Everyone complains about commissions; can we act?

April 7, 2009
Vending operators shouldn't tolerate the "R" factor and high commissions.

There are many ways technology allows our industry to become more professional. It gives our industry the ability to make giant strides as a retail channel and even surpass the performannce that competing channels provide.

One improvement that needs to be made is the transparent reporting of location sales. In April of 2007, our cover story addressed this topic under the headline: Will technology catch the R factor? Some members of the industry objected to this focus since they believe it better to ignore an issue that makes our industry look bad. But the issue needs to be addressed before we can expect the same level of respect as other retail industries.

The R factor is closely related to another major problem that needs to be addressed, and that is exorbitant location commissions. In many cases, the commission rate significantly exceeds the operating profit.

Commissions are a long established part of the business, and they arent going to disappear in one day. But operators can reduce commissions and begin a process to diminish their impact on the industry. The current state of the industry gives this challenge new urgency.

The biggest complaint we hear among operators today is that profits are hurting. Operators cannot make enough money to reinvest in their businesses.

The National Automatic Merchandising Association took a major step last year in expanding its industry ethics campaign. The tool kit that NAMA introduced is designed to support honest reporting of sales to locations. It is also designed to make customers aware of the need for honest reporting. The tool kit includes a variety of materials operators can use to help show accounts how they can identify unethical operators.

Many operators dismiss NAMAs initiative as an exercise in futility. Many feel that if a program cant provide an immediate fix, its a waste of time. This is short sighted thinking. The industrys challenges today require long-term action.

NAMAs industry ethics campaign is designed to support honest sales reporting. Integrity in reporting is an issue that is closely intertwined with commissions. Operators who are concerned about commissions, which includes most operators, should do more to educate customers about honest sales reporting. There is a lot that can be done in this area. Any improvement will give operators more opportunities to compete on a fairer playing field and at the same time improve the industrys professionalism.

In every region of the country, major contracts stipulate prices and commissions that do not allow the operator to make a fair profit. Some contracts stipulate 30 percent commission on 20-ounce bottles priced at $1.25. Some commission rates are even higher.

How are these operators able to stay in business? It doesnt take a rocket scientist to figure it out.

It would be hard to estimate the amount of money that is underreported. The problem is national in scope.

Technology provides a tool to address this situation. As with the NAMA ethics code, technology does not provide an immediate fix for every situation. But it can make a difference in many situations.

Most of the big contracts with double digit commissions are let by public institutions. In many cases, the location manager does nothing to verify the accuracy of the sales reports. In some cases, the location manager doesnt care about the accuracy of the reports, and in some cases he or she doesnt want to know the real numbers.

Operators do not have to accept this situation. Big public locations are responsible to the public. Operators can request that contracts require the location to formally report the sales. Again, this isnt a cure all, since reports can be fabricated. But it gives an outside party the opportunity to review the numbers and possibly challenge them.

Government accounts only represent a small portion of the vending business, but cleaning up the sales reporting in this segment would be a good first step in improving the industrys business practices. It would also make the private sector more aware of the problem.

Unfair commissions and dishonest sales reporting are problems that our industry can no longer tolerate. Given the recently introduced NAMA tool kit and the capabilities of new technology, the industry has the means to take corrective action.