is in itself a major overhead cost unique to this industry.

Vending companies don’t manufacture the products they sell, they merely purchase and resell, and accordingly they are allowed only a small mark-up over prices changed by Hersey, Frito, Pepsi and the like.

In reality, the manufacturers set the price of the candy bars, the vending company does not.

The skilled service people who replenish the machines when candy bars are sold are well paid career employees with medical insurance and full benefits. Compare that to convenience stores, pharmacies overhead costs.

You ask why prices for the same candy might be different from Washington to New York. Accommodating credit card purchases of candy bars does in some cases increase sales; however, the cost of telemetry and credit card company’s transaction fees negates any bottom line effect. Your theory, relating higher selling prices to the availability of cashless purchases is flawed. The most-likely reason is the commission on sales that your vending machine company pays to your employer.

I suggest you add this to question for your readers: How much less would a candy bar cost if the vending company didn’t have to pay a commission?

Tom Britten (the vendor defender)

Tom Britten
 Analyst . Intermediary . Consultant
3922 Bubba Drive, Zephyrhills FL 33541
Phone 813.469.5437
Fax 813.783.7908
E-Mail tombritten@msn.com

This entry was posted on Wednesday, October 1st, 2008 at 1:37 pm and is filed under Growth, profitability, acquisitions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.