Bidding Strategy

[COVendHut]

Hello All,

I have been invited to bid on a contract for a city. Doing some research on what current providers they have today, it looks like they have Coke, Pepsi and Canteen. I visited one of the locations yesterday and they had Coke and Pepsi drink and Canteen has the snack. What I find odd is the entire snack machine is priced at $1. I've been running through guesses as to why they would do that. The most likely is that they are the incumbent selection, since they already have part of the contract and are trying to push out Coke/Pepsi as much as possible, but was curious to hear your input. Obviously, I cannot match the commission that Coke/Pepsi would be offering, or sell everything in my snack machine for $1, but thought that there would be plenty of room on the snack side to come in under the current vendor, but at $1 it seems like they're just considering snacks as a loss leader.

Also, something seems way off on the reporting from previous years revenue. They're claiming around $65k gross revenue from over 30 snack/drink/combo machines for one of the previous years. And there's wording in there about servicing the machines at least once per week, which implies that the current vendors aren't keeping up with the machines (which would explain the low revenue).  When I went and visited some of the machines yesterday, they were fully stocked and looked great.  Something just isn't sitting right about this, but I can't figure out what it is.  After commission and other factors, I'd be really busy with a lot of machines to service with practically no revenue.

Is this just an exercise by the city to get more lucrative contracts with Coke/Pepsi? I'd much rather prefer to leave snack with Canteen at their $1 and completely take over all of the drinks. It would be much easier to handle and if I do an elevator and a stack drink as a backup, I think I could make this work.

[AngryChris]

What you're saying is what I would agree with.  These city contracts are SO one-sided.  The city wants their cake and eat it too.  I can't say if their goal is to get lucrative contracts with the bottlers.  They just want to get the best deal they can get and I don't think they care one bit about how much the vendor makes.  That's the vendor's problem from their perspective.  Cities and municipalities often think they are so high and mighty that anyone and everyone is salivating at the chance to take their locations.  As you said, you could end up with a busy schedule stocking relatively slow-selling locations with little profit.  I don't even put bids on these contracts.  I was in two locations about 7 years ago before the city consolidated everything.  One was a $20/week snack location where people complained NON-STOP about pricing/selection and would call when even ONE item was sold-out.  I mean they seriously wasted my time.  They even called me saying the machine was empty MULTIPLE TIMES because the coke machine (that I didn't service) was out.  The other location was also just a snack machine but it did quite a bit more sales.  They guys there didn't complain too much but they did say the prices needed to go down despite already being low.  I mean, back then, these guys were making $16-$25+/hour and complained about a small bag of chips being 60 cents.  City people are used to complaining to get their way.  So when the city decided to consolidate everything, they basically kicked every vendor out and replaced them with one vendor who got the contract.  Funny thing is, I don't think too many vendors bid on it because it just wasn't worth what they were demanding.  They eventually sweetened the deal by including the local airport into the contract which definitely made it worth pursuing (for the handful of vendors that could take that on) but then covid came and the airport has never been the same since lol.  I don't know who has the contract but I saw one recently when it went public for bidding and I just laughed and went on about my business.

[AZVendor]

Municipal contracts are weird animals.  As Chris said, they are skewed toward the commission the city gets and the low prices the employees will pay.  To start with, Canteen likely has the entire contract now.  If they didn't then the bid would specify what part was being bid on.  Canteen typically does not run any soda machines.  They put Coke and Pepsi in who, in turn, pay a commission to Canteen.  Canteen then has no control over the soda service. 

You want to find out what/where every location is.

How many employees are in each of them and what that location function is.

Which ones are open to the public and would the machines be available to the public? Jury rooms would be good.

What is the formula used to award the contract?

Do they specify the age of the machines?

They gave you total revenue but since this a municipal entity they have to provide you with the old revenue by location which would be in reports they get.

How large is your city?  If it's large and they have feeder airports they are dead locations.

If the bid formula favors commission then that is what you emphasize while trying not to get the prices too high.

Recreation areas can have high vandalism.

Be aware that Services for the Blind will get top preference if they bid - it's Federal Law. 

