By personally representing hundreds of operators who have sold their companies, I’m aware of the many different reasons owners decide it’s time to exit. The number one and two reasons has always been typical. Retirement and health issues. But now, 26 years after my first transaction, I find a new situation that has caused those top reasons to change: An operator’s difficulty in hiring and retaining dedicated employees who can effectively support the company’s operations.
In the past 12 months alone, out of 11 different listings for the sale of a company, five owners told me they were selling because they couldn’t find good employees. In fact, three of these owners were under the age of 50 and not close to retirement but decided they could not continue operating under these conditions. What has caused this shortage of good personnel? Let’s look at some of the reasons here.
The state of our economy goes through many changes over the years. Some are positive, like a growth scenario with high GDP, low inflation and great company earnings. Others, like recession, technological advances that disrupt traditional operations, trade wars and corporate downsizing can make it difficult to run a business. Our nation’s economic vitality of the past 10 years has benefited most industries. However, our industry is now facing a lack of good candidates along with the challenge of adapting to the dramatic changes technology has made to how we conduct business.
Although robotics and technology reduce costs in the long run, the disruption in application of artificial intelligence, computer algorithms and the internet has created a “new normal” way of living and working. Many economists and industry labor experts are suggesting that at least 50% of current unskilled jobs will disappear within the next 20 years. One might think this bodes well for service industries as there would be a huge number of unemployed job seekers. But there are societal ills like the illicit opioid drug crisis, rising health care costs and higher costs of living. These all contribute to the increasing poor employment situation for service industries like ours. Of course loss of on site employees also reduces your overall revenues.
Let’s face it. You don’t find highly educated, tech savvy or urban Gen Y and Gen Z professionals and entrepreneurs knocking down your door looking for a job as a route driver, warehouse picker or mechanic. Many of those who reply to your ads either can’t pass drug , driving or background checks, have no vending industry experience, or just find, after weeks of training, that they don’t like the wages, long hours and the hard, physical work it takes to warehouse, deliver and maintain both inventory and equipment.
In discussing employees, we can’t forget the children, or even grandchildren, of the original owners. As the majority of our industry’s companies are family-owned, you most likely have immediate family members or other relatives working at the company. I know a number of companies where the children of the original owners took over and are doing a great job. I also know of numerous clients who have complained to me that they had to sell because their children weren’t as motivated as they were and if they gave it to the children to run, the company would suffer and their retirement could be in jeopardy.
Great economy can still mean lack of good prospects
The day I wrote this article, the 2019 third-quarter jobs report was published. It showed over seven million jobs currently available. New jobs created went down about 7% in the report due mostly to the current trade wars and instability in some foreign markets. Manufacturing jobs also went down. It also said about five million Americans were actively looking for work.
With millions looking for work, why are there seven million positions available that are not being filled? This need exploring.
Many of the jobs are part-time or full-time but at lower wages. The vast majority of the job seekers are younger and better educated. They are looking for top-paying jobs, including managerial or professional grade employment. So many of the lower-paying jobs, like those in our industry, go unfilled. Also, many lower-paying jobs today are mundane jobs that may require working long hours with few breaks at fulfillment and call centers and in the fast food industry. A recent report I read showed that a call center in North Carolina, as of the time of this writing in 2019, had an employee turnover rate of 265%. That’s astounding. These are jobs that make employees feel like robots along with the stress caused by having to complete their minute to minute tasks dictated by computerized algorithms. Next time you are at a fast food restaurant, watch how employees conduct their work. At a certain franchise, I’ve noticed that the employees don’t ever deviate from the task in front of them. Instead, they listen for bells, whistles (ear plugs) and computerized ordering systems that direct their movements. This management system does not encourage workers to dedicate themselves to the company long-term.
This isn’t new, either. Henry Ford’s “Crystal Palace,” the first full assembly line for the production of Model T cars, also experienced substantial turnover. With the repetition and boredom of the automated process, the majority of employees worked there for less than a year.
Future Outlook (Industry Specific)
Most of the company profit and loss statements and payroll reports I review give me insight into the problem. Companies that have adopted micro markets, telemetry, automated warehousing and other advances in our industry have generally been able to greatly improve the productivity level per employee. They can do the same amount of business with less personnel. This hopefully frees up some capital to offer higher wages, which help keep people from quitting. Either employ these new advances or sell your company and look for a business opportunity that doesn’t require much capital expenditure and high-tech knowledge.
Another issue we have discussed here are wages. I find that most operators in urban areas pay their employees much more than their rural counterparts do. Many experienced drivers and mechanics are making a salary of $45,000 to $58,000, while most of the rural companies I look at average about $25,000 to $35,000. Of course, this makes sense as the cost of living in a city like Chicago or San Francisco is much higher than rural Indiana or Mississippi. And yet, with the high cost of living and many workers having to work two or more jobs just to pay their bills, in order to find successful applicants, all operators will have to find ways to reduce other costs so they are able to raise wages. And that’s a real problem for so many. Many of these smaller ($1 to $5 million in revenue) operators cannot afford to pay higher salaries as their bottom lines will suffer. This is another reason why many are selling their companies.
In the past, companies might enhance benefits like paid days off, 401(k) plans and health insurance to make up for lower wages. As the cost of health care and other benefits are continually on the rise, however, this has become a far less affordable option.
Showcasing job opportunities in vending
No one can expect the world to go back to where it once was. Technology and other advances will continue. Some new jobs will develop, and others will be eliminated. Service industries like ours are constantly impacted by change. Higher wages, more benefits and technological advances that make your employees’ work a little easier will keep the industry intact.
For many of you though, being a smaller privately-owned company doesn’t always give you the options you need to stay ahead of the employment curve. You need to think long and hard on what your company will look like in just a few years if you can’t make these changes. The good news is, if you decide to exit the industry because you can’t find the employees or stay competitive, the handful of good cash buyers left, in my experience, are generally paying more for companies now than they have ever paid before. The chances are you will get a fair enough price so you don’t feel defeated. You hopefully will be able to move on to something easier and more profitable. Most of my sellers who were not retiring went on to find jobs or businesses they are very pleased with, and I’m sure you can do the same.
I firmly believe that working as a route driver or mechanic (for a friendly employer) can be much more rewarding than jobs at fast food franchises or fulfillment centers. For instance, most operators are willing to be flexible enough to allow employees some freedom to employ critical thinking and other skills in performing their tasks. Therefore, talented employees should definitely consider employment within our industry. To encourage them, industry leaders and associations need to work together to help them recognize these opportunities they have to offer to them. Those opportunities will still need to offer substantial wages and benefits, however, in order to attract dedicated people.
Through consistently showcasing the benefits of working in our industry and raising wages by a small percent, we may begin to more easily be able to hire and retain quality employees.
About Marc Rosset
MARC ROSSET is founder and president of Professional Vending Consultants Inc., a specialized intermediary for acquisitions of full-line vending, food service and office coffee service companies in the U.S. PVC has represented more than 315 transactions with gross sales value of just over $900 million since 1993. Rosset has played a key role in helping to establish industry-recognized guidelines for the value of operations in our industry. He can be reached at [email protected] or (312) 654-8910.
