Iowa Vendor Excels In Rural Marketplace With Technology & Micro Markets

Oct. 3, 2016
In the last eight years, Smith Vending has invested heavily in technology and business diversification to grow its presence and exceed customer expectations.

"Why wouldn’t we do it?” That was what Rod Nester, president of Clarinda, IA-based Smith Vending thought when he was approached with the idea to place micro markets in 2013. Micro markets were unique in that they could allow for a greater number and variety of SKUs, they accepted promotions and loyalty features and they created a unique consumer shopping experience. They also epitomized the Smith Vending mindset. “We knew they were good for the customer and they were good for our business, so we had to ask ourselves ‘Why wouldn’t we do them?’” said Nester.

This is the same mindset that has led Smith Vending to become a leader in the Midwest market. In the last eight years the company has become part of a Canteen franchise, invested in a vending management system (VMS), started prekitting on paper and switched to a mobile light system, opened a second warehouse, added cashless options to many of its machines and diversified into micro markets.

All of this has been done with diligent research, a dedicated staff and a customer-first attitude.

Across state lines

Smith Vending Company was founded in 1976 by Lyle Smith in Hiawatha, KS. Smith grew his business through acquisitions into the 1980s and when Nester was hired to replace all part-time employees in 1988 the company was doing $200,000 per year in revenue.

Smith, an operator and a road musician, oftentimes left Nester to manage the business when he traveled, giving Nester the experience of managing and running routes — and learning the business inside out.
In 1989, Smith decided he wanted to grow the vending part of his business and asked Nester to stay onboard to help expand the company. Smith Vending, which was a Tom’s franchise, began transitioning from operations to sales. “We grew from Kansas and Nebraska to Missouri and into Iowa,” said Nester. “By 2008, we were doing $2.2 million in revenue in the Iowa branch.”

That same year, Smith made the decision to retire and he sold his Missouri routes to Acme Vending and the Iowa Division to Nester. Today Smith Vending services locations in five Missouri counties, two Nebraska counties and 20 Iowa counties with their territory ranging over 200 miles apart.

Early investments

Nester knew early on that he wanted to make decisions that were best for his company and his customers and so he worked under the mantra that change should always be an expectation. Perhaps that is why change came quickly after he took the helm in 2008.

In the fall of 2008, Canteen approached Nester about joining its franchise family and it didn’t take long for him to say ‘yes’. He signed up to become a Canteen franchise on Jan. 1, 2009. “I can honestly say that joining Canteen was one of the best decisions I’ve made for this company,” said Nester. “In this day you can’t survive without being part of some type of buying group and I believe that Canteen has a lot to offer, including training, internal software advice, future transitional support, and many other valuable resources for my business. It has been a great decision.”

Just two months after joining Canteen, Smith Vending also became home to another big change: technology.

In March 2009, Smith Vending invested more than $100,000 into Streamware. “I believed it to be the most comprehensive system at the time and we were already using Crane equipment, so it was a natural move to integrate,” said Nester. Though it was initially predicted to take Smith Vending 18 months to see a return on investment, the company saw one in just nine. “Streamware helped us take control again,” said Nester. “There was cash accountability and we knew exactly which products were selling. Plus, there was DEXing at a SKU level and data was coming in that we had not seen before. It took away the human error.” This information gave them the ability to make educated decisions.

The company continued to ask “Why wouldn’t we do that?” and in 2010 it began prekitting on paper and then in 2012, LightSpeed’s mobile system. The mobile system continued to eliminate human error and created efficiencies for the company.

Although Nester believed change to be an expectation and not a surprise, technology integration was a hard transition for many employees. Route drivers, who once had control over their machines, were finding that their roles were changing. With the exception of one, Smith Vending turned over every route driver and several support staff as it added more technology. Nester, however, kept his mantra that change should always be an expectation and so the company continued to move forward. “We used to do everything the old way and we decided we weren’t going to do that anymore,” said Nester. Learning from that experience, Nester believes that in order to bring about change in a company, all team members should be involved, which helped immensely when Smith Vending opened a second facility.

With the company’s territory expanding so far north into Iowa, Smith Vending opened a Denison, IA, warehouse branch in 2012, about two hours — 100 miles — north of the headquarters. Though it had the ability to be a huge challenge for employees, Nester knew it would be cost effective and the best decision for his customers and the company. “Technology is a challenge with two branches but to make it succeed you need to get all of your team members together, get input and put a plan in place from the start on how you’re going to get things from ‘the current way’ to ‘the NEW system’,” he said.

