The 2020 Mid-Year Economic Update_long

How Distributors Can Win with Vending

Give customers what they want: lower consumption, lower carrying costs and decrease stock-outs.
Mark_Hill_1sv

Industrial vending has become big business over the past decade. When implemented properly, vending increases productivity and decreases costs through better inventory control for end-users. 

The distributor’s total installed machine count rose to 81,137 as of Dec. 31 — a 13 percent increase from the previous year, according to Fastenal’s 2018 annual report. They also reported that sales through vending grew 20 percent in the fourth quarter, not including lease-locker programs. Other nationals are seeing similar growth, including MSC Industrial Supply. MSC is accelerating its “vending signings and implementations,” CEO Erik Gershwind told investors. In other words, your competition isn’t slowing down.

Independent distributors looking to enter and keep up in the vending market often experience substantial challenges, not the least of which is larger national distributors’ flooding the market with free-machine drops.

But what we’ve seen is that while some distributors often pursue more aggressive tactics to place as many machines as they can (and capture that customer’s spend), the strategy doesn’t pay off if it’s not followed up with flawless service. When they don’t provide the end-user with value — if the distributor fails to keep the machines stocked, for example — the machines are simply moved to another location. This isn’t an uncommon occurrence (and may even skew the numbers of machines “placed” reported on a quarterly basis). 

While the impact of a failed vending account is minimal for a larger distributor, a smaller distributor can’t always afford to absorb such a cost. That leads to slower gains in market share. 

On the flip side, if you’re willing to offer customers a more specialized and flexible experience, you could come out ahead in the long run. (Plus, last year’s Tax Cuts and Jobs Act allows distributors to write off 100 percent of the vending machine, offsetting the initial investment. Contact your CPA.) 

Stop trying to catch up with distributors who already have scale with vending, and start viewing vending and inventory control as a value-added service. It’s that specialized knowledge that sets independents apart.

To successfully compete, independent distributors must remember that every customer has their own DNA. Distributors must be willing to adapt their vending and inventory control solutions to fit customers’ businesses; this is more difficult for larger national competitors to do. 

Don’t try to be a one-size-fits-all solution. 
Identify what the customer is looking for and provide a solution that addresses that. Balance expectations with outcomes. Help the customer develop realistic expectations regarding inventory reductions, carrying costs and availability, and then design a vending and inventory control program that meets their needs. Accommodate your customer as closely as you can, while ensuring your own profitability

Give the customer control over how they manage their inventory. 
Put the control back in the hands of the customer. The reason why they are considering a vending machine in the first place is to gain more control over their inventory, not less. Give them options. Does the customer want to fill the machine on their own or do they want someone to do that for them? Find out how they prefer to be billed, either through usage reports or through automated replenishment. Don’t lock your customers into contracts that dictate types or brands of products. Consider the bigger picture. As long as they are spending enough overall to justify your investment, how they do so doesn’t really matter. 

Help customers understand how technology can save them money. 
The cost of technology is significantly lower than in recent years due to cloud-based technology. This allows smaller distributors the ability to compete with offerings once cornered by larger competitors. Explain that vendor-managed inventory software paired with vending solutions can offer real-time inventory control at the point of use, helping them avoid stock-outs and reduce inventory consumption. Reassure them that the technology is user-friendly and plug-and-play from the start. 

Your customers are looking to lower consumption, lower carrying costs and decrease stock-outs. Taking the time to do it right with flexible and proactive solutions that aren’t one-size-fits-all is well worth it. The value that customers get from vending lowers the risk they will be lured by competing distributors of any size, even if they offer a lower price. 

Read more about the effects of vending and inventory control programs on customer retention in my MDM blog: Vending Programs Prove the Best Defense is a Good Offense

Mark Hill has 40 years' experience in industrial distribution and vending. He is the founder of vending machine and inventory control software company 1sourcevend. Learn more at 1sourcevend.com or contact him at mhill@1sourcevend.com.

About the Author
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

By subscribing, you are agreeing to MDM’s Privacy Policy.