Size matters, but sometimes you can be too big

[Smiley]

In another thread, I made the comment that our business is nearly impossible to run on a national level.  Regional yes, national no.  Because of popular demand, I'll explain a little of what I mean. My focus, to start, is going to be on toy buying.

Since many of you just run gum and candy and some of you have only been running toys for a little while, I'll start with a primer on toy buying.  When I first started in the industry things were much different. You could easily get away with ordering mostly 'staple' items.  Constantly re-ordering Sticky Hands, Gold Watch mix, Magic Mix , Las Vegas Mix etc,,.,with throwing an occasional 'hot' item would get you very nice results.

Things have really changed in the last 20 years. For the most part staples don't sell. Todays child is much more sophisticated than 20 years ago. Sometimes you can re-introduce a classic and get a couple of good months out of it. For the most part you are no longer maximizing sales or profits with this strategy.

Now the name of the game is constantly looking for the next home run item. Testing almost everything. By the way, unless you're  9 years old don't attempt to guess what is going to sell without testing. When you find a winner (let's say a 4 or a 5 on a 1-5 scale), order a ton of it and get it into as many stores as possible as quick as possible. That means bringing older stuff back to your  warehouse.

Monitor the sales of that item closely. The average life span of a hot item is 4-5 months from the point that you began your test till the item is dead. And it will die everywhere at the same time. It's as if one kid determines the toy is no longer cool and faxes every other child in the country with the news.

There's also a whole process for getting rid of the old inventory. You either make mixes involving loss leaders or re-introduce a decent (3 out of 5) item that you moved out to make room for the better item. There will be periods of time that you will have a lot of dead product, but eventually you will get rid of it. Because you are never re-ordering anything that gets less than a 3.5 out of 5. If you've tried everything out there and there are no home runs, put out the old stuff.

So how does this relate to my point about a bulk vending company getting too big? Even though Folz was better than Sugarloaf who was better than Coinstar. None of these companies got the hot product out as quickly in as high a percentage of their stores as I did.

My strategy is as follows : Test the item in 8 stores that were part of a group of stores that are serviced every 2 weeks. Discuss new items with my 3 routemen almost every day.  Immediately order enough of the 5/5 item for 200 of my 500 stores or enough of the 4/5 item for 80-100 stores.  Stuff gets shipped to my warehouse that day. Starts getting put into the stores that week.

Ginorous bulk vendor strategy: I'll just assume the highly paid toy buyer's ego is not so big that he thinks he knows what's going to sell. He tests the item and tries to get feedback from his 100??? routemen and his assistant toy buyer and his boss. He calls to order the item but he needs enough for 10,000 stores. The supplier doesn't has a limited amount till his re-order comes in from China and frankly he'd rather sell to guys like me because I haven't coerced him into selling the stuff at too low of a price. The Coinstar buyer calls his people in China to import some on his own but that is going to take 60 days. The stuff gets shipped to his central warehouse but then must get re-organized and shipped to smaller regional warehouses that aren't open every day.

Remember: THE AVERAGE HOT ITEM IS ONLY HOT FOR 4-5 MONTHS.

I am the toy buyer/routeman/owner. No meetings to determine what to buy. And I know the minute that item begins to slow and boy is that important! Sure the big guy is paying less for the toy than me, But by constantly getting into these products late, he has MILLIONS of toys in his warehouse and that will definitely effect his decision making.

What problems does the small guy have?

If he's only got 10 stores with toys he can't test enough different stuff. He has no warehouse to store the old stuff. He might not have the cash flow to store the item for a year.  He doesn't know about all of the toy suppliers that are out there.

[davidsurvz]

Good Post Smiley.

Good info. I think you have brought up some good points.

Does anyone else have info. on running large regional fleets?

[T BIRD]

Thank you very much Smiley.  I learned alot with that post.

[Bravo Duck]

Excellent post Smiley !

[G-man422]

Smiley, thank you for the post.  Interesting read.

[grumpy]

Smiley thank you, very informative and well written, I hope you have more to share on running bulk in a larger scale like this.

Grumpy

"no longer cool and faxes every other child"

An update, kids use email, text messaging, and IM.

Of course I remember when faxes were cool, I also remember the copy machine were you attached a stencil/carbon and turned the handle to make copys. (Don't remember the name though)

[lurker]

Thanks for the great post Smiley!

Kinda confirms what I have been observing around here.

I think your hypothesis is dead solid perfect.

I like the way you write too. You need to publish a book. At the very least an e-book.

Grumpy said...

Of course I remember when faxes were cool, I also remember the copy machine were you attached a stencil/carbon and turned the handle to make copys. (Don't remember the name though)

WOW!!! You are old! :shock: And losing your memory too!

Haaaaahaaaaaaaaahaaaaaaaaa!!!

It was called a mimeograph.

Us nerds had to use 'em from time to time when butt kissing, uh, I mean helping a teacher.

Dave

[philo]

It's the classic story. Economies of scale favor the big guy. But nimbleness in the marketplace favors the small operation. Which is why both types of organizations exist in alomst every industry. All the tech tools exist to run vending on a large geographic scale.

Regards,

Philo

[The Master Key]

Thanks for sharing, Smiley.

Brian

[caserri]

Great post Smiley. I've added this thread to the "Vending 101" section. There is some really great information here. I felt like I just took a bulk vending class!

I hope you will give us more posts like this in the future. As you can see, the members do hunger for, and want to read this type of information. Also, when you write your e-book, post it in our library!

Steve 

[kdeckels]

Great thoughts.  I've heard so much lately about finding your niche in the market & being able to adapt & turn on a dime, or should we say quarter.

[flipside]

Cool post man.