Consumer-driven change

In order to provide customers with the best possible vending experience, Nester decided it necessary to invest in machines that have capabilities the consumer wants. This includes top of the line machines that also come with cashless payment options. About 50 percent of Smith Vending machines are cashless, a high number considering where some of the machines are placed. “Cashless was actually a difficulty because of how rural some of our locations are,” Nester said. “Getting a signal is tough sometimes, but that’s where it’s important to use your relationships with your equipment providers.”

Cash reconciliation was an issue as cashless grew, too, so the company switched to using Crane Navigator to work with Streamware and make transaction reconciliation seamless.

Currently 12.6 percent of Smith Vending’s revenue comes from cashless purchases, and Nester expects cashless to grow 10 to 15 percent in the coming year. “Cashless is so important to have and if you don’t have it, you better have a reason why,” he said. “It’s key to incorporate technology because Generation Y and Millennials — the people coming into the workforce and your consumers — well, this is how they live,” he continued. “So we ask ourselves, ‘Why would we NOT do this?’ We embrace what the consumers want.”

That includes investing in trends before the customer even asks for it.

Smith Vending recently partnered to place PepsiCo Hello Goodness machines to fit a movement towards healthier lifestyles. “Our job is to provide a good breakroom experience, and that includes offering all types of snacks people like to eat,” said Nester. “But we also didn’t want to wait for a customer to ask us about healthy offerings, we wanted to be the driver of the trend.”

The company currently has placed 26 PepsiCo Hello Goodness machines, and Nester notes that they have to fit the right location to be successful. “Fitness centers and healthcare facilities tend to work well and we have a large blue collar location that supports the machine, but it really depends on the center.”

Nester said there is no written rule for whether or not the machines get traffic; that two locations can have the same demographics but different purchasing patterns. But he isn’t concerned. “You can’t force health and wellness on people,” he said. “That would drive people from vending.” Rather, he believes you offer them choices and they can make the decision.

That’s why micro markets, he believes, have been a popular offering.

Micro markets add to growth

In 2013 Smith Vending entered the micro market segment with the placement of an Avanti market. Since then, micro markets have been a large growth segment for the company. Today the company has grown to nine micro market locations and has seen a revenue increase from around $125,000 in 2013 to nearly $450,000 in 2015. They have experienced 50 percent growth each year in placement — placing three to four markets annually.

Customers like that they have food variety and the markets add more consumer engagement than vending. That is particularly true when it comes to offering promotions and loyalty features. “I enjoy that we can give customers perks in the micro markets,” said Nester. “They are rewarded for shopping with us and that is beneficial for everyone.” Smith Vending runs three to five micro market promotions per period, which last two to four weeks.

Nester says he would love to grow the micro market segment more, but it has been difficult finding locations in rural Iowa that are willing to give it a try. “Many are worried about theft,” he said. Theft has been about 1 to 2 percent in all locations. If it gets any higher, a Smith Vending staff member will watch video footage and combat the issue head-on. The route supervisor also travels to each market once a month to inventory product.

More than half of Smith Vending’s micro markets have had an issue with theft, but Nester notes that the problems stop at locations once employees are disciplined. “I think once people hear they were disciplining at their workplace for theft, they take it more seriously,” he said. Overall though, he has seen the benefit of micro markets for customers and the company and doesn’t let theft issues deter his optimism. “They are a great segment if you can deal with the challenges that come with it,” he said.

Luckily, most challenges were experienced with the installation of the first few markets, so the company could adapt. For example, integrating a larger number of SKUs was difficult until they knew just how many products would work for them. “Knowing how many salads to place and having a surplus of items was difficult at the beginning but you learn how to solve those kinds of problems as you grow,” Nester continued.
The company currently operates five vending/micro market combo routes and one OCS route out of its Clarinda branch and three vending/micro market combo routes out of its Denison warehouse.

From one generation to the next

Though the growth and success of Smith Vending can be attributed to technology integration, innovation and micro markets, none of that would be possible without a dedicated staff, says Nester. “Teamwork is huge at Smith Vending and it takes the entire team to have a victory,” he said. “The support staff and those behind the scenes are what make the company push forward each day.” Technology has enabled drivers to focus more on stocking, cleaning and interaction with the clients.

Nester’s children, Tyler and Ashilyn, are another reason he sees a bright future for Smith Vending. Since high school the two had worked in the company, and for awhile Nester wasn’t sure they would join the business full-time. But in 2009 he was surprised and delighted to learn that both wanted to work in vending. “Nothing is more humbling than having your kids want to work in the business that you’ve grown,” said Nester. “They add to the business and help keep us innovative.” He sees Smith Vending as a family business and believes it will be that way for a long time.

When he looks towards the success of his own business and the industry as a whole, Nester is optimistic. “I was given a great opportunity with great partners and great customers,” he said. To keep the momentum going, Smith Vending will continue to be the drivers of innovation while focusing on its customers.