CHICAGO- Operators at this year's National Automatic Merchandising Association convention gathered for an informative panel discussion on how to profit by serving overlooked customers at small locations.

J.E. "Eddie" Hicks, the moderator of the panel, began by noting that corporate downsizing is not yet over, and this ongoing process will result in more and more smaller locations that can become important sources of revenue to the vending operator. He asked the panelists to give a brief description of small-location potential.

"Opportunity abounds in small-site vending," said Juliana Benedick of Automatic Products Co., a wholly-owned subsidiary of Automatic Products International, ltd. "Picture a Manhattan intersection with offices on each corner. If you put small machines into those offices alone, just think of the opportunity."

For those not located in major cities, opportunity awaits in strip malls, foodservice operations and office parks with numerous small offices within a confined area, she added. "New equipment is coming out for small sites with smaller foot prints," said Benedick. "And, with the downsizing of corporate America, there are tens of millions of smaller locations. Be a little imaginative; look at non-conventional locations."

Bob Purdy, president of LOBO VENDING, is a 19-year vending veteran who operated 450 small-location vending machines at one time. His company manufactures small-location vending equipment. His advice was for the operator to set parameters on what a small location is, be it less than 100, less than 75 or less than 50 employees. From there, the operator must determine what return on investment is acceptable and what equipment can help achieve that figure. "It's a tradeoff, because you're going to have lower sales with smaller sites, so you need to look at the cost of equipment," he said. "Mechanical equipment has a more attractive price point."

Donald Hamre of Automatic Food Services provides his customers with full-line vending, OCS and catering. "We look at accounts with 75 and fewer employees a lot more than we used to," he said. "We go to the location and talk with the manager, and boil it down to how many are full time, what their work schedules are, if there are sales people in and out. Then we look at the equipment and the criteria to achieve our returns." Hamre will only take a small location on as a customer if he provides all vending services. He added that his company charges more per product in small locations.

Panelist Ed Klein of United Vending Group is an independent business consultant and freelance writer who works for a franchise group serving small locations. "The mindset of a person servicing a full line of machines may be different than the attitude you need to service smaller accounts," he said. "If you service large accounts and you're thinking of going into smaller locations, you might want to set up a separate division to handle the mechanical equipment." Klein said that United Vending offers custom menus to small sites. "It's great for us, because they tell us exactly what they will buy, and they love the personalized service," he said. And many small accounts grow into full-line locations over time.

A member of the audience told the panel that he has a full-size snack machine at a fairly new account with 40 people, and that he is disappointed to see that it makes only $200 per month; he asked for suggestions.

Purdy recommended he give it five or six service cycles and be patient for the vending sales to pick up. He also told the operator that he could minimize staleage by using equipment with a smaller product capacity.

Klein told the operator that $200 is a decent start, and that he must get closer to the actual end user to fine-tune the product mix. "There's obviously something in the machine they want; they're spending $200 on something," he said. Analyzing exactly what sells, and how quickly, may suggest menu changes - or demonstrate that a different machine is needed.

Hamre said that it pays to place a full-size machine in a small site only if the equipment is on hand and would otherwise be idle. He advised against buying a full-size machine for a small location. "You can make $1,500 a year at some small sites, and $15,000 a year at others," he said. It's hard to predict a number because it varies; this comes with experience. You usually need to start with small equipment to make it work."

Hicks asked the panelists how to determine service cycles at small locations. Purdy said that, in a location with less than 50 people, he recommends service every six work days. "I'm a believer that we're not in the vending business," he said. "We're in business to provide service to people."

An audience participant commented that he finds full-size venders too large for many accounts, while small machines have to be serviced too frequently. Benedick advised that operators strategically place small-site machines at locations near one another to streamline service and increase efficiency.

Klein commented that tabletop units with seven to nine selections often do not offer enough selection for the '90s consumer. "America is about choices," he said. "We didn't need a mega mall in Minnesota, but people want it." He also cautioned operators to investigate potential accounts closely before incurring the time and expense of placing a machine. "They could tell you there's 50 people, they're all hard-charging guys, they eat candy all day," he said. "It sounds great, but then you find out they're in the field all day. Some accounts don't turn out what they promised to be."

An operator disagreed with Klein, stating that seven -or nine-select machines can be profitable at small sites. "You can make money at small sites with smaller equipment, as long as they're near each other and you service them yourself," she said. "If you have to hire a service person, you can't make money. I barely break even if I hire my kids to help."

"I still think you need a 24-select snack machine and eight soft drinks," replied Klein. "It's too hard to find those accounts that will settle for less."

A representative from BevStar, a revolutionary beverage vender that dispenses juice, water and carbonated beverages, said that operators can make money selling beverages for 10 to 15 cents a cup at small locations since the price point is so attractive. She believed the same held true for smaller snack venders and other beverage equipment.

An audience member asked how much profit justifies placement of a 24-select snack machine or 8-select soda vender. "I don't want drivers to pull in and leave with less than $100," said Hamre. "Another option is to rent the equipment to the account and wholesale the product and let them service it."

The moderator asked what factors are important in obtaining an account. Benedick replied that customer service is the prime factor that helps obtain and maintain an account, since customers want to know they are taken care of by their vender.

An operator asked what the pros and cons are of working with major bottlers. "It's attractive to have someone else give you a nice big machine and just give them $20 or $30 a month and buy their product," said Klein. "But we want our own equipment and our own choices. If our customer wants tomato juice, we want to give them tomato juice. We want to control our accounts so we can give the customer what they want.

The operator asked whether it pays to have the exclusive rights for snack vending, while the bottler provides drinks. "Definitely," replied Klein. "We've done that and knocked many bottlers out with our snacks. Customer service is very hard, and if you do it and perform and really tie an account in, you can kill the bottlers with your service." He added that he does not pay commissions to his smaller sites.

Hamre commented that his company owns all of its can venders, but is considering using bottler's equipment for 20-oz. Bottles.

Hicks asked the panel members how to determine whether a small account will be profitable. "Start with a blueprint of your overhead, vehicles, people and the cost per service trip," advised Klein. "See if you can cover your back side and make money. If there's room on one of your trucks, you can consider a smaller account that seems promising because of the route efficiency."

Purdy said that vendors with idle equipment have little to risk by placing the units at a small site, and that operators who have to buy equipment to suit smaller sites have to do more investigation. "Set parameters, make the commitment, and do it," he said. "Build your business in steps. First target locations with an average audience of 30 people and look for $120 per machine; then work towards $150."

Hamre told operators to look for a 7 to 8 percent net pretax profit at smaller locations. Klein estimated that each service call costs $7.50 and that most accounts have two service trips per months, for a total of $15. Leasing equipment can cost $35. He expects $10 to $20 profit per column per service for an account to be worthwhile. He emphasized that he has raised sales through custom menus and that some accounts get bigger and eventually warrant electronic equipment.