They Are Legend

This up-and-coming convenience services company has been busy buying and building legacy vending operations – and rolling up its sleeves to do whatever it takes to maximize performance at new and existing accounts of any size.

Operating from dual headquarters in Connecticut and Maryland, Legend Food Service is an omnichannel provider of vending machines, micro markets, coffee, tea, pantry and water to workplaces. Its recipe for success starts with the deployment of the best unattended retail technology, an investment in its internal systems and a steadfast commitment to its people. In this context, Legend was able to maintain its service and operational planning cadence during the lowest points of the pandemic lockdowns, then accelerate the deployment of all its resources to meet the unpredictable demands through the reopening phase.

Legend arrived on the scene five years ago by acquiring an established full-line vending operation, Automated Services, which had served the New Haven area since the early 1970s. Legend, which is headquartered in neighboring East Haven, officially rebranded in 2020.

Legend purchased three more Connecticut operations and is now taking its brand farther south. In May, the company announced the acquisitions of Maryland’s Vending Plus in Linthicum Heights (near Baltimore) and Jel-Cap Vending of Windsor Mill, and in September it added Prince Frederick’s Varsity Vending and Micro Markets to its emergent mid-Atlantic service platform.

“The Legend team saw an opportunity in the vending space in 2017. We saw there were a couple of private-equity backed rollups and some large independents, but not much in the middle,” said Legend Food Service chief executive Kyle Loughran. “We saw an opportunity to build a network of strong, local operators and provide them with the capital and infrastructure that are typically only available to the ‘big guys.’”

“Maintaining strong local relationships, leaning heavily on technology and giving the business the capital to grow, the sky would be the limit for that team,” Loughran added.

For this reason, Legend placed its newly acquired New Haven operations on vending management systems and moved into a new warehouse with enough space to support four times the size of the combined businesses.

The additional space was needed. During its first year, Legend’s micro market sales increased 300%. Loughran gives much of the credit to “great local management,” especially David Murphy, the company’s general manager in Connecticut. “He’s done an incredible job,” he said.

Creative potential  

Looking at the backgrounds of Legend’s young executive team, one might think they should be working at banks, tech startups, Fortune 500 companies, even the Defense Department. “We are very much non-vending people, which makes it all the more humbling when we encounter great people in the industry,” Loughran said. “We know we will never be the best managers of any of our locations. Rather, our job is to bring in the best minds in the industry and empower them to conquer their markets”

Loughran and Nick Duda, who heads corporate development at Legend, both come from the private-equity world, but they realize financial sponsors cannot outsmart the industry. “It does not work,” Loughran underscored.

As outsiders, however, they do like to challenge paradigms.

“Whether it’s technology, merchandising or price increases, we aren’t afraid to experiment with something new to see what works and what doesn’t,” Loughran said. “It’s part of our thesis that if we can alleviate some of the operational burdens at our branches, and leave them well capitalized, they will have the luxury to try out more innovative ways to serve customers and find more efficient ways to run the business.”

To better assess what works, Legend Food Service aligned with unattended retail tech company Vagabond Vending, which furnished it with a better understanding of convenience services and technology’s effect on the channel’s customers. The vending operation has deployed Vagabond’s cashless products and consumer-engagement applications at several accounts.

Before fastening the operator’s keyring to his belt, Loughran cut his teeth in the corporate world at Cvent, a software-as-a-service company specializing in meetings, events and hospitality, and PricewaterhouseCoopers, one of the Big Four accounting firms.

Duda worked in the accounting field, too; he’s a CPA and CFA. Prior to starting his vending career, his job was identifying co-investing opportunities at a family investment firm, which had an office coffee and pantry service. At the time he did not know there was such a thing as a professional “pantry” service, but nevertheless he experienced how top-shelf snacks and coffee amenities, available in a communal environment where coworkers can meet, can bring joy to the workplace.

“As I got closer to the unattended convenience space and better understood its value, I realized how impactful our products can be,” Duda said. “Having had these end-user experiences, they focus us on the wellness of employees and the products they want.”

Micro markets can be a powerful productivity and incentive tool for employers, Duda emphasized.

