As an operator my primary focus was always account retention. There is nothing more painful in a route business than losing the recurring revenue of an established account and then having to incur the costs and headaches of a pull. But closely behind this primary retention focus is the need to drive same-account sales and profits. You have an asset in place and fixed costs are indeed that: fixed. Thus driving incremental profit becomes the objective.
Same-account profit can occur by four primary means: Reducing cost of goods; increasing prices; up-selling to a more profitable SKU in a given category and selling more “stuff.” All logical tactics, but certainly none of these are a lay-down.
With continual competitive downward pressure on pricing, random price increases are difficult to obtain. However, when an operator receives a price increase, the increase should not be absorbed but passed through with consideration given to the corresponding route persons’ commission bump. This is more of a maintenance process with the end game being profit stability.
While cost of goods reductions might occur with events such as a down coffee market as we are now in, those profit windfalls are usually short-lived as the market will eventually move northward again, and/or competitive pressures and public visibility of national brand price drops will drive selling prices downward to parallel the lower costs.
This leaves account menu management as the primary vehicle to drive same account profits.
Most every operator has reaped the financial rewards of converting a batch brew account to single cup system. I know of no one that has a problem with gross profit percentages dropping ten points when at the same time gross sales increase three or four fold, bringing with this more than a doubling of profit. But this conversion process also comes with a hefty bump in CAPEX (capital expenditure), right?
While few resist the opportunity to replace a brewer on location with this amount of upside, not every operator has taken consistent advantage of their opportunities to optimize profit by identifying what their accounts are buying now from other sources, or that might have an unfulfilled need or want. Many refer to this process as “building the ticket”.
Often times, a route representative can take a quick but thorough look into the pantries and drawers at a brew site and see the ticket building opportunities. The route professional is your primary point of contact with the decision makers and work force. Take advantage of their relationships and knowledge.
One of the most valuable tools in an operator’s arsenal of reports is the product penetration report. This is a product-by-product sales summary that extracts sales data and then captures which customers do, or do not, purchase specific products or products in specific categories.
As an example, logic would tell you that if you were selling an account coffee, then you would be selling 100% of them cream and sugar. In my many years as an operator and also as a consultant, I have never seen evidence of any operator having 100% account penetration with the creamers and sugars where coffee is being sold!
Speaking of the creamer category, I have always been intrigued by the opportunity that exists with liquid creamer conversion from powder. Shelf stable, liquid whiteners in those nifty little tubs simply cost more, sell for much more per serving and generate more profit dollars than the powdered alternative. I encourage every operator to do the math and recognize how much more robust their bottom line would look if some level of powdered whitener volume began using the liquid.
And don’t be misled into thinking your level of penetration is high. For instance, if your product penetration reports show that 40% of your revenue is coming from the liquid creamer portion of the total creamer category, that percentage drops precipitously when the numbers are viewed from a consumption standpoint.
Artificial sweeteners represent another category with significant upside. Blue, yellow, pink and now green are seldom seen at a brew location as a full set. While brew-site real estate might not allow all four options to be sold in the 400-500 count display boxes, there is the option to place an organizer on location and offer the smaller 50-100 count sub packs. The lower price point also reduces the possibility of invoice shock.
Instant cocoa is a year-round seller though the colder season brings with it a spike in demand. And while the demand (craving) for chocolate is about as universal as any product, the account penetration in my experience is rarely above 50%. One option to increase sales is to conduct a two-pronged campaign for your route professionals. The first segment of the campaign should reward new account placements. The second portion of the campaign would reward total dollar sales versus the prior season. Setting a minimum performance bar before monies are paid is a wise move. As with any promotion, the payout should be self-funding.
High-end hot teas and tisanes continue to grow in popularity. In an earlier article, I covered my personal experiences and impressions, all of which were positive. Providing alternative afternoon beverages for one’s employees is a moderate-cost amenity that will provide an up-lift in mood and hopefully an uptick in employee performance.
The list of revenue building new product sales is a long one. And though an operator must weigh out the downsides to an expanded menu, there is a legitimate opportunity at most every account to drive revenue well into the double-digit percentages range.
Good luck and good selling!
By Ken Shea