Vending Management Opportunities, What is Vending Management?
You get a call from a vending management company asking if you’re interested in servicing a client at a location in your area. Sounds like a good idea to add top line growth to your company. Is it? There are a number of factors to consider in making the decision to engage with the management company before you accept the opportunity.
What is Vending Management?
Many large nationally located companies utilize the service of vending management companies to structure their refreshment programs providing a uniform look and feel to the program across all of their locations. From AT&T and HP to 3M and Home Depot companies outsource their refreshment programs as they similarly do for facilities management requirements.
The services provided may include vending, micro-markets, pantries, office coffee service and in some instances manual feeding facilities. The client is usually interested in making sure all of their employees are receiving the same benefit in Boise as they receive in Shreveport. A quality refreshment program provides an employee benefit that has proven to help improve morale and productivity keeping employees on site and satisfied with either a beverage or a snack during their work day.
In exploring the topic of vending management the first thing we need to do is define “vending management”. Many if not most large operators are familiar with managed business. They either have managed business in their portfolio or have had it in the past. As it pertains to this article, vending management is the opportunity to service the client’s needs at a site that is subcontracted by the holder of the master contract to a subordinate operator.
The operator who accepts the subcontractor responsibility has to agree to the equipment line up required, the specific planogram specified and the pricing structure specified in the master agreement. In addition the master contract holder will require a commission be paid by the subcontractor to the master contract holder who in turn will pay the client as required by the master contract. These contracts are generally written for a period of 36 to 60 months and may be renewed or rebid at that time.
The subcontractor will generally be required to provide liability insurance that indemnifies the client as well as the master contract holder in the event of any claims. Subcontractor agreements vary with commissions based on gross sales or may be based on net sales after taxes. It is important when the operator does his analysis to properly and accurately calculate forecasted commissions in order to evaluate the benefit of this added business.
Operators of all sizes employ sales people to proactively seek out local locations that may need service. In some cases it is a full time sales rep(s) and in other cases it may be the owner him or herself who is selling. Management companies operate on a national basis and their sales reps are soliciting business across the country. Often referrals are used to build a book of business. The quality of this business, directly held or managed 3rd party, often determines the overall value of an operators business should the operator look to sell at some time in the future.
The valuation factors for operating businesses are many and include:
How much of the business is under direct contract?
How long do the contracts run?
How old is the equipment deployed?
What are the average sales prices for products?
What are the average commissions or rent paid to the client?
In making the decision to accept managed business the operator has to consider a number of things in order to evaluate the opportunity and the value that specific piece of business brings to the operator. Managed business is an effective method to build sales volume but the operator has to not lose sight that this business should be in addition to a book of core business.
The factors to consider include:
What are the projected sales at the location based on the stated number of employees on site?
How much equipment is required and is it already owned & available (previously located) or does it need to be purchased?
What is the pricing line up at retail?
Are there any items required that are not stocked currently by the operator and have to be brought in?
Is the location in the standard operating geography of the operators company?
What are the anticipated commissions required to be paid to the contract holder?
Does this opportunity include office coffee or a micro market potential (margin enhancers)?
If there is a market is it a brand currently deployed by the operator?
As you can see there are many factors that go into the decision to agree to service an account where the master contract is owned by a management company. If the operator has equipment on hand that is not deployed and the pricing / commission structure make sense, managed business can be a great way to build the top line and add to the bottom line as well. If the operator does a good job for the contract holder additional business will likely be offered in the future but always remember that this business is not owned by the operator – it is owned by the contract holder.
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