“They’re an opportunity for the employer to recognize employee excellence, which creates occupational wellness, and an opportunity to lead in physical wellness by providing easy access to quality hydration, nutrition and caffeination that employees need and want,” he said.

“There’s also an opportunity for social wellness in the ability to gather in the breakroom,” continued Duda, recalling his years as a corporate office denizen. “With camaraderie comes purpose and belonging – ultimately engagement – which drives profitability.”

In that sense, Duda never left the investment industry. At Legend, his job is to find ways to create value for employers by delivering wellness and cutting-edge breakroom services to their employees. “We know we can excite and delight through the breakroom experience day in and day out, which makes us a trusted partner,” he said.

Legend’s vice president of operations, Kevin Koehr, spent the first decade of his professional life in military service, specializing in logistics and operations for the U.S. Army. Afterward, he gained valuable business experience working for government contractors. He joined forces with Loughran when Legend made its first acquisition in Connecticut.

“The most enticing aspect of joining this industry was the ability to be creative,” Koehr said. “With so many new points of sale and products coming to market, it’s an exciting challenge to find the best combination of that for the best customer experience – done efficiently.”

His military mindset – “situational awareness” in army lingo – allows him to see how every operator, customer and market are different. For Koehr, Legend’s acquisitions allow the company to grow its expertise by assimilating the experiences of a company’s team and the lessons they learned.

Customer acquisition is a key part of Legend’s growth strategy. As chief revenue office, Ben Adams is spearheading that effort. Adams spent 15 years in the real estate world, working at some of the nation’s largest property and development firms, including Grubb & Ellis in Washington, DC, and Kane Realty Corp. in Raleigh, NC.

“While I’ve worked on many different types of transactions from office leases to developing grocery stores in the Northeast, my main focus was business development,” Adams said. “The skill sets I’ve always needed in the past are complementary to those needed to lead and scale the sales and marketing function at a fast-growing business.”

Demand shock

Few industries were able to escape the rapid demand shocks brought on by the coronavirus crisis, especially service organizations. Demand shock is an unexpected event that dramatically decreases or increases the need for a product or service, usually temporarily. Where COVID-19 grounded airlines, for instance, it overwhelmed customer-care centers. For vending, micro market and office coffee providers, which exclusively operate on other businesses’ premises, demand almost entirely disappeared after mid-March 2020, after the official call of the pandemic.

“While we kept things going, the pandemic certainly slowed down our plans,” Loughran said. “In the fourth quarter of 2020 we returned to acquisition mode.”

As was the case for many operators, COVID shut down or greatly reduced staff at many of Legend’s accounts. But the downtime also created opportunities to improve its internal systems and strengthen connections with its vendors and partners.

“As a team, we were able to get into the nitty-gritty of finding different, more flexible ways to service customers without the comforts of a healthy market,” Koehr pointed out.

“COVID reminded us of how impactful our product is,” he added. “Anyone close to distribution and logistics kept this country running during the crisis. The essential worker supply chain kept the heartbeat of this country going and we fueled that. There’s patriotism in those efforts, and I salute all the operators around the country, including our teams here at Legend.”

A few months into the pandemic, operators began getting calls from locations needing food and beverages as they began bringing back employees in limited numbers. Many of these businesses had reduced staff; and often inconsistent schedules: on one week, off the next, for instance. By rapidly assessing demand and matching supply, Legend was able to respond to these calls. And its willingness to break norms and find ways to provide good service and operate profitably, allowed it to deliver a vital service to the workforce.

“Where a client might have had 300 employees, pre-pandemic, and wanted to make a switch to Legend, but now had only 40 people in the office,” Adams observed, “it’s an account most people wouldn’t have taken previously, but now you must figure out how to service that account and work with the customer as they scale back. Given our efficient management model, we’re able to make decisions quickly and adapt to the changing workplace as we return to whatever the new normal might be.”

The coronavirus also accelerated balance in the business-to-business dynamic, according to Duda.

