Canadian Vending

Features Business Operations
Technology And Your Bottom Line

Efficiency, accountability, cost control and accurate, timely reporting


March 11, 2008
By Mike Gron

Topics

Efficiency, accountability, cost control and accurate, timely reporting.

march-2008Efficiency, accountability, cost control and accurate, timely reporting.

These are no longer just catchphrases; they have become essential for today’s vending operator to succeed in a competitive business environment. As the Canadian vending industry continues to move forward into a new era, it’s time to realistically ask the question: Does technology hold the key to tackling vending’s unique challenges?

A number of articles in this publication, and others, have laid out various success factors and guidelines to surviving in this rapidly evolving vending environment. Regular readers would have seen a range of diverse proposals, from focusing on your existing customer base, to organizing and analyzing your sales and location data to creating a culture of accountability for both management and staff. 

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These are all excellent ideas and would be considered fundamental building blocks for any successful business. But it is important to note that none of these ideas works independent of the others.

For instance, if an operator decides they are truly going to focus on customer service, they must be willing to create an environment of accountability within their organization in order to address those instances where they find their customer service program is coming up short.

Additionally, operators need to put in the time to effectively analyze their operations. Do you know how often a given location is serviced annually, how much revenue is generated each time that machine is serviced, the number of empty SKUs prior to refill or the average number of days that a piece of equipment is out of service per year?

Without that type of legwork it is hard to argue that any organization is truly focused on customer service.

The good news is that the tools to do the necessary analysis do exist, and the variety of options available means it is possible for almost any operator to tackle what may seem like daunting challenges ahead.

However, the primary obstacle to implementing these tools remains the associated capital expenditure. Whether it’s an information management system, a newer, more reliable piece of equipment, a hand-held route management device or a cashless payment system, there is almost always an upfront cost, and in many cases a significant one. 

So what is the argument for making such an investment? After all, you could just take that money and buy more machines, and as long as they are out in the field they are making money – right?

A Numbers Game
As of late the Canadian vending industry’s focus has been set solely on combating what is perceived as an “anti-vending” sentiment inherent in many of the healthy vending programs implemented, or proposed, in almost every jurisdiction across the country.

A number of vending operators, suppliers and industry advocates have spent countless hours trying to educate policy makers, in many cases clearly illustrating the shortcomings in many of their proposed programs.

In fact, the vending industry has always supported the idea of playing an active role in promoting healthy eating and lifestyle programs, only asking for a level playing field in return.

There is no denying that most of the healthy vending programs we have seen implemented by various levels of government are more about politics and pandering than they are about the well-being of consumers, but the fact remains there is simply not a “level playing field.” Vending is at significant advantage to its competitors in the other industries.

That’s right – the field is clearly slanted in the vending industries’ favour.

This line of reasoning may fly in the face of current industry sentiment, but the numbers certainly seem to support it.
If you take a look at the annual retail and non-retail trade figures collected by Statistics Canada you will see vending’s gross margin, or return-on-sales, averages roughly 52 per cent. Well, those are figures an average grocery store or convenience store manager could only dream of.

Stats Can reports gross margin for grocery and c-stores averaged 24-26 per cent for the same period; roughly half that of the typical vending operator.

But if we take a closer look at the Stats Can report we see that retailers in the grocery and convenience chains reported operating expenses at roughly 20-22 per cent of operating revenue, whereas vending operators reported operating expenses averaging 47 per cent of revenues over the most recent three-year period (2003-2005).

Certainly part of the reason for this discrepancy can be attributed to the structural differences between the industries, but it also suggests there is room to make some sizeable improvements to the bottom line of the typical Canadian vending operation.

Reason For Optimism
It could be argued that the sizeable head start that the vending industry has traditionally enjoyed in terms of gross margin on sales has done it somewhat of a disservice in the long run.

While other competing retail segments have worked diligently to keep a very tight rein on their operating expenses in order to maintain a modest profit in the three to four per cent range, vending has, for the most part, stuck to the same operational model for decades and has still been able to return pre-tax profits averaging closer to five per cent. 

So how can vending begin to leverage those structural advantages?

Instead of focusing solely on the revenue potential of a given location or machine, why not expand that analysis to take into account the costs associated with generating each dollar of revenue from those machines?

Almost all operators set out a sales target, or even a payback model, for their locations but how many operators can say they have realistically set targets for gross margin, operating expense, inventory turnover and profitability, not only for the machine, but from the various categories and products they carry as well. 

Does all that work really make a difference?

Consider the fact that with operating expenses running nearly 50 per cent and operating profit of roughly five per cent; a two per cent reduction in operating expenses would add another 20 per cent to your bottom line profits. 

When put into this context it’s easy to see why convenience stores, and other retail segments, have invested so heavily in technology applications; both on the hardware and software side.

So, despite the fact that a remote monitoring system, an information management application or a hand-held device does not directly generate revenue it almost always has a more dramatic effect on a vendor’s profitability than an equal investment made in additional machines. 

Opportunity Knocks
Any vending business that hopes to put a dent in its operating expenses first needs to understand the importance of its
operational costs and margins, and their effect on profitability.

And second, it needs the tools in place to make it happen.

Fortunately, the tools necessary to address these challenges are readily available. Virtually every major North American machine manufacturer has been outfitting its equipment with DEX technology for the better part of a decade and both Crane and MEI have been offering hand-held devices to capitalize on that DEX data for nearly as long.

And, although both the Crane and MEI suite of vending management solutions have traditionally been aimed at larger operators running 10-12 routes and up, there are numerous other applications designed for small to mid-size operators as well.

For instance, Cantaloupe Systems’ Seed remote machine monitoring system is now installed and reporting from more than 12,000 machines across North America, empowering operators with capacity to take control of their operating expenses.

Beyond that, there are also a number of proven payment and management solutions available from other market leaders including Vend Sentinel, USA Technologies, E-secure Peripherals and C Star Technologies, to name a few.
So does technology hold the key to tackling vending’s unique challenges?

Clearly it does and now is time to begin the due diligence process. All of these technology providers have staff on hand dedicated to educating the industry about the benefits and features they offer.

Take a look at your own cost structure and determine the best course of action to address the areas that require attention.

And, as always, keep an eye on that bottom line.

Mike Gron is president of e2wireless Ltd. in Calgary, Alta. The company is the exclusive Canadian distributor for the market-leading Seed Remote Monitoring System. To find out more about its remote machine monitoring tools operators can visit www.e2wireless.ca or contact 403-233-7413. To read recent Seed partner profiles, operators are encouraged to visit www.cantaloupesys.com/profiles .