Vending Visions: Fall 2013
By David Murphy
Optimizing vending profits - Advice on prime locations, placements and bringing prices down
By David Murphy
There have been a million and one changes to the vending profession
throughout the last few years, but even so, two things have remained the
same: product placement and purchasing.
There have been a million and one changes to the vending profession throughout the last few years, but even so, two things have remained the same: product placement and purchasing.
As we delve into these aspects of the industry, it’s wise to keep in mind that over the last 10 years three major things have changed our profession. First is the decline within the manufacturing base. When the 2008 recession began, thousands of manufacturing facilities shut down while others were eliminating staff by roughly 50 per cent. This forced some creative adjustments in our profession. Second, there is the government intervention in the public sector, not investigating but regulating what young adults should purchase in schools. The result? Now they just walk, car pool (drive by a secondary school sometime and check out the student parking lot) to the nearest fast food outlet or variety store. Last, the margins that operators now have to work with have changed. The last few years of operating a vending business have been a challenge, but many have made the necessary adjustments.
First there’s product placement, otherwise known as your moneymaker. The goal here is to capitalize on impulse purchasing. For example, why do small variety stores right up to large national grocery chains put the staple products (such as milk and bread) at the far end of the store? These products are the least margin products, but are in every household. When you walk to the back you pass hundreds of products that are much more profitable than the necessities you are en route to. Just think how many times you have purchased something extra while just stopping in to buy milk or a loaf of bread.
Machine placement is also critical with water, coffee, snacks, cold drinks, food and then microwaves (in that order). This placement provides higher margins first with impulse purchasing, leaving lower margin foods on the end and non-profit microwaves last. This has not changed since the inception of vending.
Similarly, product placement within the snack vendor is important, but not as critical. Bagged snacks should be at eye level since their margins are decent, keeping chocolate and other related products near the bottom with limited shelf space. All in all, different markets call for different products, and anything new should be visible with a notice on the machines. Bringing in new products shows your interest in customer satisfaction.
Purchasing is a key part in making a profit in vending. Operators are very aware of product cost and have used several tactics to increase their margins. Research shows that small to mid-sized companies can gain purchasing power in the short term by taking advantage of the many specials available in the marketplace. This can be accomplished in different ways.
One way to gain purchasing power is to join buying or purchasing groups – there’s some in every industry for both public and private sectors. Buying groups can be beneficial for most businesses. Some will cost and others won’t, but always remember somebody other than the supplier is making a profit from you, so do you really need a third party taking another piece of the pie? My dad always told me nothing is free in this life. I believe that with many specials in the marketplace, operators are better off taking time to purchase product specials on a short-term basis.
I now see chocolate items that were 85 cents on sale all the time for 62 to 65 cents. Items close to code have a lower cost. Work with a local wholesaler such as Costco, National Grocers or Vending Products, just to name a few. These companies run specials in flyers and on their websites that will inform you of upcoming sales. On the plus side, when you do your own purchasing versus through a supplier, the savings come right off of your invoice and you don’t have to wait for a rebate cheque! Like you, product manufacturers are working to gain market share, so don’t limit yourself to one supplier because complacency versus product negotiations can result in higher profits.
At the end of the day, I cannot stress enough the importance of education. Educating yourself on everything from customer requirements to equipment to products is very helpful. Every minute you research all of the above will eventually lead to healthier margins. Choose your path wisely, and remember a dollar is better in your pocket than in someone else’s.
David J. Murphy has more than 35 years’ experience in the foodservice industry. He is currently working as a specialized broker for vending and office coffee companies. Contact Dave at email@example.com, by phone at 519-428-8428, or visit his website at www.davidmurphy-consulting.com .