“COVID-19 certainly makes you think about the kinds of business that operators are looking to develop, acquire or divest,” he said. “Not all business is good business, and operators need to be wary of entering into contracts where economics are imbalanced. Vending management companies and employers recognize the tremendous value we bring to them. They want quality, consistent service that they know Legend Food Service can deliver.”

Reopening pains

While mass location closures were the agonizing business reality of 2020, keeping up with the reopenings and new business in 2021 is proving to have its own pains.

“But this is a good problem!” Loughran said. “We’ve had to keep an eye on cash flow to make sure we don’t overextend ourselves, but again to our thesis, we believe in investing in our locations so that we can deploy equipment and service accounts more effectively than our competitors.”

As locations reopen, operations vice president Koehr has been observing some positive behavior patterns, which bode well for the industry’s future.

“It’s very exciting to see business returning and being there to provide a much-needed service in a world where most employees are now staying in offices during breaktimes,” he said. “Building high-quality micro market solutions is a focus to help our customers grow their teams and productivity. We continue to analyze, experiment and implement lessons learned.”

Operators in the United States did their best to adjust to and survive the severe economic ailments of the pandemic. While 2020 will be remembered as the most difficult year in the history of the modern vending industry, it will also be the year in which the micro market, a self-service store that operates in a workplace, solidified its role as the core offering in convenience services.

While Legend’s micro market revenue dropped in 2020, sales at markets in 2021 so far, excluding contributions from recent acquisitions, are 30% higher over receipts in 2019. “This increase is the result of organic wins and same-location sales improvement through pricing and merchandising, among other factors,” Loughran reported.

The company’s chief revenue officer termed 2021 as “the year of the micro market” at Legend. “Our existing markets are preforming extremely well as more and more people return to work, and every new market installation of 2021 is outperforming projections,” Adams told Automatic Merchandiser. “The industry’s transition to micro markets may have started years ago, but the pandemic has accelerated the trend, especially as more employers look to eliminate the high cost of a cafeteria.”

The coming OCS revival

Whereas the vending and micro market segments suffered an estimated 45% sales loss in 2020, according to Automatic Merchandiser’s latest State of the Industry report, office coffee and pantry services were hit almost twice as hard that year. AM’s State of the Office Coffee Service report showed OCS sales plummeting about 75%. While almost all operators are exuberant about the potential growth of micro markets, many OCS providers across the country are wondering if their sales of office refreshment products will ever return to pre-pandemic levels. But not Legend Food Service.

“Because remote work is here to stay,” Loughran said, “we don’t think companies will want as much space for an increasingly remote workforce. We think, over time, this will lead to workspace consolidation and more co-working environments. As companies embrace remote work over the long haul, we do not think they will spend more on real estate than necessary.”

Ironically, the shrinking need for office space could benefit the OCS business in some instances, the Legend chief executive predicted. While companies may have fewer employees in a smaller footprint, buildings will then be able to support more companies. Loughran, therefore, is anticipating greater demand for more shared OCS breakrooms.

In the meantime, U.S. employers are struggling to hire workers. “Because of the labor shortage, Nick Duda pointed out, employers need to lure workers back to the office and premium coffee and snack options are effective incentives. A reason why OCS businesses commanded premiums in terms of valuation, he noted, is because of their stability and margin profiles.

“But in the immediate post-COVID world, it’s important to think critically about OCS – is it a program restart or a new program? he asked. “Are new programs more valuable because they’ve been established and recalibrated during the new normal? As part of an expected return calculation, you’ve got to assign the probability to it; what was seen as a certainty has changed and pulled valuations down.”

Duda believes that the best OCS transactions today are those with partners who are willing to share risk, which allows both operator and client to participate in the upside.

Ben Adams echoed his colleagues’ thoughts on OCS. “The new office environment has obviously changed, and hybrid work models seem inevitable,” he said. “On the other hand, some of the largest OCS customers – Google and Facebook, among other giant tech companies – have signed massive office leases during the pandemic, which suggests employers want employees to return, in-person. While the at-office experience may be different, these employers will be looking for new ways to retain talent and entice in-person meetings. For many of our clients, Legend’s OCS products are a very easy give with an extremely high ROI, compared to other perks.”

