Last week, while driving through the wilds of Jackson, N.J., I stopped into a new bagel store. In Jackson, you don't get real Brooklyn bagels but I figured what the heck. As I entered the store I was pleasantly surprised that the bagels looked pretty good. Once I got home and smeared an Everything bagel with some nice cream cheese, I was happy. Six bagels were $4.80, so that's 60 cents each. I wonder what it cost to make that bagel.
A business like that can work on hundreds of percent gross profit. Many distributors in our industry work on single or low double-digit margins with most product lines. There's usually an opportunity to make it up in service, finance, parts or somewhere else.
Even so, I actually believe that there is room for more distributors in certain geographic areas of the U.S. In some major markets, there are only one or two choices on where to get product when just a few years ago maybe a half dozen distributors were viable.
Most manufacturers are willing to support healthy distributors who will expand into an under-served territory as long as they feel that their product will be well represented and given a chance. In today's environment, some distributors have made a deal for exclusive rights to certain product lines in a defined territory. What about the other similar product lines that are under supported? We see that more today with jukebox lines than anything else.
In an effort to up their margins, I have heard that at least one distributor is "trimming the fat" by laying off their most expensive people and replacing them with temp workers or less skilled, less experienced staffers. Of course, they can increase their margins and short-term profits go up, but the quality of their service goes down. It probably does more damage to the morale of their employees as well.
Even big business gets squeezed. Look at General Motors. Can GM ever go back to selling cars without an "Employee Discount?" If you have seen the prices of some of the vehicles now offered for thousands of dollars lower than before, you wonder what their margins are. How do they top that next time, maybe "buy one get one free?"
Some ways to become more profitable include raising prices and cutting expenses. Usually the marketing/advertising budget is the first to get cut, but that's the last place cuts should be made. Without marketing and advertising you may not be able to sustain and drive sales. If you try raising prices you may meet with customer resistance or other competition at lower prices for the same goods or services you sell.
Gasoline prices seem to only go up, but we keep buying gasoline. Your goods or services may not be as important to your customer as gasoline. Like many operators stuck at the 50/50 split, how can you change your pricing overnight and have that translate to your bottom line? The easiest answer is to create a monthly budget and stick to it. Somewhere in your budget, you should have a pretty good idea of your costs and expected income. They may need to be adjusted for seasonal variances and unexpected occurrences.
Include in your budget an amount of money to be reinvested in your business. That's either in the form of equipment, technology, employee training or expansion, fixtures or assets. If you do not reinvest in your business, you will choke it over time, especially in our industry. Operators can recycle good, used equipment, but it gets increasingly difficult to go into a new location with old equipment and be competitive with other locations.
The Internet seems to play a role in holding prices down for some products. The ability for a dealer in one area of the country to sell the same item at a lower price has prevented those items from experiencing a significant price increase. Comparing the same item to the same item is the key.
We all hear about competitors making claims like "we have the lowest price" or that they will meet or beat the competition's price for the same item. Usually when you start to compare, they are not the same exact item. Manufacturers make a slightly different product for Vendor A and Vendor B so while the products can virtually be the same, they may vary in just the model name or item number. Therefore, the consumer can never truly compare a red apple to a red apple and work those guarantee claims down to their advantage.
While margins and selling prices are very important components of a successful business, we must also turn our attention to the value-added services that our customers receive when they choose to do business with us.
If you're an operator, you know that prompt service to your location will keep your customers happy and your location profitable. Distributors should know that they cannot continue to cut staff and provide quality service. Manufacturers should explore ways to do it better or cheaper before they raise prices. We must all be profitable and work to provide the best we can for all of our customers. In many cases, your customers will pay a higher price if they understand that they will receive a higher level of service or a better quality product.
Keep thinking of better ways to do business, and the opportunities will present themselves to you. The harder you work at it, the luckier you'll get!
Jack Guarnieri started fixing electro-mechanical pinball machines in 1975 and has been involved in every phase of the coin-op game business since then. He operated a substantial game route in Brooklyn, N.Y., developed amusement centers and was called in as a consultant to manage Mondial Distributing and State Sales in New Jersey. In 1999, he founded PinballSales.com to sell coin-op to the home market. In 2002, he founded ShuffleAlley.com and released the Parker Bohn III Pro Bowler game, reviving the shuffle alley. His positive attitude, honest insights and opinions have made him a popular figure in the trade. While managing and growing his businesses, he still consults inside and outside the industry, and his marketing, promotional and business management expertise are widely sought. He's very active in his church, community and charitable causes as well. You can learn more at his websites (www.PinballSales.com and www.ShuffleAlley.com) or by phoning him at 866/323-JACK. Email is Jack@Pinballsales.com.
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