Perhaps the only constant in life is that it changes. This has certainly happened in the vending industry, but that hasn’t stopped Jerry Scott, the vice president and general manager of Canteen of Coastal California Inc. In fact, he has adapted well, helping the business his father bought in 1972 become a multi-million dollar company with 4,700 vending machines and 100 micro markets. It has been an ever-evolving process from product-specific vending machines to the introduction of micro markets, but one that Jerry has found rewarding, especially as it satisfies the needs of workers in the Central Coast area.
A father-son business
Jerry’s father, Gerald “Scotty” Scott had worked his way through the ranks of Canteen for 20 years, until finally becoming general manager in the bay area. In 1972, he was offered the opportunity to purchase a franchise for Ventura and Santa Barbara counties. He and his wife, Dorothy, made the purchase and he asked Jerry to enter the business as well, in January of 1973. “At that time, I think we had 60 vending machines at 11 accounts,” remembered Jerry. “The first time we did $1,000 in sales, we celebrated.”
Canteen of Coastal California continued to thrive by adapting as new equipment and technologies became available, being among the first to bring many new merchandisers and services to their customers.
“We went through the process of having a straight candy machine, a straight pastry machine, basically a machine for every product,” said Jerry. “Then, when the glassfronts came out, we were quick to make the change over.”
The glassfront vending machines were a benefit as the glass allowed the different products to be viewed by the customers before purchasing and also offered a greater variety within a single vending machine. “When the glassfront beverage vending machines became available soon after, we were one of the first early adopters,” added Jerry.
Technology forward
“We have always tried to be on the cutting edge of the technical side,” said Jerry. This included being among the first to add dollar bill acceptors, and then the $5, $10 and $20 acceptors. The operation also jumped into adding cashless payment devices, first adding them to new business and then to the bulk of the machine fleet in 2016.
“We have about 4,300 cashless devices now in the field,” said Jerry. That is nearly all the company’s vending machines, minus some older equipment that needs to be upgraded to accept cashless devices. “We saw about a 20 percent increase in our vending sales when we put cashless in,” added Jerry. That was better than the average return he was hearing from other operators at the time.
Diving into micro markets early
Canteen of Coastal California added micro markets in 2010, fairly early in the industry. Jerry remembers it being a bit of a tough sell at first. “It took us about 6 months to get our first one sold,” he said. “No one thought they needed it.” It seemed even his largest location was happy with Canteen of Coastal California’s vending service. Jerry didn’t accept that answer, however, knowing micro markets were the hot, up and coming solution for service in breakrooms. Instead, he installed the micro market into his own building and invited the decision maker from one of his large accounts to visit. That sold the concept and he installed the micro market into the location the following week.
Once that micro market was installed, Jerry took other customers to see it and each wanted one. Canteen of Coastal California’s micro market installations were in the double digits in less than a year.
“The perception of an item being behind that piece of glass in a vending machine compared to a market is so different,” said Jerry. “Sometimes it can be the same products, but they just like it a lot better when they can see it, feel it and touch it before they buy it.” Jerry remembers being in a micro market a week after it had been installed, replacing the bank of vending machines. A customer came up to him and said, “These are the best salads I have ever eaten.” He thanked her but knew it was the same salad he had been selling in the vending machine for the past 5 years. It made him wonder if she had just never come to the breakroom to use the vending machine before, but because micro markets are so different, she tried it.
When Canteen of Coastal California started pursuing micro markets, Canteen Corporate wasn’t yet involved in the segment. Jerry had to make his own choice as to which provider to use. He went with Avanti Markets, in part because the company had reached out to him first, and also because the company’s founder and spokesperson was an operator.
Canteen of Coastal California placed 80 micro markets before Canteen Corporate launched their Avenue C program, which uses the 365 Retail Markets kiosks. Now Jerry has micro markets in the field from both providers, plus one from Company Kitchen. “The way I looked at it is, if you wanted a micro market in my area, you should get it from me,” he said, so he is willing to work with multiple suppliers.
Micro markets currently represent 25 percent of the company’s annual revenue, a percentage that has been gaining momentum since 2010. Jerry does feel the biggest trend in micro markets is towards healthier eating, although what that means is difficult to define.
“Healthy is in the eye of the beholder,” he said, whether that it is potassium-rich banana chips to nut-based trail mixes. He has noticed manufacturers are introducing more “healthy” items, and in some cases are reducing the package size of their products to make it a 100-calorie pack. “It works. That 100 calories seems to be a number everybody is looking for,” he said. Canteen of Coastal California also has seen growth in the number of gluten-free products it sells. Jerry attributes this as much to the space available within a micro market as to consumer trends. “If I’m going to put a gluten-free bar in a vending machine, I have to pick the flavor,” he said. It’s a guess and may or may not be the flavor a customer wants to buy. “In a micro market, I have 5 flavors of bars. The customer can have a different flavor every day. Same with beef jerky and those types of items as well.”
