Poised For The Future

Aug. 8, 2017

We love technology here. We love innovation,” said Ray Friedrich, co-founder of Sterling Services based in Canton, MI. The company started 31 years ago as a business between two school friends, Friedrich and Chris Peppo, and grew into a medium sized independent that employs 176 people in the Detroit area. The business partners never stopped evolving the business, first to include more vending and then micro markets and now dining. With investments in vending, micro market and foodservice technologies and anticipating the needs of the local employers, Friedrich and Peppo keep Sterling Services a strong contender.

Starting with a can-do attitude

Long-time business partners, Friedrich and Peppo both grew up with fathers involved in the restaurant business, which helped guide them to foodservice. “We were high school buddies thinking that we would start a catering business one day,” said Peppo. When they went to a hotel in 1986 to offer their catering services, the hotel refused. However, the hotel did need a vending operator. That was the beginning of Sterling Services, one hotel and two people with enthusiasm, a can-do attitude and a willingness to rethink the concept of service, plus day jobs.

Fast forward 31 years and the attitude of the owners is much the same. “Over 30 years later and I still truly enjoy this business, every day,” said Peppo. “It comes with challenges, but it’s the new stuff that keeps it exciting.”

Move to micro markets

en years ago, the business mix of Sterling Services looked a lot different. The company drew 80 percent of its revenue from vending and office coffee service (OCS) with only 20 percent from catering and foodservice. Today, half the company’s revenue is from micro markets, vending and OCS while the other 50 percent is dining. On the unattended side, micro markets are the lead revenue generator with a good market route bringing in $1.5 million in revenue compared to a good vending route that does closer to $650,000 per year. Friedrich and Peppo loved micro markets upon first introduction at a NAMA show in 2005. “We were super intrigued when we saw the concept,” admitted Friedrich. “We felt that if it worked, it would really change things.”

Sterling Services began partnering with companies working on the new self-checkout solution for workplaces that would eventually be known as micro markets. The first iteration of the solution was a self-checkout system that used RFID or radio frequency identification tags on each of the products for sale. The system was called Freedom Shopping and made by Dagosi LLC in Hickory, NC. It offered a kiosk that would scan the product RFID tags simultaneously, instead of forcing a consumer to scan them one at a time. It also featured an audible alarm if the patron left without scanning the items and video cameras to record the area.

Early tough sell to customers

Friedrich and Peppo appreciated the concept since it allowed different product sizes, cashless payment acceptance and led to better perception of on-site foodservice by customers. Despite these benefits, the duo found it was a hard sell. “Locations wanted proof of concept,” remembered Friedrich. Finally the pair was able to convince one of their best clients, an auto parts manufacturer, to try the idea. “The second people saw it in action, they said they wanted one,” said Friedrich.

It was during this time, after 2005, that self-checkout systems evolved. The RFID tags were deemed too expense, costing around 13 cents a tag, and needing to be manually added to every product sold. Instead, most micro market providers switched to using the bar codes already located on the product packages. Sterling Services rode this wave, trying a number of different systems. However, one element was lacking that both Friedrich and Peppo really thought was vital. “In one of our cafes, the customer pays at the cashier. But at a micro market or vending machine, the customer pays on a different system entirely,” said Friedrich. That is when an employee at Sterling Services, Jim Bishop, went hunting for a supplier that could integrate the systems. Over the next 3 years, Sterling Services consulted with Digital Checkouts, an existing point of sale software to do just that, and a lot more.

A micro market dining hybrid

Friedrich and Peppo now use Digital Checkouts as a main supplier for micro markets, and one of the key reasons is the flexibility of the kiosk. It can be used as a register by a cashier during peak times at a workplace, but then go into self-checkout mode for around the clock shopping. It bridges the gap from attended foodservice to unattended. That is what the Detroit Duo believe will be needed in the future. “I think self-checkout and self-order systems will do for corporate dining what the micro market did for vending. It has proven to increase sales, decrease labor and give the consumer a better experience all at the same time.”

Bridging the unattended and attended foodservice was a solution revealed as the Detroit area went through the recession. Sterling Services saw locations closing and employers looking for ways to save money on services. Sterling services began moving these customers to the self-checkout or micro market solution which gave locations a way to offer food and beverages on-site as an employee amenity while reducing or eliminating the cost of a cafeteria and/or cashier. It worked well and was a large part of what helped the company through the tough period of 2007 to 2009.

Dining takes on starring role

As the recession ended and business began to pick up in Detroit, Friedrich and Peppo noticed a change in the mind set of their location customers. “Companies are again willing to invest in luring and retaining employees, especially Millennials,” said Friedrich.

It isn’t unheard of for companies in the Detroit area to spend $200 to $300 on foodservice per employee in order to attract and keep talent. “It’s becoming fashionable to feed people again in B&I accounts,” joked Friedrich. The rise in locations willing to spend money on dining didn’t inspire Friedrich and Peppo along with their partners in the dining business, Jeff Ranck and Bekim Pellumbi, to go into a traditional cafeteria business, however. Rather, they created café and food court-like options that presented the new look and feel employers were looking for in the break area.

