Industry News
Our purpose is to empower through knowledge those companies that contract for vending, cafeteria and/or office coffee services, so that they may drive the general quality of services that are available to greater heights.
Articles
Hey, Who Authorized this Change in Vending Company?
It's happening in virtually every significant market across the country. The consolidation of vending service operators is happening at an astonishing rate and client companies are "discovering" they had a change of operator that they did not authorize. Whether it is because of economic factors that have caused some operators to sell rather than fold, or family businesses sold by the next generation, or the growth strategies of larger companies, or any of a myriad of other reasons, the end result is too often a reduction in the number of qualified competitors available for customers to select from...and the issue of control over what is happening in your company is an important one.
Whether or not this consolidation process and the shrinking pool of operators is good or bad for the vending industry and/or the companies that need to contract vending services may be a suitable topic for a future article. For now, though, this current article is specifically intended to directly benefit any company whose service operator sells out to another service operator...to help ensure that such vending customers do not become unwitting victims of an unsolicited change in service providers.
If your company is utilizing a vending service company that has been sold, (or is looking to sell), your response must consider the following reality: The various criteria you used to select your operator have little or nothing to do with the criteria your operator used to select the buyer for their business who now expects to continue those services for you.
Where you may well have put considerable time and effort into selecting the original operator for the combination of operational, financial and logistical factors that best serve the objectives that your company set for the vending program -- perhaps even utilizing a formal and competitive Request For Proposal process -- the operator you selected, when selling their company, short-circuits your efforts by, essentially, selling your account/contract to whomever will pay the most according to terms most favorable to them.
Sure, after the fact -- once the sale is complete -- you will probably be visited by representatives of both the seller and the buyer that will offer a variety of assurances that any changes you experience after the initial transition should all be positive for your company, (although they will request your patience with any difficulties that arise during an "adjustment period"); and, they may even tell you that the operational and ethical standards of the buyer were important qualifications considered by the seller...and they may have been. In fact, it is not beyond the realm of possibility that the new company will be superior to the company you originally selected.
However, in the final analysis, you probably would not have knowingly assigned your current vending service operator the responsibility for bringing you a replacement because of the obvious conflict of interest that makes luck an unacceptably large part of the equation if you expect or desire a good outcome for your facility and the employees that will be relying on those services.
So, what does The Wilkinson Group recommend as the best way to protect the interests of your company and employees from a poor outcome when your operator sells out or merges with another operating company?
Although hindsight is most valuable for future rather than current circumstances, the first recommendation must be that it may well be in your best interests to have your service contracts state that they may not be assigned without your prior written approval. If they are assignable, you are giving your operator the license to broker your contract despite the conflict of interest they bring to that activity...and this should not be a concern reserved exclusively for when a service provider is selling their company in it's entirety; it is also common practice for operators to sell off a group of accounts as a route, or even individual accounts, for logistical or financial reasons that will benefit them.
As it relates to a current circumstance, whether the contract is assignable or not, the key to a good outcome will be proactive involvement rather than a more passive acceptance. Put the replacement operator through all the same qualifying processes that you utilized for the original selection of the operator they purchased (there are about 30 Important Points that The Wilkinson Group typically recommends reviewing closely).
You may even inform the operator that you will have little tolerance for any difficulties that arise during the transition. After all, as the "uninvited guest" at your facility, is it really appropriate that the new operator should be introducing themselves to you and asking the favor of your patience in the same breath? Inform them that the challenge of transitioning without an "adjustment period" for you as the customer is their first opportunity to demonstrate suitability as the replacement for the operator you selected. This does not necessarily mean that it would be right or appropriate to throw the new operator out if there is a glitch; but it does put them on notice that while they may have purchased your contract, they will have to earn your confidence and trust. And, if the contract is assignable, it is possible that other terms of the contract may still allow you the opportunity to cancel it, (the contract), if there are difficulties during the transition that are not corrected in a timely fashion, (in which case you may or may not ultimately decide to negotiate a new and more favorable contract with that replacement operator).
Of course, one of the obstacles to putting the ideal amount of time and attention into the evaluation and re-selection process recommended is...timing. When you originally selected the vending service operator it was according to a schedule that you controlled for that project so that it could be appropriately prioritized among the man -- often more important -- responsibilities you manage for your company on a regular basis. However, since you have no control over the timing of when your service operator sells their company, or your contract, it is statistically unlikely that they will do so at an opportune moment for you, and that is the primary point that potentially works against your interests to the advantage of the service operators.
