How did a pair of newcomers manage to build the biggest vending operation in the nation’s second largest city in their first 10 years of business?
There is no simple answer. But the fact that brothers Matthew and Ryan Marsh are taking a pioneering role in solar energy demonstrates independent thinking, dedication to operational excellence and self confidence. These qualities partly explain how the Marshes, co-owners of First Class Vending Inc., Bell Gardens, Calif., became the dominant player in greater Los Angeles at a fairly young age. (Matthew is 40 while Ryan is 37).
The brothers’ ability to work well together undoubtedly plays a role in their success. Matthew, the president, oversees customer relations, sales and equipment purchasing while Ryan, the vice president, handles operations, route management and product purchases.
While both brothers caught the entrepreneurial bug at an early age, they never intended to work together until the opportunity presented itself early in the company’s growth.
Both Matthew and Ryan point to their father, Steve Marsh, a self made garment manufacturer, as their personal role model.
Matthew, who began the business in 1994 fresh out of San Diego State University by purchasing a 1-route operation, credits some advice he received early in his career from a business consultant. The consultant told him if a competitor is doing something, that doesn’t mean it’s the right thing to do.
Conversely, if the competitor isn’t doing something, that doesn’t mean it’s the wrong thing to do.
By 1996, Matthew had built the company to four routes and was aggressively studying the business. He came across a fairly young software company called Streamware. Streamware’s software included item level product tracking and category management, features that were then new to vending management software.
Streamware’s management software improved the company’s efficiency and encouraged Matthew to try to grow the company. “A good software system is mandatory,” Matthew said.
As a novice operator, he participated in Automatic Merchandiser’s vending manufacturers’ conference in Chicago in 1996. His role at the conference was to provide an operator’s perspective of Streamware’s category management software.
Acquisitions support growth
Acquisitions have played a big role in the company’s growth.
The company made its first major acquisition in 2003 when it bought one of the oldest and largest Los Angeles operations, R.J. Bradberry Co.
In 2008, First Class Vending acquired many of the routes formerly owned by MAB Services Inc. of Los Angeles.
The Marshes expanded into San Diego in 2008 by acquiring Take A Break Services Inc., followed by the acquisition of BREC Vending Inc.’s San Diego branch in that market in 2009.
This past year, the Marshes expanded into Las Vegas, Nevada. They rented a building and hired Kevin Grundy, a vending veteran, as manager.
Matthew noted First Class Vending gained some strong management talent from the acquisitions. Key managers are: Steve Foitle, executive vice president; Richard Cassel, executive vice president; Miguel Calderon, route operations manager and client relations manager; Keith Ahern, manager; and Charles Ringled, manager.
The company has three dedicated sales people and 14 route supervisors.
The Marshes believe they have been able to maximize their profitability by having only three operating facilities (Bell Gardens, San Diego and Las Vegas) and minimizing middle level management.
The solar energy installation is part of a larger sustainability initiative for First Class Vending that began in 2000 with cardboard recycling and has grown to include hybrid fuel vehicles, Energy Star certified vending machines, vending machine energy sensors, fully recyclable beverage bottles and more.
In 2000, Mathew grew concerned about his company’s trash bill. He needed to have the trash collector make extra trips to the building. He found a company that was willing to pay him for cardboard by the truck load.
Matthew instructed his drivers to break apart the empty cardboard boxes and return them to the distribution center. “We recycle 100 percent of our cardboard,” he said.
He then began applying the principle to other types of waste: vending machines, ink cartridges, telephones and printers. All scrap gets sent to a scrap yard.
Matthew also began offering container recycling bins for free to customers. He said most accounts that take the containers choose to manage their own recycling.
Alternative fuel vehicles
Even before gasoline prices began spiking in 2009, the Marshes investigated alternative fuels. They began buying Toyota Prius Hybrids for technicians, managers and supervisors. The self charging hybrids, rated by both the federal and state governments as among the cleanest vehicles available based on smog and toxic emissions, get around 50 miles per gallon in the city.
First Class Vending currently has 22 Priuses, which comprise 90 percent of its vehicles for technicians, managers and supervisors in all three operating facilities.
The company also uses satellite-based global positioning systems to manage vehicle use.
The Marshes have not yet found an alternative fuel for delivery trucks that they like, but they believe they will be available in the near future.
The brothers were also ahead of the curve in offering bottles made from 100 percent recycled materials. Two years ago, he began buying bottled water from Chameleon Beverage Co. Inc. in City of Commerce, Calif.
Pioneering solar energy
The $1.8 million solar energy project has been the most ambitious sustainability initiative to date. Solar panels have been installed to the roofs of four buildings, comprising a total 60,000 square feet. The project is one of the largest private sector solar energy installations in southern California.
