Who's got the quarter? Nickel and diming your way to a fortune?

  By Michael J. Herman


Bulk Business
Guest Commentary
(September 2002)
"There was a time when a few pennies meant something. There was a time when a visit to the Five & Dime store meant that you could get all your necessities for about 75 cents. Those days are long gone."

About the only thing you can buy for 10 cents today is 46 seconds of long distance. Making a living by collecting coins just isn't what it used to be. But some people are still cranking out the coin. It's called the bulk vending industry, and there is change in the air.

Put a coin or a bill into it and get a product, commodity, or service and it's called a vending machine. From one-stand gumball machines and pay telephones to ATMs, slot machines, and even turn-style tollbooths, if it takes your money and can't reach out to shake your hand, it's vending! But what's it really all about? 

The bulk vendors of America sell everything that Americans buy that costs anywhere from a penny to a dollar. Today it's more than gum, candy, and toys. Nowadays you also have phone cards, gift certificates, and movie passes. However, the core remains the perennially dispensed pieces like gum and toys.

Perhaps what would serve us best would be not only talking about the state of the industry today, but also discussing the following:

  • If I knew then what I know now. Ten Things You Should Know To Be A Successful Player.
  • Some Ways The Industry Has Changed and Continues To Evolve.
  • Developments and Trends We Can Look Forward To.

Ah, those famous last words practically roll off the tongue as though uttered a thousand times: "If I knew then what I know now." Said here not with regret, but with clear and cogent hindsight. The bulk vending industry has remained relatively the same more than it has changed. Find an item, find a place to set up your machine, and wait for the phone to ring with a customer saying, "That candy machine you dropped off yesterday is empty. Can you come back and refill it?" CU-CHING! If only it was actually that easy.

These are not the days when there was a mindset that burley gangsters were supposedly operating cash cows to feed their criminal empires. This is a kinder and simpler industry that asks a very simple question: "How do we get the coins out of our customers' pockets and into our coin boxes?" And then it asks, "How do we get them coming back for more?"

How is it that a machine invented in the late 1800s has remained essentially unchanged for 100 years? It's the simplicity. It's fun dropping a coin into a slot and getting a prize. Change the commodity, change the shape, even change the purpose, it makes no difference. Vending is fun, and it always has been alive and well. But, if you're going to be a player and commit yourself to an industry that is as American as sneaking into movie theaters, then how about 10 tips that can save you some real jawbreakers?

1. Vending is not a get-rich-quick proposition. If it was everyone with a portfolio of tech stocks would be diving in and selling IPOs on two-inch Power Ranger toys. It's a good living if you manage your business the right way, but riches come to those with patience, courage, and foresight.

The small operator has less exposure and less opportunity for the big windfall. Even if you have the best location in town, with a single machine your chances of making a fortune are unlikely. The more machines you have working for you, the better penetration you will have. This may be obvious, but so many small operators think that if they can get a few strong locations, they can retire. You have to remember that even if you do make it big, you're doing it one nickel, one dime, and one quarter at a time. Yes, you can have a huge operation like the infamous Roger Folz, but it takes time. You have to trim and prune your route like a gardener maintains a hedge. Get rid of the weak and dying limbs, and nurture the healthy buds.

2. An operator with a single stand in a barbershop is just as much an operator as someone with 10,000 machines in chain stores. The trick, according to veteran large-scale operator and past president of the National Bulk Vendors Association (NBVA) Fred Simon, is: "Always have new product. Even if it's old stuff, even if they've seen it before, if a customer sees that your machines are always being refreshed with new merchandise, your chances for success are exponentially increased. But most operators sell the same stuff year in and year out all year long. Their line is predictable. Sell what the market wants and you'll make money. Sell what no one wants and you'll go broke. That's not only in the vending business, that's in any business!"

3. Don't always do what everyone else is doing. Look for new opportunities in the marketplace. George Herman, owner of The Toy Factory in Calabasas, Calif., says, "Always look for new and innovative ways to keep your customers coming back for more."

Find new ways to do old things. The machines you're operating may be 30-years old, but how are you positioning them? If they're exactly like the ones next to them, why should a customer choose your machine? In this case, you're relying entirely on random sales. What can you do to make your machines the ones that customer's choose?

The key to identifying new opportunities in the marketplace is to think like a customer. If you're an operator, you're probably not buying much from other operators' machines so how do you know how your customers think? If you can develop a customer mindset, you can anticipate their needs and wants. If the items in your machines are not selling, then you don't know your customers well enough.

4. Streamline your operation. Whether you have one machine or a thousand, optimize the way you operate your business. Eliminate redundancy. Clean up clutter. Make your customers want to call you for information and more services that you can provide them.

Maybe you have a small route of two-stand machines throughout a regional area and maybe you can offer more. Perhaps the locations need a game, a jukebox, a soda machine, or other type of equipment. If you don't have anything else in your warehouse, chances are good that you know how to get them. If not, ask other operators or offer the location to a friendly competitor. In other words, do him a favor by letting him make the sale and the good deed will come back to you, eventually.