Since vending services fall into the category of Support Services and the typical manager's schedule is already crowded with Core Responsibilities, the operators, seller and buyer alike, will be relying on your priorities being elsewhere as they ask for your time... time to iron out any problems; time to implement changes that they suggest will be good for your company and employees; time to "prove themselves"; time to get past any opportunity you may have to initiate your own change in operator by virtue of some aspect of your contract; and, time to have any focus on the vending services recede into the background so that they have security in your location. And while it is possible that the end result from this passive observation process may not be harmful to your company or employees -- and may even prove to be beneficial -- it is a gamble that can and should be avoided because it also has the potential of undermining all the good work that was put into the original selection and to have an adverse impact on the morale of the employees which, in turn, can have an adverse impact on such important things as employee productivity and employee attrition.
To put it in a different light, even with your full schedule, you would not allow an employee that announced the intent to quit, to hire his/her own replacement without your very active oversight and input, (if at all), right? Time "banked" now by such avoidances often bears exorbitant "interest" when the issues must be revisited later.
The bottom line is that you should never consent to a change in service operator at your facility without your authorization -- which is an action verb. To do it properly requires your active participation in a due diligence process that leads to a final decision that you can readily support as being in the best interests of your company. And the pay-off is that a knowledgeable and proactive approach to these potentially perilous circumstances can consistently turn them to the advantage and benefit of the facility and the end-users of the services.
The Wilkinson Group, Inc.'s knowledgeable, no-cost advocacy of the client's interests in vending service relationships may be beneficial to supplement the time you have available to deal with such circumstances, and/or may provide tools that will make your independent efforts more efficient and effective. With or without our direct involvement, we hope that through this article we have contributed to your ability to have a most favorable outcome if your company is presented with a circumstance such as we have described.
Please Note: Although the article consistently refers to "vending" services, "dining" and "office coffee" service companies have also been undergoing similar consolidating trends, and these terms could be used inter-changeably since the philosophies and concepts expressed in the article remain consistent regardless of the refreshment service venue at issue.
An Open Statement Regarding Standards for Quality, Ethics and Business Practices in The Vending Industry
Editorial by Clay Wilkinson
The National Automatic Merchandising Association (NAMA), founded in 1936, is the national trade association of the vending industry, (it also serves the merchandising, coffee service and contract foodservices management industries). NAMA recently introduced voluntary standards of quality, ethics and business practices for the vending industry which it had developed as part of their objective "to make significant progress in contributing to a positive image for the vending industry." It was also announced that the approved Business and Ethical Standards of the National Automatic Merchandising Association would be followed by recommendations for "action steps" to offer "a methodical approach to compliance." Subsequent to the convention, the statement of Business and Ethical Standards was forwarded to all NAMA members as part of the membership renewal process, promising a "suitable for framing" copy of the statement to all who would return a signed endorsement of the voluntary standards.
According to NAMA president Richard M. Geerdes, "This is a first big step in improving the perception of our industry."
Perception of the Vending Industry
Every industry or profession has its incompetent, negligent and even criminal elements; and the vending service industry -- which admittedly attracts some to it because: A) they mistakenly think it is as easy as filling machines with product and then raking in the cash; and/or, B) they perceive opportunities to exploit the "cash" aspect of the business to their corrupt benefit at the expense of others, (i.e., customers, various government agencies, and all other taxpayers)--is no exception. Routinely, across the country, The Wilkinson Group sees first hand and through anecdotes too frequently offered up by vending clients, examples of: mediocre or poor service standards; "mismanagement" of the client's financial interests; and, outright contract and/or commission fraud.
In fairness, we also know of and work with numerous vending operators across the country that exhibit the highest standards of professional expertise, and business ethics that are above reproach. Vendors who work tirelessly to serve their customers, their industry and their communities. Unfortunately, however, it is the incompetents and dishonest operators that characterize for many the stereotype of vending companies. Perhaps that is partly because people talk about their negative experiences much more frequently (and passionately) than they relate their positive ones, but it is also because there are just too many of the "bad guys" out there.
When that is coupled with the fact that the inevitable, (though manageable), malfunctioning of the machines themselves creates a frustrating and/or comical experience so common to the general public that the media cannot resist any opportunity to capitalize on it, and you have compounded the negative perception of the industry's reputation through the repetitive mass broadcasting of negative images. Often these images are portrayed cleverly enough that those who don't see them hear about them around the water cooler from those who did, (i.e., "Did you see the "Got Milk?" commercial where the guy had a mouthful of chocolate cake and the vending machine wouldn't give up the milk carton?").
