Technology gives a way to fix blind vending programs and a new business opportunity

June 1, 2009

Last week, I received a call from a California state official who oversees the states blind vending contracts. He was seeking input on establishing guidelines for vending operators bidding on contracts that support the blind vending program. His concerns give me reason to believe that technology will be making faster inroads in our industry in the next couple of years, despite the challenging economy.

In April, I noted in this space that remote machine monitoring offers a tool for making sales reporting more credible. I was not specifically thinking about blind vending contracts when I wrote this, but this recent phone call from a California official alerted me to the role that remote monitoring can play in both improving the blind vending programs and opening up a business opportunity for vending operators. And not just blind vending operators.

For those of you who are not familiar with blind vending programs, a federal law known as the Randolph-Sheppard Act gives legally blind individuals preference in state and federal government vending contacts. The law is administered by the states.

The blind vending programs extend well beyond contracts awarded to blind vending operators. The programs have authority over many federal, state, and oftentimes local government locations. There are many sites for which no blind vending operators are available. Hence, these locations are contracted to non-blind vending operators who are required to pay a percentage of the earnings to the state, which in turn uses the funds to support programs that help the blind.

It is estimated that about half of the locations administered by state agencies are awarded to non-blind vending operators.

As with any government program, these initiatives have varying degrees of success.

The California official who called me said he is concerned about vending operators underreporting sales. We know for a fact theyre underreporting; we cant catch them, he said.

He isnt only concerned about not receiving the proper commission. Because the winning bids have usually offered very high commissions, many vending operators dont bother to bid on them. California recently received a bid that promised a 54.6 percent commission.

This official realizes that unrealistic bids have discouraged good operators from competing for them. As a result, he suspects many locations arent getting the best possible service.

While he thinks there is no foolproof way to audit sales, he believes that a set of operating guidelines would help, which is why he called me. I referred him to the National Automatic Merchandising Associations operating ratio report for realistic operating averages.

But there is an even better solution to his problem: technology.

Technology has already addressed this issue in some states and stands ready to make an impact in others.

Cantaloupe Systems, a provider of remote monitoring technology to the vending industry, has helped four states improve their blind vending programs: Colorado, New Hampshire, Tennessee and Georgia. South Carolina and Pennsylvania recently came on board.

Cantaloupe Systems reports that close to 600 of its Seed boxes have been installed in machines that enable government officials to monitor sales. In most of these programs, the states cover the cost of the Seed boxes. In some cases, they also cover the monthly monitoring fees.

David Ramsey, a blind vending operator based in Concord, N.H., was able to double the size of his business, The Lunch Place, using the Seed boxes. The purchase of the hardware was covered by the state while Ramsey covers the monthly monitoring fees. It allowed me to make that jump to a much larger route, he said. He currently services about 80 machines under blind services contracts. Ramsey said the Seed box made it easier to track his sales in addition to allowing him to expand the business.

Ramsey said he was initially interested in reducing his delivery costs. Once the Seed boxes were installed, he was able to switch to a smaller vehicle, which yielded an additional fuel savings.

Just a few weeks ago, the state of Pennsylvania issued a bid covering all of the postal facilities in that state which requires independently monitored wireless systems in all locations. With budgets tightening in almost every state, similar programs could expand around the country.

These programs are a good investment for the states. Not only do they provide independent verification of sales data to prevent underreporting, they also track service data that can be used to measure operator performance. Since the operator bidding on the contract knows the state has a way to verify the sales, they have good reason not to bid unrealistic commissions.Vending operators dont have to wait for state governments to offer them the use of remote monitoring devices. Operators can bid on contracts and note in their bids that they use the technology to verify sales.

In addition, operators need to think beyond winning bids to harness the opportunities wireless data can provide in reducing operational costs and increasing route efficiencies. Combine the two, and you have an explosive combination for better profit margins.

Many operators are cynical about bidding on government business based on past experience. Dishonest government officials and dishonest vending operators exist and have undermined what would otherwise be an outstanding business opportunities for vending operators.

But it doesnt have to be this way.

What better way to respond to these challenges than by creating a vending program with complete transparency?

Investing in technology is expensive, and todays operating environment is not an easy one. But at the same time, operators have to consider all of their options for getting more customers. The government customer base is more stable than the overall customer base right now.


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