They won't be swayed by elevator machines.  Just put in good, reliable stack machines to limit your service calls.

I did a couple of cities and the Phoenix postal system.  I bought all the snacks, coffee and food machines and had Coke and Pepsi put in the soda machines on loan.  I serviced all machines.  I did extremely well in the post offices (it's the Phx market) and did pretty well too in the larger city (Chandler). The second contract with the city had me expand to 2 or three new locations, but the number of city employees never changed - they just got more spread out.

[COVendHut]

I have a list of locations, but they didn't break down revenue by location. I can request that information, though.  No mention of formula for award or anything about the age of the machines.  They do list Courthouse and several obvious high foot traffic locations. They also indicate that I can bid on one or all locations at will, so it sounds like they're willing to award separately.

I think I'm going to cherry pick the locations that I want, come up with a bid for those, then just account for the slow locations in my costs for equipment and servicing (older machines) and put in a bid for the whole enchilada. At the end of the day, being awarded with the entire contract would essentially net me about 20 additional machines and I'd break even on them just before a year, so I am good with that. Worst case, year 2 I'd have a fleet of newish machines to place and zero debt. Essentially, I see this as an opportunity for growth. If I can reduce the number of unknowns, that will decrease the perceptible risk.

My numbers were a little off. It's closer to 70k gross, # of vends is 55k. Comes out to around an average of $1.27 per vend. The distribution of those vends between drink and snack is what would make or break this deal. I'm not Canteen and I know that I can't beat them on the volume game. I think this is more of an exercise for me to discern what the city really wants and if it's within my capabilities, I can offer it to them.  At $1 chocolate, I couldn't pay them any commission at all.  And if they really want high Gross commission, I'd have to price at $2, doubling the price from the current vendor.

Oh, and it looks like I'm getting a pay raise. Anyone servicing the machines has to make a livable wage, which is apparently $21+/hour.

[AngryChris]

How are you going to pay newer machines off in two years?!?!  I don't understand your math.  They might say you can choose individual locations in the bid, but they'll likely just award it all to whoever is willing to take everything because they don't want the little locations going without service and canteen isn't going to stick around to do the turds when you got the good ones.  They'll just choose canteen to do everything.

[COVendHut]

I'm going to bid on all 30, and 100% of the revenue besides product and operating expenses is going towards payoff of the machines. I've also been collecting inventory of machines in preparation of an opportunity such as this.

30 is quite a bit more than I was anticipating (I have 10 machines ready with another 6 in the works, so I would probably need to buy 10 new stack drinks and 4-5 ambient or combo units).

List on 721 is around $4,700. So, just say 50k for drink and likely around 20k for the remainder of the machines.

You're correct, I wouldn't pay off until the end of year two. So, I'd need to plan ahead if I needed to place 30 machines after a year in.

I'm hoping that there is something that I can do better than Canteen to increase sales. Even a slight increase would go a long way.

 

[AngryChris]

Yes, let's say you need 60k as I stated.  Revenue doesn't contribute to the break-even period, gross profit does.  You likely won't be making 50% margins but probably closer to 35-40%.  That means even if you make 70k/year at 40%, that's a little over 2 years to break-even.  In reality, it would likely take even longer like 3 years.  I'm sure you're an adult and you can do your own thing but I wouldn't advise you bother with these contracts.  The chance is good that you won't get it, but if you do, I wish you the best.

[COVendHut]

I appreciate your input. After thinking about it for the past several days, I have realized that this would not be aligned with how I want to grow my business. Grinding out a contract for several years does nothing but net me additional machines while killing any enthusiasm or passion for doing work that I enjoy. 

[AngryChris]

I think that's wise.  Consider this... The big boys have plenty machines to throw around and pricing that would surprise you.  They can justify these contracts.  It might not be great service to the city, but the city is basically asking for it by making contracts that ONLY the big boys can take on.  One single decent location could net you far more in one year than this city contract might e er be worth.  All without the headache.  It's the city's fault for being so greedy,not your fault.  Go after the locations that won't be so stressful.  There are plenty out there.