Who hasn't seen a commercial or TV program that pokes fun at a malfunctioning machine, or depicts someone taking "revenge" on a machine? In fact, many local and national newscasters showed clips from a video prepared by the White House for a White House Correspondent's Dinner, wherein President Clinton was "humorously" shown engaging in a number of mundane activities to fill in the remaining "lame duck" days of his administration and, to the horror of the industry, one of those activities was banging on a vending machine in order to get a "free" ice cream for himself and another staff member!
NAMA Solution, A False Step
Unfortunately, we believe that the first big step in improving the perception of our industry, as conceived by NAMA, is a false step. This is not to say that we disagree with any part of the Business and Ethical Standards of the National Automatic Merchandising Association that eloquently and accurately defines all of the most critical issues of industry and professional practices that one would wish to see as standards. One can only agree with directives and pledges to the "highest standards of honesty, integrity and responsibility in the ethical conduct of our business," or promises of compliance with "contracts and agreements" and "local, state and federal laws." Certainly operators should use "sound accountability practices," offer only "high quality merchandise and services," and be committed to good "sanitation and safe handling practices." They should "respect and deal fairly with employees, customers, clients, competitors and other industry members," while striving "for excellence by developing employees and management through continued education and training." They should use "appropriate technology to ensure accuracy," and be actively involved in "community activities"industry associations and the government process."
The problem is that such standards have always been espoused by the sales representatives of vending operators across the country on a daily basis, and one of the biggest challenges faced by the buyers is determining which ones are telling the truth. This also creates problems for good, legitimate and ethical vending operators, because their sales people can't say, "I know the other guy is promising the same thing (or better) that I am, but at my company our promises are limited to what we will actually do."
Now, along comes NAMA, promoting its beautifully crafted Business and Ethical Standards program by offering members a "suitable for framing" decorative copy of their signed pledge promising voluntary compliance; and, the primary difference that this program will make is in lending an appearance of legitimacy to the marketing efforts of the very industry elements that are the cause of most of the industry"s image/reputation problems. The good, legitimate and ethical vending operators were already conducting themselves in accordance with the principles expressed in the pledge; and, the operators that are out there misrepresenting their standards, contracts and commission programs will have no problem in disingenuously signing the pledge simply to acquire a marketing tool that appears to represent the endorsement of their company by the industry's national trade organization. It will usually be lost on the prospective buyer that there was no vetting process to confirm any qualifications of the operator presenting their "suitable for framing" statement; nor will the prospect realize that there is no penalty the operator might suffer for failing to voluntarily comply with the standards expressed therein.
Please note that we are not suggesting that any company that includes a copy of the standards in with their proposals -- as recommended by past NAMA chairman J.E. (Eddie) Hicks according to a quote in the Vending Times -- is one of the industry bad guys. We are simply saying that buyers should assign no more or less credibility to a proposal based upon the inclusion of the standards statement than they would if the sales rep had included a note from his/her mother. And, if there is a group of vending operators that is likely to be wronged by credibility being inappropriately assigned a proposal in the purchasing process because of the inclusion of the standards statement, it will probably be the good guys of the industry thanks to an official looking document from their national trade organization that helped their less qualified competitors appear better or more legitimate than they really are.
Code of Conduct without Teeth has No Bite
In that same issue of the Vending Times Mr. Hicks, who chaired the ad hoc Ethics Working Group that drafted the standards statement, is quoted as saying, "The value of professional standards is recognized by accountants, attorneys and physicians, and each of these groups has a formal code of conduct for its members. The vending industry should, too."
Conceptually, we agree with Mr. Hicks. However, functionally, there is a problem with equating NAMA's "voluntary compliance" program with those that actually govern the accounting, legal and medical professions. Unlike the vending industry, each of these other professions requires state licensing that is tied to extensive educational qualifications and licensing exams; minimum requirements for on-going education; and, the ability to impose sanctions commensurate with any proven infractions. Compliance is mandatory, not voluntary, and sanctions for non-compliance can range from "public record" letters of reprimand and fines, to the suspension or permanent revocation of the license to practice in that state. And each of the state licensing organizations has procedures, (with appropriate departmental budgets), for the report and thorough investigation of all complaints. Those investigating the complaints are paid professionals with no conflict of interest regarding the outcome.
