For vending and onsite foodservice operators: Some good news and some bad news.

You are in a self-service business. There are three big questions for you to consider:

1. What exactly do my customers expect when they shop at my vending machines or foodservice operations?

2. How well is my company doing in delivering a great shopping experience?

3. What else do my customers expect and how can we deliver on those expectations?

It’s been a tough business climate for vending and onsite foodservice operators in 2008. Along with the bad news, there is good news. Let’s look at what’s going on – good and bad.

First the bad news: The U.S. economy is not doing well. All of your costs are up. Gas prices, while down recently, are well above what you budgeted for as you planned for 2008. The products you’re buying are increasing in price. Let’s not forget that your suppliers are also facing increases in their costs.

Sales are flat or even down for the past few years according to industry reports. The people shopping at the sites you serve are also feeling the economic pain. They’re cutting back on what they spend. The decision-makers at the locations you serve have become even more resistant to price increases.

What this means in your business: Sales growth is tougher than ever. Costs are up. This is the toughest economy for the food industry in many years – especially so for vending and onsite foodservice operators. It’s going to take new solutions to get out of this situation.

For vending and onsite foodservice operators: Some good news and some bad news.

Despite the bad news – there is some good news hidden within the bad news: There are opportunities you can capitalize on – if you recognize what’s happening and understand how to capture more transaction. Economic reports indicate that people are driving less. They’re making fewer trips and driving fewer miles each week. That means that there will be more people staying at work for lunch and breaks. College students going back to school in the fall will have less discretionary cash to spend. Their parents won’t be able to give them as much extra money as in the past. That might mean a cutback in late night pizza delivery orders. What new and different things are you doing to offer more late night snacking choices?

Technology is changing the way we all shop – presenting an opportunity for you to enhance your service to your customers. In many other convenience food shopping situations, we’re seeing technology applied to deliver new customer service applications and improved service. Kiosks in convenience stores allow shoppers to customize a sandwich or salad order. It saves time for the service staff – no need to take orders from each individual shopper. It simplifies the ordering process and absolutely eliminates errors – the customer sees a screen summarizing what was ordered and can change it if necessary before finalizing and approving the order. Supermarkets are doing the same at deli service counters – to eliminate the long delays and frustrating waiting periods until your number is called.

What this means in your business: Technology is perhaps the biggest opportunity for vending and onsite foodservice operators. This is more than route management and demand management software applications. Those cost savings benefits are real and can deliver a meaningful productivity gain on your bottom line. If you think about in terms of a restaurant – those are “back of the house” systems. Those applications are very important and are tools every vending and onsite foodservice operator must address immediately.

But the unrealized opportunity is in the “front of the house.” How do we make the vending machines and service counters better shopping environments?

We saw a new perspective on how technology is being applied in consumer marketing – for retail locations. At the Self Service & Kiosk Expo we saw the latest and greatest in new kiosk technology. More about what this means for vending and onsite foodservice operators in my next posting.

September 23, 2008, 10:30 am

When I joined The New York Times, a couple of things surprised me. One was the collegiality of the newsroom (let’s face it, everyone expects this
place to be a snake pit). Another was that a vending machine candy bar costs $1.25. Yes, $1.25. At other places I’ve worked, the same item typically would have been 75 cents. That’s an increase of 67 percent! I’ve been wondering if the mark-up is simply because of higher New York prices; before coming to The Times, I had worked mostly in Washington. (By the way, I’m temporarily working from the newspaper’s Washington bureau, where a candy bar costs 75 cents.)

My leading theory, though, is that unlike most vending machines, those in The Times’s New York office take prepaid debit cards. Pretty much any food item on sale in the New York building — through the cafeteria or the vending machines — can be purchased through FreedomPay, a cashless card system in which employees and guests pay with the swipe of a prepaid card. I wonder if the resulting absence of cash from the transaction makes buyers less sensitive to pricing.

We’ve already put the money on our cards, so it feels like a sunk cost; and besides, we aren’t physically fumbling around for nickels and dollar bills, so we’re missing the tactile cues that make us conscious of how much we’re spending. Credit and debit cards have been known to make people more footloose and fancy-free. And studies have shown that the installation of E-ZPass, an electronic, cashless toll system, has led to higher tolls.

Then again, maybe the vending machines I’d previously battled had unusually low prices. So I’m hoping you all can help me unlock the mysteries of candy-bar economics. Some question for our readers:

(1) In the vending machine nearest to your workstation (if there is indeed such a machine), how much does a standard-size Snickers bar cost? How about a bag of chips? (Leave convenience stores, pharmacies and cafe aside; their prices should be higher because these establishments have higher overhead costs.)

(2) What city do you work in?

(3) Does your vending machine take credit or debit cards of any kind,
or is it cash-only?

COMMENTS by Tom Britten (the vendor defender)

I was bothered by your vending machine cost comparison direction to “leave convenience stores, pharmacies and cafe aside; their prices should be higher because these establishments have higher overhead costs”

With all due respect to your well established expertise in economics Catherine, maybe, you could use a little lesson in the seldom understood field “candy bar” economics.

The vending business is a “buy it by the mile sell it by the inch” business that involves huge numbers of small transactions over wide distribution areas. This involves precise logistical planning and management of how candy bars are moved, especially in metro areas such as New York and Washington. This required micro distribution of products is in itself a major overhead cost unique to this industry.

Vending companies don’t manufacture the products they sell, they merely purchase and resell, and accordingly they are allowed only a small mark-up over prices changed by Hersey, Frito, Pepsi and the like.

In reality, the manufacturers set the price of the candy bars, the vending company does not.

The skilled service people who replenish the machines when candy bars are sold are well paid career employees with medical insurance and full benefits. Compare that to convenience stores, pharmacies overhead costs.

You ask why prices for the same candy might be different from Washington to New York. Accommodating credit card purchases of candy bars does in some cases increase sales; however, the cost of telemetry and credit card company’s transaction fees negates any bottom line effect. Your theory, relating higher selling prices to the availability of cashless purchases is flawed. The most-likely reason is the commission on sales that your vending machine company pays to your employer.

I suggest you add this to question for your readers: How much less would a candy bar cost if the vending company didn’t have to pay a commission?

Tom Britten (the vendor defender)

Tom Britten
 Analyst . Intermediary . Consultant
3922 Bubba Drive, Zephyrhills FL 33541
Phone 813.469.5437
Fax 813.783.7908
E-Mail tombritten@msn.com