Vending Machine Product Turn

by Abco | Dec 16, 2011 | Vending Business Show

AN INTERVIEW WITH LARRY TOWNER, VENDING CONSULTANT.

Larry is a veteran vending operator who has had success in all areas of the vending business and in choosing a vending machine product. Listen to learn why  it’s important to have the proper selection of products in a vending machine:

• Know the number of times a product turns in a year

• Know the difference between large and small profits

• Most vendors shoot to turn once every 2 months

• You want inventory to turn as fast as possible

• The key to profits is product selection

• Rotate products thru a cycle (the steak flavored potato chip)

• How to maximize product turn

• The McDonald’s McRib sandwich

• When users know what’s there all the time they tend to ignore the machine

• What’s new this week?

EPISODE TRANSCRIPT:

A VENDING MACHINE PRODUCT TURN CONVERSATION

Tom Shivers: I’m Tom Shivers with the Vending Business Show, here with Larry Towner, who is a vending business consultant. He’s been in the vending business for many years, and not too long ago sold the majority share of his vending business. Thanks for being here, Larry.

Larry Towner: Thanks, Tom.

Tom Shivers: In the last show, we talked about marketing at the machine level, and you pointed out a lot of interesting things. For example, which products sell best, product placement, presentation, setting the machine up, and then … a lot of other things that come into play there as well. Even another one was making the machine look fresh.

Tom Shivers: Why is it important to have proper selection of products in a machine>

Larry Towner: Ah, the magic question, why do you want the right products in the machine? Well, the basis of machine level marketing, or planograms, or whatever you want to call them, planograms is actually the picture of how your machine looks and where everything is placed, gets into a couple of different things, but the biggest issue there is to essentially give the people what they want, which in turn is going to give you what we call product turn. Product turn is the number of times that you sell a given product in a week, month, year, day, whatever it happens to be, but generally, it’s referred to as the number of times that a product turns in a year, and most businesses look at turn as being critical. Turn can be the difference between making large profits and making small profits.

Larry Towner: The key to machine level marketing is to make sure that you put the right products in there so that you can get enough turn to justify having the product in there, and when we say turn, what we mean is that if you sell a product … Just for example, if you sell one product, and you sell six columns of it, say, six full columns or 12 selections each, whatever, however you want to look at it, let’s just say you sell six versus selling 12, if your margin is the same, of course, you’re going to make more money selling 12 versus selling six, and that’s what we consider to be turn.

Larry Towner: Most people consider turn to be how fast you turn your entire inventory, and most vendors shoot to turn their entire inventory in, I’d say a figure of about six times a year, or once every two months. If you look at your dating on your products and things, that’s really where those figures come from. The figures come from the fact that most of our products have about a two month date one them, roughly, if you look at potato chips. Pastries, of course, are a little shorter, and any fresh food you do, of course, would be much shorter.

Larry Towner: But that gets to be the critical issue, is that you want your inventory to turn because you make more money when the product turns, or sells, basically. If you can turn your entire machine … If you take, and you take a 40 select machine, and you turn the entire inventory over six times a year, if you can make it turn seven times a year, that’s like adding another two month cycle into your year, so that’s like having your year be 14 months instead of being 12 months, and that can be significant money. The key to product selection and marketing at the machine level are giving your customers what they want, when it’s all essentially the same thing, that’s where it becomes critical, because to get the extra profit out of it, it adds up to some very, very serious money.

Larry Towner: At one time, I did a little study. I said, “If I can get each of my machines to turn one column more per week, that I would average,” on average it was something like, “an extra $5,000 a week in income,” and that’s significant in a small business. It’s significant in a large business. If you can get one more turn, you get an extra $5,000. So that’s why turn is so critical.

Larry Towner: Kind of interesting, isn’t it, Tom?

Tom Shivers: It is, it’s fascinating. It’s like you’re optimizing the whole business around the products that are selling in the machines that you have, though it sounds like you really have to experiment, perhaps, to find out which products turn the fastest or the best.

Larry Towner: Yeah, you actually, you do, you know? You want to try new products. New products always sell well. They always tend to turn pretty well, but the question is, do they have longevity? What eventually you’ll learn is, you learn at each given account what really sells, and what kind of cycles you can rotate things through.

Larry Towner: We rotate our products, or we always rotated our products through kind of in a cycle, and when I say that, I mean, we would give a product … I don’t know if I have a hard example, but an optional chip, we call them optional chips. It might be, say, a steak-flavored potato chip, and we would run those about every three to four months, just for example. We would find that when we would put them in, they would get snapped up and purchased very, very quickly. What we would do is we would watch to … at a point where they started to slow down a little bit, then we would take them out, and we wouldn’t run them for another four months.