The National Automatic Merchandisers Association has no ability to take on the kind of authority over the vending industry that various state licensing agencies have over the accounting, legal or medical professions; and, we cannot envision any contrived structure for "action steps" for a "methodical approach to compliance" that could be anything more than a hollow shell of real regulatory responsibilities and authority. And without that, this program is nothing more than a misguided public relations program that has the potential ability to do more harm to the industry in the long run, than any positive impact on the industry's "image" that it might deliver in the short-term.
An Alternative Solution with Clout
To change the perception of the vending industry in any meaningful fashion, you have to change the vending industry itself. To make the vending industry better, you have to work toward educating two distinct groups -- vending operators, and the buyers that need to contract with vending operators. There are already numerous sources of information and training that are available to vending operators that wish to better their organizations and services. NAMA is one of those sources. Others include various excellent trade journals and publications, equipment and product manufacturers, local or regional trade associations, regional and national trade shows and conferences (those organized by NAMA among them), industry consultants, vocational programs, etc., etc., etc. But since good, bad, ethical and unscrupulous vending operators alike avail themselves of these programs, they are clearly not sufficient by themselves to move the industry quickly enough in the desired direction.
However, the other group, buyers that contract with vending operators, are the sleeping giants with the ability to effect real change in the vending industry in relatively short order. They have the ability to award, withhold, or even take away the contracts that represent a vending operator's livelihood. As this "group" becomes collectively more knowledgeable of the highest realistically achievable standards, they become intolerant of anything less for the contracts they control; and, as they become more savvy regarding how to spot and avoid the unethical practices of some vending operators, it becomes increasingly more difficult for the industry bad guys to take advantage of them. It is knowledge that has the potential to empower the buyers to make it more difficult for the vending industry incompetents and bad guys to remain in business because the pool of potential victims dries up.
Yes, there are some very knowledgeable buyers of vending services out there, (sadly, many of them learned their lessons the hard way -- through negative experiences). But the factor that plays to the advantage of the incompetent and unethical operators is that vending is typically only a "support service" for the companies that are contracting them. Since buyers have limited time to devote to becoming purchasing experts for anything other than the goods and services that are primary to their employer's operations and profitability, what they have not had the time to learn about vending, as a support service, leaves them vulnerable. This is then exacerbated by the fact that their expectations for vending are probably lower than they need to be, which reduces the motivation to make a change.
Therefore, to really make a positive impact on the perception of the vending industry's image, an alternative to NAMA's program would be one that makes information available to buyers about what the possible standards for vending realistically are. To improve the industry, we believe that it is our responsibility to educate the consumer and elevate their expectations, so that they will not settle for less.
Furthermore, we believe that as the industry changes for the better because of the demands of more knowledgeable buyers and consumers, the "image" will naturally evolve along with it. And as respect for the vending industry grows, the media will find fewer opportunities to poke fun at it, (though I hope we will always have the ability to laugh at ourselves).
In Conclusion
Noting that The Wilkinson Group had not responded to the initial invitation to return a signed statement along with our annual membership renewal, NAMA"s VP Sales & Service, Mr. Steve DeGrave, cited the "considerable success" of the NAMA initiative, and offered us another copy of the statement for us to review and sign, "if [we] agree with and support the substance of this document." We were, again, offered a decorative copy. The Wilkinson Group is not surprised by the success of the program, which NAMA can only be measuring by the number of decorative copies they have mailed out; but we will forego our participation in this particular program while thanking NAMA for the inspiration it sparked for The Wilkinson Group to step-up its long standing efforts to enlighten vending customers about their power to change the vending industry for the better"with their own contract reflecting the first direct beneficiary of that power. In addition to our daily efforts through personal contacts, we will now add the proactive use of our web site to broadcast specific information to the general public for the intended benefit of all.
Vending Sales (and Commission) Reporting a Must
Editorial by Clay Wilkinson
Let's get it out on the table right from the beginning -- vending customers should always require their vending operator to regularly report the vending machine sales regardless of whether or not the customer is earning a commission on those sales.
Although one would think that the surprise is in stating that customers that do not earn a commission should still require sales reporting from their vending operators, the surprise to me has been the number of customers I have met in the past twenty-two years that are entitled to commission earnings but do not require supporting documentation from their operator.