Among the recent events that an office renaissance is on the horizon, which should provide a jolt of optimism to an industry slammed by the pandemic, Google announced in late September that it plans to buy a sprawling Manhattan office building on the Hudson River. The $2.1 billion deal would be one of the largest ever for a U.S. office building.

SWOT analysis

Depending on who you ask, some of the biggest threats facing the vending industry range from the at-home work culture, convenience stores and food delivery apps, provided by the likes of DoorDash, GrubHub and Uber Eats, to supply chain disruptions and rising product costs. When asked what he thinks, Loughran said, hands down, it’s supply chain issues and inflation.

“It is just so hard to get out in the field and stay ahead of price increases and product swaps,” he said. “While remote work is a challenge, we think it’s temporary as office density will eventually normalize. If we can provide great and innovative products onsite, we aren’t worried about delivery apps.”

However, food delivery apps and convenience stores are better at passing the rising costs of technology and products onto the consumer, something vending operators have been timid about.

“Convenience services providers are hesitant to pass through their cost increases in fear of losing the business, when in fact the value of the service we provide is tremendous. That’s the big difference between those providers and us,” Duda explained.

“We provide the best products in the best locations – on demand – at comparable to slightly lower prices,” he observed. “It’s just a matter of communicating that value proposition to the customer.

“However, rather than communicate the value prop and drive improved service through investing in technology,” Duda continued, “some operators drive their product pricing lower to keep the business. And when an operator tries to sell the business, it doesn’t matter what revenue is if the business isn’t profitable. To get the business profitable, prices need to be raised to the market positions.”

Government affairs

Three years in the industry, Nick Duda is already involved in trade association affairs at the state and national levels. In 2020, the Connecticut Vending Association elected him president. “By understanding the trend lines that legislators are acting on, we believe it’s possible to enhance our advocacy effectiveness through a larger presence,” he said

From his perspective as CVA president, Duda believes government policy will be framed by its ability to balance the budget. “We know that cutting spending isn’t likely,” he warned, “so government will look elsewhere for tax receipts.”

Additionally, he’s concerned that more needs to be done when it comes to the government’s understanding of a micro market. “Many legislators still don’t know what a micro market is, but they do understand self-checkout and it’s our job as an industry to help educate lawmakers,” Duda said. Connecticut is among the states, in the majority, whose legislature has yet to provide a clear definition of and regulations for a micro market.

There’s been some progress, though, in a dozen other states. Most recently, the Tennessee House passed a bill that clarifies the taxation, licensing and inspections of self-checkout micro markets operated in the state. By adding definition to “micro market,” “micro market display” and “unattended” for purposes of sales and use taxes, operators can submit to the state’s department of revenue a single, monthly sales tax return and payment from sales made at all markets.

In Legend’s second home state, Maryland, lawmakers there passed similar micro market codes and definitions in 2018.

Adult recreational cannabis legislation could also have a profound impact on vending, the CVA president said. “Here’s a far-out idea, what happens when biometric identification becomes more prevalent?” Duda asked. “Do cannabis vending machines become more prevalent? I don’t know and neither do lawmakers, but as an industry that can tightly monitor and maintain inventory down to a single unit, we might be best suited to ensure cannabis vending is safe and secure.”

Representing both Legend and CVA, Duda was among the few New Englanders who made the trek to late August’s NAMA Show in New Orleans, where he met with officials from the National Automatic Merchandiser Association and other state trade groups. Incidentally, among the products that caught his attention on the NAMA show floor were 365 Retail Market’s PicoCooler, Elkay’s Smartwell beverage dispenser and the Gimme Key Pro wireless DEX device.

Legend Food Service came into existence when all segments of convenience services were experiencing expansion, when conditions were ideal for growth by acquisitions and new business opportunities. Founded only two years before the pandemic ambushed the convenience services industry, and the world economy, this startup spent almost half its existence during the COVID-19 watershed. A core element of Legend’s operations thesis is to apply lessons learned, and the vast knowledge and experience it gained over the past 18 months could put it on the expansion fast-track. ■