Larry Towner: The best example I can give you of that kind of thing is McDonald’s, and I say it because right now, as we sit here, I know that McDonald’s has their infamous McRib back out in the stores, but they don’t run the McRib all year long. They only run it every so often, and when they do, they tend to get pretty good sales out of it, and so that’s a different kind of example, but it’s the same example. We always try to do the same thing with some of our optional chips.

Larry Towner: You’ll find that some of your chips will sell all the time, and when you get those chips, you leave those in, and they sell consistently, day in and day out, but your other chips, candy bars, it doesn’t matter. It all has its cycle, and you can cycle it through, and that gives you maximum turns, and so that’s how you get maximum turns.

Larry Towner: If you go … I’ll give you another example. Tom, have you ever had vending in any of the businesses you’ve ever worked in through the years?

Tom Shivers: Sure.

Larry Towner: When you walked up to the machine, and it was the same stuff in there that you saw for the past two months, were you real excited about buying any of it?

Tom Shivers: No. I mean, you know what’s there, so you just kind of ignore it, I guess.

Larry Towner: Yeah, you kind of ignore it. See, that’s … When you get at machine level marketing, that’s what we always try to not have happen, because we realize that … The difference is, see, a vendor goes to the machines, let’s just say, he goes once a week, or even if he goes on a daily basis, as a vendor, if you go to the machines, and the machines look stale and boring, and when I say stale and boring, it’s like, “The same stuff, the same blah, blah, blah,” it’s time to change the machine. Just change how it looks. Move stuff around, maybe add some new product.

Larry Towner: That way, what happens is, is people go to the vending machine. My goal, anyway, was always to have people go to the vending machine and say, “Hey, what’s new here today?” Or, “What’s new this week?” Pretty much every single time … We did the majority of weekly accounts, so every time we went, every week we went, we would try to add something new and take something out, so that the machine always had something different in it that people could look at and try.

Larry Towner: I’ve been in and worked in too many places in the past where nothing ever changed, and you just kind of got to the point where you’re like, “Yeah, whatever.” And so, that’s what our goal is, is to maximize turns, is to keep rotating things around and changing things up.

Tom Shivers: Yeah, it makes a lot of sense. I mean, you definitely want it fresh, like you said, and kind of like you were talking about the McDonald’s McRib sandwich is kind of a scarcity play, because you never know when it’s going to be there and how long it’s going to be, and then when it’s gone, it’s gone for a while.

Larry Towner: For a while, right. But they do tend to cycle it and bring it back, so you know it’ll come back sometime, and they sell it and that, and we do kind of the same thing, because we have, essentially, 40 selections or so, 32 to 40 selections, most of our machines are 32 to 40 selections, and drink machines run anywhere from five to 10, but even with the drinks, we tended to rotate drinks around a little bit. We’d always add a couple of optional flavors in that were … and I say optional in that pretty much our planograms had Coke, Diet Coke, Mountain Dew, Dr. Pepper, Pepsi, and then usually another … we would have flavors and things like that, but we would rotate the flavors around too.

Larry Towner: We’d run orange for a while, then we’d run grape, and then we’d run … Warm months we’d run tea, and then we’d run non-carbonated stuff in the summer, maybe chocolate drinks like Yoo-hoo or something like that in the wintertime. That way, you always had something that’s fresh and new also, even in the drink machines, because while people want what they want, they also do like to try new things, so that’s kind of the concept of turn, and that’s the way that you, or it’s the way that I’ve found that maximizes turn really well.

Larry Towner: That’s why we do it, and we do it … If you take and run the numbers sometimes, you’ll see it can add up to significant in money.

Tom Shivers: Yeah. Well, thanks for sharing, Larry. Tell us about your consulting business.

Larry Towner: Well, what we do is we do consulting. We give you tips like this and a whole lot more, just depending on wherever you’re at with your vending business. We work mostly with startups, or people that have been in business and are looking to get bigger, and/or are struggling with their business, trying to figure out what are they doing, how are they doing it, and how can they become more efficient?

Larry Towner: Efficiency is something that’s absolutely critical in the vending business. It’s probably a topic we need to talk about for another show, but efficiency comes out to how you make the decisions on which product to buy, and how you actually operate your business, how do you walk into the business and do your job when you actually get accounts? How do you, right down to the nuts and bolts … If we can save you minutes, we could save you dollars, so that’s what we do. We do analysis and we can help you with sales and marketing. We can help you with all kinds of things, all aspects of the vending business.

Tom Shivers: All right. You’ve been listening to the Vending Business Show, a production of A&M Equipment Sales.