Currently, Sterling Services operates 26 cafes, all fully staffed with their employees who prepared fresh food on site, most made to order. “Each café is self-contained,” explained Friedrich, meaning the in-house commissary doesn’t prepare or deliver food to them.

One of the most popular entrees at the cafes are the made to order salads at the Chop Shop. Employees build their own picking the type of lettuce they want, the vegetables and a protein. Other popular concepts are the Corner Slice, which offers customizable pizza, Abe’s Deli for soup and sandwich combinations, as well as the Starbuck cafes complete with baristas. Many of the cafes also offer a grab and go solution with freshly packaged food made that day.

Likely because of their restaurant past, Friedrich and Peppo wanted to create a different workplace dining experience. They wanted the food to be front and center. They have a staff of chefs who come up with different dishes and everyone sits around for a taste of these new creations. “Our chefs love to follow culinary trends and be creative,” said Friedrich. “We don’t shackle them with what to make. We let our chefs come up with recipe ideas, which they vote on. It’s a way to let them spread their wings.” The idea is to offer a range of items, some that appeal to the traditionalist, but also those items that inspire the foodies, specialty items that can’t be found anywhere else.

Layout and design partnerships

With these new workplace cafes and eating areas, there is always the question of who pays for design and furnishings. Sterling Services consider themselves a partner with the location. The location company often wants to upgrade the break area and eating spaces in a certain way and Sterling Services is part of that, a more significant part. “Major corporations are looking at us differently now. They are centering spaces around what we do. Now we are markets and cafes at work, not just vending machines. It is causing them to make an investment in the space and the service,” said Friedrich. Even within cafes and micro markets, where Sterling Services covers the costs, the company wants to offer some customization to the customer location. “We work with clients to incorporate their logos and colors so that it feels like an extension of that company too in addition to our own,” explained Peppo.

A smart, integrated future

Sterling Services plans to continue adding dining, micro markets, and whatever services the locations want, but with more benefits. “Imagine not having to wait in line,” said Friedrich. In his mind, if you train the consumer to use the phone or kiosk it eliminates the back and forth between the chef and customer as well as longer wait times. With digital ordering a cook can make 10 orders at once, instead of just one at a time at a counter. “It’s more productive,” said Friedrich. “It is taking out the consumer interaction which is what slows the process down.”

It also means the line becomes virtual or behind the cooking station, with little to no waiting for the consumer. “Integrating some form of self-order and self-checkout will serve more people, save money on a cashier, and result in employees being more productive because they get to enjoy more of their lunch period,” said Friedrich.

The duo is always looking around for inspiration as well, how the consumers attitude is shifting and what they can offer next. For example, Peppo will look at the local retailers to see if there are new concepts he can bring to the business. “You see seating areas and Starbucks in grocery stores,” said Peppo. “The break room has to keep up with those places in order to compete.

Vending gets upgraded

Friedrich and Peppo are the first to admit their love of technology drew them to the micro market and dining segment, which resulted in increased revenue. Now they are focusing on vending, which is far from a dead segment for the company.

We thought micro markets would totally replace vending machines, but that hasn’t been the case. “It’s not uncommon for a location to have all three,” said Peppo. For example, there is free coffee in a number of areas, there is a micro market might near the offices, and a vending machine is on the loading dock.

Instead, the company is making a large investment in vending. “We are in the final stages of selecting a vending management system provider,” said Peppo. The information will be useful as the tastes of the vending customer has diversified. “It used to be very distinct,” said Friedrich. He recalls location preferences used to be very clear and different from one another, white collar, blue collar, maybe a mix of both being gray or light blue. Now there is much more blending with many consumers who are looking at healthy and the value of the items. This is happening at all business and industry (B&I) locations from factories to hospitals. “The lines have really blurred and everyone is more health conscious. Even at traditional blue collar locations, people are buying salads,” said Friedrich.

Friedrich admits that vending machines still present a challenge, because everything is behind glass, but in the right area, they do great, especially with the new video media and credit acceptance to keep them relevant. As the company adds micro markets and dining locations, they remove vending machines. If it is a newer machine, Sterling Services uses VE doors to renovation the machines. Then they find a place for it, perhaps moving other machines around. “Our busiest department is probably our moving department,” said Peppo. “We are constantly moving equipment.” Sterling Services has also begun disposing of old machines, especially coffee machines. The outdated equipment is taking up space in the warehouse that the company needs for more SKUs of products to keep the micro market business growing. For other vending machine accounts, Sterling Services will buy new equipment.

Vending machines will also be a part of the integrated future Sterling Services sees for micro markets and dining. They are experimenting with combination deals and electronic coupons.

After 31 years, the industry looks very different for Friedrich and Peppo. However, that is part of what they like about. The challenges have revealed better ways of doing business, keeping an open mind has led them to greater revenues and they see an exciting future full of cross-over foodservice potential.

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