Without intending to undermine the trust that is clearly an integral part of such relationships it is important that we detail a few of the advantages that warrant the customer's regular review of sales reporting in both commission and non-commission circumstances.
If your firm is entitled to commission income from the vending sales, the first considerations are obviously for accountability. If you do not require the operator to report the machine sales and demonstrate the calculations that lead to the payment amount, how do you know if you were paid on all of the machines? That the commission rate used is what you negotiated? Or, simply, whether or not the operator's math was done correctly?
There are many things that can go wrong, (through innocent error or corrupt design), which can result in the incorrect payment of commission income to a customer. And while I have encountered instances where the commissions were being overpaid, my experience is that those instances have been the exception to the rule that clearly shows errors to cost the customer money. Without reporting, errors typically go undetected and even a small error can represent a significant dollar amount over time.
Does this mean that the customer must analyze each sales and commission report from their vending operator? Not necessarily, (although in most instances it would only take a few minutes). The simple fact that you require the supporting documentation along with each commission check will reduce the chances of certain types of errors; and a periodic check of every second or third report may be sufficient diligence to protect your interests. Since you will have a continuous file of all reporting, if review of an individual report uncovers a problem it will be relatively easy to track it back to it's origin, (since the last report reviewed that was correct), before bringing it to the attention of your operator. In addition to limiting the impact of any errors, the errors themselves are easier to resolve with the operator when the customer has become more knowledgeable about the account through the regular review of the numbers over time.
This brings us to another benefit of receiving the vending sales reports that is equally valuable to customers that do not earn a commission from the sales. When it is appropriate to re-negotiate with your current supplier, or you are negotiating with potential supplier(s), if you are able to negotiate with some knowledge of your account, (and it"s value to the operator), you are better able to negotiate to the benefit of your company. By knowing the historic sales performance by machine/product category, and the total annual gross sales for your account relative to the equipment investment, you can participate more effectively in negotiations and decisions regarding the account.
Two quick examples would be the scenarios where your existing operator is requesting a price increase, and where you are accepting proposals from operators that are unfamiliar with your account:
In the former situation most operators tend to present only the limited information directly related to their need for the price increase, (i.e., product invoices showing an increase in their cost of goods); and the customer is often tentative about the information because they realize that it does not put the need in perspective of their entire account. Without the overall information, and familiarity with reviewing and interpreting it, the customer is less effective in testing their leverage against the expressed need of the operator without stressing the relationship. Whereas with knowledge that places the request in perspective the customer is better able to participate in the negotiation and make a decision in the best interest of their company.
When you are accepting proposals from operators that are unfamiliar with your account, the more specific information you can share with them the less guesswork they will have to do when projecting what kind of pricing they can afford to offer; or, how much commission they can afford to pay, (or what balance of the two elements they can propose). The more guesswork they have to do, the more conservative operators tend to be in order to protect their interests. The more information you can give operators in advance, the more aggressive they can be in their proposals. Additionally, the more knowledgeable the buyer proves to be about the account, the more pliant and respectful the operator will tend to be in the negotiation process.
To gain the advantages discussed, the information you should require from your vending operator, together with how it should be organized, is as follows:
The most useful and appropriate reporting format reflects per machine gross sales, (collections). And each individual machine should be identified three ways--
By Location, i.e., lunchroom, warehouse, etc., (and all the machines in each location should be grouped together in the report).
By Number, i.e., the serial number or the operator"s asset number.
By Type, i.e., Pepsi can soda, Coke can/bottle soda, snack, hot beverage, food, etc.
If your operator is paying a commission, it is likely to be computed on the net sales, (collections less deduction for sales taxes). If so, the reporting should show the collections, the amount of the sales tax deduction, and the net sales figure to which your commission percentage is applied, (deducting too high a sales tax percentage has the net effect of improperly reducing the commission).
The reporting should be submitted "monthly." Some operators run their period reporting by the calendar month; and, others run 13 periods per year, (8 four week and 4 five week periods). Either is acceptable as long as the period is clearly defined by starting and ending dates and reaches you within 15 days of the close of the period.
The relationship between customer and operator should be viewed as a partnership. And the most effective and healthiest partnerships are based (in part) upon trust, respect and the free flow of information, (that proves the value of the trust and respect). If you have the right partner, they will not have any problem with providing you the information you will be requesting; and, the partnership will be improved over time.
Future editorials will deal with the interpretation and usage of sales and commission reporting in greater detail.