5. Create alliances with other operators, manufacturers, distributors, the association, and customer locations; they can help grow your business. Explain to them what you do and how you wish to grow your business. Inform them that their contribution to your success is as important as anything else you do. Invite them to support you in what you are doing and listen to their ideas.

I suggest this to you for three reasons:

  • It creates trust among adversaries and builds bridges where before there were none.
  • It frees you up from the responsibility of doing all the work all by yourself.
  • It encourages others to support you. The more people you have working with you toward your success, the more likely you are to reach your goals.
  • Remember that all things don't go right all the time. In fact, things go wrong much of the time. How many times have you been a victim of Murphy's Law? Creating alliances minimizes the likelihood of catastrophe striking and your business being unable to withstand the blow.

6. Don't overextend yourself. In the early days, it was OK to go out on a limb and take risks like buying 1,000 machines and warehousing them until you found locations. Today, with constantly changing retail laws, if you're inexperienced the risk of exposure is too great.

Evaluate what you can handle and maybe go a little beyond, but not so far that if you fall you'll crack in half.

7. Understand the nature of the bulk vending industry as well as the nature of your own business. You should know that you need inventory and spare parts. Understand that your route man needs to keep extra screws, gears, springs, tools, WD-40, and other necessities in the truck so he doesn't have to constantly be making extra out-of-the-way trips that cost you money. Redundancy and lack of planning ahead can kill a perfectly healthy operation.

A bulk vending route requires constant attention. If you neglect even a part of it, the entire business will suffer. However, if you can spot where your business is growing and are on top of emerging trends, by trimming the fat and staying lean you can be very successful in a business that likes people who stick around for the long haul. Don't fear the prospect of cutting locations that are not living up to your expectations. 

8. The business may change, but customers may not. Maybe they like what you're providing them, maybe they don't. The only way to find out is to keep in touch with your locations. When you service your machines, ask questions. Make it obvious to your customers that you care. Otherwise, when you go back to collect your money, your machines may have been replaced by another operator who did care. 

9. Keep your machines clean. Among the feedback offered by vending operators nationwide, a clean machine makes a difference. A clean display, a shiny paint job, smooth glass or plastic globes, a smooth handle, and a loose chute door free of stickers and graffiti, cause people to drop coins into the slots. "It's essentially a retail operation," says George Herman. "People don't like shopping in dirty, disorganized stores. A dirty machine is the same as a messy shop. A bulk vending machine is basically an extension of the retail shopping experience."

10. Don't be married to any one aspect of your vending business. If something isn't working for you or for your customers, get rid of it. You may have loved an item so much that you bought 10 million pieces, but if it's not selling, don't force it on your customers. If your attitude is that this is what I have, take it or leave it, then your customers will probably leave it. Sometimes you just have to admit that you made a mistake.

Give your customers as many choices as possible. There are ways to sell that mistake: mix it with a more desirable item, sell it as a double purchase, swap it with another vending operator for something he may be looking to move, or even sell it on E-bay. Just because you made a purchasing mistake, don't make that your customer's problem.

It's easy to say that things change, but it's a little harder to accept the fact that we have to change with them. After all, in the bulk vending game, without change, you're out of business. 

Here are some ways that the industry has changed and continues to evolve. In one respect, the business is exactly the way it was more than 50 years ago. It's the same concept: put a coin in a slot and get something in return. 

Although the concept is the same, it's not as easy to be successful. With a global economy and more manufacturing than ever before, you must have the most up-to-date merchandise available. I mean different stuff. There is a reason why the toys of the 1960s that used to sell for a nickel don't sell any more. Kids as young as four and five are more sophisticated and more demanding. 

They don't only want the tried and true Tom & Jerry, they want Power Rangers, Rug Rats, Hey Arnold, and Lilo & Stitch. They are exposed at an early age to more movies, cartoons, advertising, and new items in the store; that's what they want--whatever is new. The problem is that you don't know how long they are going to want it. That's where experience in the bulk vending business pays off. You've been there, done that and are using your past experiences to make better choices. You probably won't buy 10 million items that you can't sell!

Perhaps from an insider's point of view, the most obvious changed is the importance of legislative influence on the part of the bulk vending industry. As far as alliances go, the bulk vending group is pretty tight. Each year they spend between $35,000 and $65,000 on lobbyists for issues ranging from taxation and tax benefits to Internet merchandising and support of the new golden dollar coin.

I asked Maurie Much, senior partner in the law firm of Much, Schelist, Denenberg, Ament, & Rubenstein, as the legal voice of the industry, what the bulk vending industry is focusing on. 

He explained that there are two key issues: (1) state taxation and the implementation of the dollar coin.

Of greatest interest to bulk vending operators are issues dealing with money and currency. In most states, there is no sales tax assessed to a vending machine as a retail merchant. There are legislators that want to change this. For a few it might not be an issue, but for the majority of operators, even a one-percent tax on revenues could put them out of business.

