February 17

Coffee Service Corner

Profit Maintenance in an Expanding Route Operation

Traditional Key Performance Indicator focus is always an appro­priate starting point to improve execu­tion and thereby drive company profits. Greater service consis­tency helps ensure account reten­tion, histor­i­cally my most impor­tant oper­ator metric. Growing same account sales was a close second to account reten­tion in the KPI hier­archy in the operator’s quest for a more robust P&L state­ment. But when an oper­ator considers expan­sion, focus can be diluted if the plan is not well-developed and short and long-term profit will be affected.

From my days as a distrib­utor and oper­ator and through current times, I interact with many oper­a­tors and we discuss route opti­miza­tion, menu manage­ment, and every topic under the sun. Most of these inter­ac­tions involve discussing our frag­mented industry and what the future land­scape may look like. That begets the ques­tions, “Should I add routes and expand my terri­tory, or can I continue to be successful within my current foot­print?”

To Grow or not To Grow 

My customer base as a distrib­utor mimicked the Coffee Service Industry in that I served small, medium and large oper­a­tors on a national foot­print. The large oper­a­tors had already made the commit­ment to growth, be it organic and/or through acqui­si­tions and under­stood the finan­cial neces­si­ties and impli­ca­tions. Interestingly, after many years of aggres­sive roll up activ­i­ties, the top five Coffee Service oper­a­tors control only approx­i­mately 25% market share. There is much more poten­tial for acqui­si­tion activity.

Many small and medium-sized Coffee Service oper­a­tors seemed to be in a perpetual quandary regarding the ques­tion of whether to add routes or remain in a holding pattern. For most, it was a matter of funding the growth and belief that a commit­ment to adding a route(s) came with a fixed amount of addi­tional personnel and expense coupled, with a time­line that they believed would only yield more cost and dimin­ished profits.

Many oper­a­tors have expe­ri­enced success through aggres­sive organic and/or acqui­si­tion growth strate­gies. Some oper­a­tors have new account activ­i­ties centered only on replacing lost accounts, with only modest objec­tives regarding adding accre­tive busi­ness.

Adding routes – Some do’s and don’ts

Then there are those oper­a­tors that decided to add route(s) and that have had limited success. I share some common missteps that I have observed:

• Deciding to add new route(s) organ­i­cally while there was existing route capacity

• Adding addi­tional route profes­sionals and having the new hire “help with ware­house work” rather than having a well-thought plan regarding other job activ­i­ties

• Adding new dedi­cated sales­per­sons too hastily

• Considering acqui­si­tion candi­dates without performing effi­cient due dili­gence

• Marginalizing employees coming from the acqui­si­tion.

• Shifting key person roles too far away from core manage­ment and lead­er­ship activ­i­ties towards the expan­sion efforts

I admit that at various stages of my career as an oper­ator, I made more than one of these missteps. And from these missteps, I share some helpful hints that might impact your growth-driven results:

• Do a complete needs analysis of your existing route and customer base:

☐ Understand your foot­print. Where are my accounts?

☐ What is the volume per machine on loca­tion?

☐ Does my route person(s) have capacity? Do they spend time doing non-route activ­i­ties?

☐ While you’re at it, look at product pene­tra­tion reports. Do you have a need to focus first on adding new items at existing accounts?

• When doing your personnel needs analysis, consider hiring a “hybrid” sales/ops type of person. Locating a pro that can effi­ciently sell as well as one that enjoys route work and install/service duty is a solu­tion that can fast-track the account-adding process and morph into a full-time posi­tion either as a route profes­sional or a sales pro.

• Do not short-cut your due dili­gence. There are crit­ical areas where you must know the answers:

☐ Will effi­cien­cies be gained and capacity created by melding the new routes with my existing routes?

☐ How will cost of goods be affected through this acqui­si­tion?

☐ Are too many eggs in one basket with dispro­por­tion­ately large accounts? Do we have binding contracts?

• Understand which of the employees in the new busi­ness own the rela­tion­ships with the customers. Nurture them.

• Do not be too hasty to elim­i­nate personnel at any level. We all have the incli­na­tion to protect and keep our current team intact, but there are usually some gems in an acqui­si­tion that might have redun­dant titles with your team. Give them consid­er­a­tion.

• Map out your product conver­sion and SKU ratio­nal­iza­tion process patiently. A plan that is too rapid might expose you to account loss.

An Evolving Industry

The toughest competi­tors that I encoun­tered as an oper­ator were most often the local and regional oper­a­tors. The owners were engaged with their customer base and owned the rela­tion­ships. Frequently, when some of these oper­a­tors were bought out, the owners did not remain for long and those that did, more times than not, became custo­dial managers with much less interest in the busi­ness.

Not to say that the large compa­nies are not capable and formi­dable. They are!

While I foresee more acqui­si­tion activity over the next five or so years, I do believe that a small or midsize oper­ator can thrive. Growth plans need not be grand, but growth should always be a part of route busi­ness process. And there are methods to preserve short term profits and build toward even higher long term profits.

Until next time!

Ken

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