All that talk about small locations being profitable is just that - a lot of talk. It's the same old song and dance they've been handing us for years. Everyone knows you can't make money at a small location. Or can you?

There's no denying that the small location market has potential. U.S. Census figures indicate that over half of all employees work in locations with less than 100 people, and considering the way companies are continuing to downsize, this number will continue to grow.

Despite the potential, many operators remain skeptical. They've tried servicing small locations using the same equipment and route service as their regular accounts and it hasn't been profitable. Therein lies the problem - small locations can't be treated like a full-size account and be profitable. Small locations require different equipment and, in turn, less frequent route service in order to make money.

The biggest stumbling block for many operators has been equipment. There are numerous small location machines available, ranging from table-top units to combination glass fronts. Finding the one that will work best largely depends on the size of small location you want to serve.

What size is a small location? Everyone seems to have their own definition, but the general range goes from a low of 20 employees to a high of 100.

Bob Purdy, president of LOBO VENDING, defines a small location as having a minimum of 20, but no more than 60 employees. "You can make money in small locations (of this size) if you don't spend too much on the equipment," said Purdy.

A 20- to 60-person location is the target size for his stand-alone, non-electric, all-mechanical equipment. With all-mechanical equipment, though, there will be a trade off. "Our equipment is moderately priced, but it isn't an electronic whiz-bang," he said. "It's kind of like the difference between a Mercedes and a Chevrolet. Both get you down the road, in varying degrees of comfort, except one costs $48,000 and the other $18,000."

"Around 60 employees you start losing control of the location. Once an account reaches this size you need some of the scaled-down electronic models that are more secure (heavier) and have bill changers," he said.

Tom Edwards, vice president of marketing at Crane National Vendors, agrees that 50 employees is the point where a glass front machine should be considered. "It's difficult to generate the kind of return operators are used to with less than 50 people (with a glass front.)"

For accounts with 20 to 60 employees, "you're not going to earn $4,000 to $5,000 per unit per year. It's more like $1,700 to $1,800 per unit per year," said Ed Klein, United Vending Group, Bloomington, Minn., whose company serves locations with 20 to 50 employees. He uses a 27-select snack machines and 8-select soda machines. "I don't think you can viably put a piece of equipment on site that costs over $1,000. I don't see any applications for large electronic machines," he said.

Mechanical snack and cold drink units generally cost around $1,000 or less and provides a starting point for OCS, honor snack and other operators at a relatively low cost. And as account populations and their demand for services grow at the low end of the small location spectrum, the equipment is a good way to scout out potential and grow with a location.

Gary Freyden, Super Snacks, Brockton, Mass., for example, started as an honor snack operator, but soon found himself purchasing small location equipment. As some of these accounts grew, he saw the opportunity to grow with them, so he got into small location vending. He currently has about 150 mechanical snack machines, most of which are 27-column units. He believes that an 30-person account is about the size for this type of small location machine.

Freyden was looking for units that were easy to operate and maintain. He likes the individual coin mechs since he doesn't have to build up a service department to take care of them. "These coin mechs are so simple. It takes about two minutes to change prices on them."

In terms of placing machines, Freyden said that it's a trial and error process. "Sometimes you have to move the machines around because it's just the wrong location. At others you get to grow," he said.

"It's a process of building," agreed Rich Plodzien, A-1 Vending, Waukegan, Ill., who uses mainly table-top equipment. At one Arlington Heights account he started with a nine-select machine and found that he needed to add another nine-select unit as the number of employees grew. Soon he will be placing a 20-select unit, with four times the capacity and a separate coin changer, at this 40-plus person location.

"There's a lot of leeway in this, so you have to be careful when looking at you customer demographics," said Plodzien. A larger population doesn't necessarily mean higher purchases.

Plodzien found one 84-person office site that he thought for sure he'd have two machines in. He started with one machine, but soon found that the account only did about $5 per week, even after trying every snack combination possible. On the other side of the coin, he has a 6-person location that empties the machine every week.

George Canar, Canar Beverages, Richmond, Va., an OCS operator, started in small locations in much the same way as Freyden. He saw the opportunity to grow with some of this accounts and began placing primarily five-select mechanical can drink venders. For these units, Canar said he likes to have a population between 25 and 45 people and wants around $100 per month to be profitable. "For a location with snack and a soda you of course want more than $100 per month," he said. He has about 121 can drink machines, ranging from small LoBo units to full-size Dixie-Narco and 121 table-top snack units. He currently services about 200 locations, most of which are small, 50 of which are large.

As far as finding the right location, "you're more or less moving equipment around until you find the right niche," Canar said. He's had one location for four years without changing equipment, but there are a lot of other locations who can't hit his $100 per month target.

One drawback of mechanicals is that they require customers to use the correct change. "Bill changers can increase sales, but they cost about as much as a snack machine, so they're not an economical option." Klein said he's found that at a small captive location customers remember to bring the correct change.

Freyden, however, offers his customers a change bank that the secretary holds to make change for employees.

Mechanical table-top snack units can work in certain small locations for some operators. The units are fairly inexpensive, typically around $300 to $400, providing a low entry cost.