Benefits of micro markets
Jerry feels that micro markets are easier to operate than vending, especially when handling the price increases. “Micro market customers don’t seem to be nearly as price sensitive as vending machine customers,” said Jerry. He believes it is due to the fact that the company can work in penny increments to immediately pass on the price increase instead of waiting, and then jumping 5 or 10 cents. “Price increases are the most sensitive thing you can do in a vending location,” said Jerry. “I’ve had locations threaten to find someone new over a dime.”
While most of Canteen of Coastal California’s micro markets are in breakrooms, the company has expanded into other locations. There is an office complex with five buildings that Canteen of Coastal California serves. The former deli that served the complex was transformed into a micro market. All the employees who work in the various office buildings have access to the location.
“Originally, we kept the room unlocked from 6 to 6,” said Jerry. “However, when summer came, some kids found the market.”
Now the door has a keypad, and each employee is given the code. With the keypad, it also offers the perk of 24-hour access. It’s been a good location for the company.
“Shrinkage in that location is not any higher than any other location, well after we locked the kids out,” said Jerry. “That micro market has been very viable for us.”
A third in OCS and pantry
Canteen of Coastal California’s office coffee service (OCS) and pantry still represent 30 percent of the company’s revenue, a number that has remained strong due, in part, to the recent surge in bean-to-cup brewers.
“The trend is going bean-to-cup. That seems to be what people want,” said Jerry. The problem he sees with its popularity is that a bean-to-cup machine takes a comparatively long time to brew a cup of coffee compared to a drip coffee maker, about 45 seconds. That means locations want several brewers, which is very expensive. “It seems like forever as you stand there,” said Jerry. “Therefore, if you have quite a few people breaking at one time, you need to have another delivery system as well.”
His customers use many different types of beans in the bean-to-cup brewers, from local roasters to national favorites. “It depends on the price point and what they want to buy,” he said. Bean-to-cup patrons in his area don’t seem to favor one type of coffee bean over another.
Part of the popularity of the bean-to-cup brewer is that it delivers alternative or specialty drinks as well, such as creamy cappuccino, café mocha, etc. The tradeoff is that there is maintenance that needs to be done to the equipment by someone at the location on a daily basis, indicates Jerry. The equipment needs to be cleaned each day which would be cost-prohibitive if technicians were to do it. Canteen of Coastal California does handle the quarterly maintenance and deep cleaning of the equipment however, to keep it in ideal operating order.
Specialty drinks thrive in pantry
When the location hires Canteen of Coastal California to stock food and drinks for employees, also called pantry service, espresso and specialty drinks are hugely popular. In manned pantry areas, the company will even put in bean-to-cup machines that use real milk to create beverages. “It has to be manned because those brewers require a lot of maintenance by the client,” explained Jerry. “If the client wants one of those, they have to be committed to wanting it.” Canteen of Coastal California requires contracts on this and all business.
There has also been a jump in requests for different types of pantry service products. Canteen of Coastal California has pantries where it supplies lunch meat, bread, mayonnaise, mustard, etc., so the employees can create their own sandwiches.
“A lot of locations want cereal, but there’s even more to it,” said Jerry. “There’s fresh fruit and milk — soy milk, almond milk, etc.” The challenge for Jerry is that these items aren’t readily available in the vending channel. “To get the product, you have to go to a big box store or somewhere else, because it isn’t in the standard buying channel for vending,” he said. He also felt this challenge when micro markets began growing.
The vending distributors are adapting, improving variety, but it can still be difficult. Working with outside distributors means higher markups, in Jerry’s experience, which ultimately means a higher price point for the customer. He will still do it, but ensures the location knows the price the item will be upfront so they can decide if they want it delivered. “Because we are still a service entity,” added Jerry.
Working with the customers on product delivery and also budget is ongoing with pantry service clients. “Locations want to maintain a budget and it’s hard for them to do that when they are offering product for free and employees change what they eat depending on the day of the week,” said Jerry.
Canteen of Coastal California assists them in managing the budget numbers by altering when the pantry is stocked or how product is displayed. “It really is a custom program,” said Jerry. “It is whatever the customer wants and how we can deliver it within their budget.” In some cases, Canteen of Coastal California will just deliver a pallet of product and employees of the location stock the pantry.
Vending continues
Vending is still strong and viable for Canteen of Coastal California. “We have most of the universities in our area, which require quite a bit of equipment,” said Jerry. He does favor micro markets for new business of a certain size but believes vending will never go away. “It’s still a growing segment for us,” he said.
For Jerry and the entire Canteen of Coastal California team, every day is about service and betterment. From taking pride in going beyond customer expectations to investing in worthy new endeavors, this is a family vending operation that will continue to thrive long into the next generation, many of whom are currently working at the business.