“The solar industry is so new,” Matthew noted.
The solar power initiative has been the most challenging for Matthew in his career, not only financially but educationally. Solar energy is an evolving science. For people not experienced in either alternative energy or construction, it requires extensive research. Matthew spent seven months studying solar energy before hiring a construction team.
“We’re trying to do everything we can to reduce our carbon footprint and do what’s right for the environment,” said Matthew.
“We had four main motivations for going solar,” Matthew explained. “First was financial. We’re facing rising energy costs throughout our operations and we’re trying to save as much as we can. Second, we want to meet the sustainability standards our clients set for themselves. Third, we want to reduce our carbon footprint and the impact we have on the grid. Finally, we’re facing rising gas prices in a mileage-intensive business, and we have to offset those rising costs by any means we can.”
After studying solar energy, Matthew asked four companies for bids to renovate his existing facility in Bell Gardens. All four companies came back with different proposals. At this point, he felt he needed help from someone more knowledgeable.
He turned to Howard Spunt and Gary Rochlin of Spears Construction, Inc. of Carlsbad, Calif., a full-service general contractor with over 35 years of diversified construction experience to evaluate the bids. Spears Construction recommended the Marshes hire DRI Energy, based in Irvine, Calif. The Marshes retained Spears Construction to oversee the project and act as prime contractor.
Recognizing that weight and seismic limitations on the existing roofs reduced their solar generating capacity, Spears Construction recommended the construction of solar structures to mount the solar panels to provide more electricity, offset more grid-supplied energy, and accelerate the payback period.
Spears then selected Campbell Certified steel contractors in Oceanside, Calif. to build two solar structures to attach the solar panels to.
The installation of the panels, which include a total of 1,296 solar modules, was completed in five months.
The total energy output of First Class Vending’s solar installation will exceed half a million kilowatt hours annually, offsetting more than 80 percent of the company’s annual load of grid-supplied electricity.
During the day, the roof panels collect solar energy, from which the energy is converted to electric power.
The solar array is expected to produce more than 500,000 kilowatts annually, reducing carbon dioxide emissions by over 820,000 pounds a year.
The greenhouse gas emissions avoided is similar to the combustion of 42,000 gallons of gasoline by a car, according to DRI Energy.
First Class Vending receives a rebate from the electric company based on the amount of electricity the solar system generates. It also receives government credits.
“Energy management is sound business: saving fuel, saving money, containing costs and finding savings and efficiencies anywhere it’s possible,” Matthew said. “That’s why solar electricity was such a logical choice for us. Our distribution center is a 60,000-square-foot, multi-building facility with parking over four acres. It was a great candidate for a solar installation.”
Matthew said that without the government rebates, he would not have undertaken the solar project.
He expects the solar project to pay for itself in four years. (See sidebar)
The Marshes do not know if the sustainability initiative has won business, but they are aware that customers are asking more about it. Some accounts want to know about sustainability measures in their requests for proposal. “Our customers like to see that we’re doing this,” Matthew said.
Committed to technology
While First Class Vending was an early user of DEX handhelds, Matthew was not an early believer in pre-kitting routes. They have recently begun experimenting with pre-kitting, supported by wireless telemetry.
This past year, the company also introduced self checkout markets. They have installed several such markets to date, and expect to add many more in the next few years.
Most self checkout markets have been installed in new accounts. In the two existing vending accounts he converted to self checkout, Matthew said the conversion delivered a 25 to 30 percent sustained sales lift.
“It could never replace vending 100 percent, but it’s filling certain niches.” Mathew said of the self checkout market.
First Class Vending will soon have dedicated self checkout market merchandisers.
Healthy choices improve
First Class Vending has also been a leader in healthy options. In 2006, the company introduced its first such program under the name, “Get Fit.” It has since introduced its second version, “Well Within Reach.”
The Marshes are optimistic about the program since the quantity and quality of “better for you” products have improved. The offerings are selling noticeably better than they did a few years ago.
The company has not expanded into OCS or manual feeding; it partners with other companies in these areas.
A challenging future
Being a large company has benefits in today’s vending industry, the Marshes agree. It has given them access to capital resources that has allowed big investments.
At the same time, the company faces the same challenges of all companies. The most serious one at present is cost of goods.
The product item level tracking gives the Marshes an accurate reading on product costs, which they see as very important, particularly when prices are changing frequently.
“Profits are getting squeezed,” Mathew noted.
The Marshes believe their investments in sustainable energy and technology will allow them to be profitable in the long term.
While First Class Vending has been one of the fastest growing vending operations in recent years, the Marsh brothers do not have any particular revenue goal. Their long term goal is to focus on profitability.