The main advantage of this kind of mechanical unit is its affordability. They cost about one third of the average electrical," said Roy Berkman, president of Snak-Stix, which supplies mechanical units.

However, many feel that it's not possible to make money with these seven-to-nine-select units because they don't provide enough variety for the customer.

"In small location vending, there is a high failure rate because people will buy six-to-nine-select units, which can't offer enough choices, and you have to service them far too often," said Klein.

"You spend so much time on service that you can't make a profit. These units are okay for people who don't want to do a lot, but if you want to run a business, you'll need a larger unit" he said.

One operator who agrees that it's difficult to get started with table-tops is Plodzien. He currently has a total of 70 machines, most of which are table-top snack units, and is just starting to see signs of profitability after two years. "You have to have enough equipment out there to see a good return on investment," he said. "Be prepared to have enough capital - $20,000 just won't do it," he said. "I'm still not making the same as I would if I worked for someone else, but I'm seeing the light at the end of the tunnel," he said. "It takes a long time to get started.

"We are in a society that demands more. More selections, more variety, more choices. It's more difficult to achieve good ROI with table-top equipment given the limited selections," said Purdy.

You also have to look closely at the type of location, according to Edwards. "In the general service industry, people have a higher degree of education and greater access to the equipment given the nature of their jobs," he said. Their needs are more diverse since they don't have a set break schedule and can go to the machine several times a day.

"A large number of these locations have less than 10 people. You can't place and service a table-top unit there, so you have to look at the type of place these locations occupy - high rise buildings, and three-story offices. You don't put a table-top unit here, rather a full-size machine to service a nucleus of businesses," he said.

While table-tops may offer limited selections, they can pave the way for placement of a larger mechanical or full-size electronic machine.

Canar said there is a market for both kinds of machines. "You have to work them hand in hand," he said. "Get in the door and then work with them. Grow with them. Otherwise someone will take that account from you." For example Canar had an account that was using two small compact soda units. He was eventually able to move them up to a full-size soda machine. "It's easier to upgrade the account (to a larger machine) than to downgrade to a smaller unit," he said.

In the past year, the major manufacturers have all come out with reduced-selection and combination machines aimed at locations with approximately 50 to 100 employees. These machines bring the benefits of their electronic options and combined features to small locations.

Canar placed a 24-select Rowe 591 machine at a location with about 50 people, and saw his sales jump. The location has a full-size, 8-select soda machine, but previously used a table-top snack vender. "It's impressive how sales jumped," he said. Including drink revenue, sales nearly doubled, increasing from $363 in February to $649 in March.

A variety of combination units are available - snack/soda, snack/soda/hot beverage, snack/cold food, snack/frozen food. The principal advantage of these units is that they can provide additional sales at a lower investment cost than placing two separate machines. "A combination unit is an economical way to satisfy customer needs with a good variety of products in locations with limited floor space. They allow an operator to generate higher volume levels than using one type of machine," said Edwards.

While electronics and combination units can increase sales, they cost more. Depending on the type of unit and how it is configured, an operator can expect to spend between anywhere from $2,000 to $5,000.

Many operators feel the higher cost of these machines makes serving small locations prohibitive. To save money, they'd prefer to place an old machine on location. But while an older machine may reduce costs in the short run, manufacturers emphasize that operators need to view small locations in the long-term.

"Price is only an up front issue," said Len McElhaney, senior vice president of sales, Automatic Products international, ltd. "If you're going to invest the money, you should invest it in something you can use again down the road."

"You have to examine the long-term objectives of your program," said Edwards. "You shouldn't think in terms of how low an entry cost can I get," he said. Operators who do will ultimately pay more by minimizing their entry cost than by accepting the fact that (small locations) are a long term proposition and making that investment up front,"he said.

In an effort to overcome these cost objections and encourage placement in locations that have traditionally been viewed as unprofitable, Frito-Lay and Hershey, in cooperation with Automatic Products, formed the Alliance program. The program made 4,000 Automatic Products 32-select machines with coin changer and bill validator available at a reduced cost. Operators in the program are to place the units in locations that have previously not had a snack machine.

Although participants are in the process of generating hard numbers, initial reports from operators involved in the program are favorable.

"It's opened up a totally new category for us," said a program participant who wished to remain anonymous. His company had primarily focused on large accounts before entering the program. "It enabled us to present a situation where we were able to negotiate a program with little or no commissions and place snack machines at locations that weren't quite good enough to have them previously."

"The customers are real excited to have this opportunity and all the accounts have stuck so far," he said. "We're in the process of doing the P & L statements to see if they will continue to stick."

Bob Cynowa, J.D. Munch Vending Co., Romeoville, Ill., said the biggest plus of the program was the subsidy for the machines. "There's a lot of applications for this type of unit," he said. So far, Cynowa has placed machines at accounts with 19 to 50 employees. The 19-person account, an equipment service center, has kept product flowing through the machine. "There's quite a bit of customer traffic in addition to the employees. You just never know what accounts will do well," he said.