Much went on to explain: "We're concerned about environmental issues, transportation and highway safety, and what the federal government does with and about our money. Look, every industrialized nation has a dollar coin or the equivalent to it. The United States is controlled by special interest groups that want to keep the dollar bill in wide circulation. As long as that is the case, we cannot hope for a dollar coin with any real certainty."

Is that of significant concern to Bulk Vending Operators? I asked Bradley Ellison, owner of Sugar Daddies Vending in Staten Island, New York, what he thought about the industry's "narrow focus" of the issues that affect the industry?

Ellison replied, "This industry is stuck between the big operators and the small ones. The dollar coin is meaningless to me in my business. My customers--my locations--are dime, quarter, and 50-cent stores. I can't get a dollar in my locations. Why should I care if there is a dollar coin? The association right now is focusing on the big dollar operators and leaving the rest of us in the lurch. It's representing only the interests of the heavy hitters."

But Richard Bolin, owner of Northwestern Mfg. Corp. in Morris, Ill., disagreed, "There's enough room for everybody. If the association and the industry can survive for 75 years, I think we can work out the differences between us. Northwestern has always been on the cutting edge of invention and distribution. We're not only manufacturers, we're operators, too. We know the concerns, because we share them."

It's not a "player's" industry any more. Anyone can enter the ring and anyone can win if they have savvy instincts and are in it for the long haul.

The most significant way the industry has changed over the years, however, is clearly the vast variety of choices of vending items available to the customer. Now a child with a quarter or dollar has a choice of everything from vending machines, video games, Internet, arcade games, home consoles, cable TV, and the list goes on. Bulk vendors are not only competing against other bulk vending operators, they are competing with all these other forms of entertainment. Where does it stop?

Here are some things to look forward to in the coming years in the bulk vending business: 

Look for operators to grow larger routes and broader businesses with a wider array of services. With the cost of initial investment coming down all the time in many areas, especially in used equipment, resurgence in coin-op amusements and commodities would not be at all surprising.

Italy McElroy, Director of Marketing for A&A Global Industries in Baltimore, Md., sees it this way: "Vending machines will become a viable method of retail merchandising. They will be present in clothing departments of major retailers, and they will grow to vend high-end items. Much like the 99-cents-only stores now selling items that retail for more than $7 at Macy's, vending will sell CDs, mini-books, jewelry, and perfume at a cost far less than at retail stores. 

"With manufacturing costs of most new machines increasing and customer demand for better quality products, the cost of operating is demanding a fee increase to 50 cents at the low end, and several dollars at the high end. The price increase will alter the perception from cheap junk to cool merchandise. In the next five years look for the $1 vend to be the norm, and the $4 vend to be no big deal."

The industry is also looking at new ways to capture customer attention. Brighter, flashier colors, interesting designs, and talking mechanisms are all being market tested as you read this.

Machines will take credit cards even for toys and candy. "We're becoming a cashless society," says McElroy. "Even if the dollar coin every gets pushed through in a serious way, moms will swipe their MasterCard before they carry coins."

Finally, we all want to know what's new and what's hot. I asked Joel Heffron, president of Mr. Fantastic Vending in Sun Valley, Calif., for his opinion. He manufactures, distributes, and operates the new self-contained Mr. Fantastic Superball machines that vend the hot superball items. He says, "Kids want what's new. This is old and new at the same time. A superball is one of the world's top selling toys. We have made it even more accessible by selling it in a handsome and stylish vending machine."

What else is new? The four-inch capsule/$1 coin vending machines that Heffron manufactures in China and distributes around the world. It takes the bulk toy machine to another level. "Instead of getting a piece of junk that sells for a dime or a quarter that breaks in one minute, we're selling 2,000 different types of toys in four-inch capsules that double as banks for the kids to save their coins," Heffron explained.

What's next? Where are we going from here? The Internet has just met the small operator. Internet cafes have been around for a while, but what about buying a gumball for a quarter on the web and having it mailed to you? Or how about sliding your American Express Card and paying for a hot dog in a food machine? Or even a frequent buyer program for gumballs, candy, food, and toys, so that when your credit card returns to the machine, it remembers what you bought last time and asks if you want the usual.

But the biggest change is coming in the way we use vending machines. Once a novelty, now a convenience, vending is making its way to becoming a necessity. Haven't enough time to drop by Tower Records for a CD? No problem! Simply stop by your handy, dandy, vending machine and buy a discounted version of the same release.

What about finance? Maybe we'll begin paying our bills at strategically placed payment Kiosks? Then there is the space issue. Who will be the first operator of vending machines in space? Certainly with all the people expected to live on the International Space Station, someone is going to want a can of Coke? 

There is one thing for sure, wherever this business is going, it will involve a lot of change--big changes, like the dollar coin and the Internet and small changes like how we'll all get along in one industry. Wherever we go, I hope we never forget where we came from and the changes we've seen.

Michael J. Herman is a motivational speaker and corporate sales trainer who specializes in making businesses run better. His daily syndicated success column "The Motivational Minute" is read worldwide. Herman's family has been in the vending business for nearly 80 years. You can reach him by phone (800)341-4901

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