U.S.A. - During the 1970's, when the energy crisis, persistent inflation and the waning of America's traditional, "smokestack" industries brought full-line vending's formative period to a close, operators noticed that their increasing overhead costs were making formerly profitable smaller stops "marginal" or downright unprofitable. Vend prices were not keeping up with operating and capital expenses.

Some sought to arrest this trend by taking a long-overdue look at operational efficiency, productivity and accountability. Others experimented with customer-participation programs of one kind or another, primarily "cooperative service." The first response started the industry on the road to its present vitality; the second found a role in certain niche markets. Neither brought back the "good old days" depicted in operating company ads from the 1950's, showing uniformed route drivers filing tab gum and candy machines in offices.

The challenge of the "marginal" location - often a decentralized or "downsized" workplace or a start-up enterprise - continues to confront the industry. The robust economy that has prevailed during most of this decade has given established vending companies opportunities to do what they do well, but strategically-minded observers point out that small locations are springing up much faster than large ones.

From another perspective, this apparent strategic weakness may be an illusion. Historically, start-up operations went after the business that one person could handle; naturally, these tended to be smaller sites. Encountering great demand, these companies grew rapidly in the late 1950s and early 1960s.

As they expanded, they became able to accommodate larger accounts; and, of course, some of their accounts grew along with them. The ones that didn't became "marginal" from the perspective of the mature operation, but they remained attractive to the new start-up vendor, or the vendor who chose to remain small. The account base had not changed all that much; it was the operator who changed.

Charles Cole of Kentucky Breaktime Service (Lexington, Ky.) reports that small locations can be served profitable, at least in some geographic areas. "I've been at it for about ten years in this locale," he told V/T. "I probably wouldn't do it in a big city, where labor is more expensive and the logistics are more difficult. But Lexington doesn't have much heavy industry and the large operators are all caught up with big locations. That means there's an opportunity for me."

Kentucky Breaktime started out operating the Rowe "499 Showcase Jr.," and Cole still has many of them out. In recent years, he reports increasing success with all-mechanical candy and snack venders. Three-quarters of his stops also support a canned drink machine, usually 8-select, and half of them also take his coffee service. "I tried water, too, but Lexington is not a bottled-water market," he said. Locations with a drink and a candy/snack machine usually receive a small Coffee-Inn's bill changer too, bolted to the side of a vender. He also reports great success with the new Coffee-Inn's "Café Gourmet," a 2-select soluble product machine designed for coin control at two prices.

The company has grown with many of its accounts, and is operating full-sized vending machines where volume requires them. However, a substantial part of its business remains the smaller workplace. He reports that his drivers service between 25 and 40 stops a day; accounts are serviced on whatever frequency their volume requires, from once a week to every day.

"I don't care about account population, because I've found that a place with 15 people can consume more than another place with 40. I put the machine in, explaining that it will have to move a certain amount of product or we could have a problem with stale merchandise, which I will not permit. Then I watch it; if it doesn't perform, I move it."

Approaching the question from another direction is Charles Hanna of The Hanna Co. (Lenexa, Kans.), who thinks of his organization as a "vending network." Originally a full-line vending company, it received requests for vending service that it could not meet profitably, Hanna recalls. The solution was to find smaller vending companies which could make money from clients of that sort, and refer the business to them. In speaking with those vendors, often start-up enterprises, the Hannas learned that many of them needed a reliable source of products, equipment and parts. This led the organization to form distribution units to meet those needs. And its willingness to work with smaller operators led other smaller operators to contact the Hannas for information they could not get elsewhere.

"The small location has the same needs as the large one," Hanna pointed out. "But you really need smaller, less expensive equipment to serve it profitably, and large operators have shied away. It's difficult for the bigger vendors to do - unless they network with smaller operators who want that kind of account."

Two scenarios then result, Hanna said. In one, the smaller operation is run by a retiree or is otherwise a "mom-and-pop" business by choice; the proprietor is making as much money as he or she needs, and has no interest in growing. But such an enterprise can take excellent care of its locations. In the other, the smaller operation wants to grow, and does so. It then can sell off its small-site routes to a new startup operation and continue the cycle. In either case, if the established operation is doing a good job and has helped educate the smaller one on the profitability factors in vending, it need not fear the potential competition, Hanna said.

Another benefit of doing this, he concluded, is that ignoring the smallest operators leaves them to fall prey to blue-sky promoters. The resulting outcry damages the reputation of the vending industry.

Bob Purdy of LOBO VENDING (Eleva, Wisc.), long active in the distribution of small-site vending machines and, more recently, in organizing training courses to instruct would-be operators in sound sales and management practices, has watched these entrepreneurs succeed, or fail. He believes that the key to success is planning, and spread yourself too thin."

Historically, start-up operations have relied on used equipment to keep the cost down, he said. This can work well if the operator knows what he or she is doing, and can get enough used models of the same type to avoid severe problems with multiple parts inventories and differing service procedures.

"And, as you grow, you do reach a point where you have to decide whether you want to remain a 'mom-and-pop', or whether you want to continue expanding," Purdy added. "It might be at 75 accounts, or it might be at 150, which is about as many as one person can handle." Neither decision is right or wrong, he said; it depends on the desires of the individual.

Purdy has seen large vending companies succeed with small-site operations, but not many have tried it, he added; "The full-line vendors we've worked with have set up the small-location business as an independent division, for the most part, although a few have regarded small-site equipment primarily as a way to serve satellite workgroups in their large accounts." The separate-division strategy originally was developed when vending companies branched into coffee service and found that their existing sales force did not know how to prospect small workplaces.

Some coffee service operators have used small-location vending as a tool to get new business and/or to increase sales volume in existing stops, he added. This is viable for an existing OCS firm, he suggested, but the start-up operator probably would do better to concentrate on the snack and cold-drink business, evaluate locations, and give up the ones that do not perform up to plan. With 75 or so solid accounts, the operator then can go back and sell additional services.