Operation Profile: Ahead of the Curve

Advances in technology continually disrupt every industry, but business owners who can embrace these disruptions and turn them into opportunities often find that the reward is worth the risk. For Tahoe Vending/Sonoran Coffee & Food Services, a thriving operation which serves the communities surrounding Reno, Nev. and Yuma, Ariz., technology is the driving force.

Tahoe Vending/Sonoran Coffee CEO Jarrad Duxbury is one of the company’s four managing partners, along with Colin Watley (CMO), Diana Koether (CFO) and George Caruso (CTO). Duxbury was introduced to the vending industry back in 2010 through a friend who was a route driver at Phoenix-based Ace Vending, which was one of the largest independent vending companies in Arizona at the time. Duxbury’s friend had recently taken over a Pepsi vending route servicing 300 vending machines in Yuma.

“I was in construction at the time — that was still fairly deep into the recession in Phoenix,” Duxbury explained. “The construction housing bubble had popped. Construction was just ugly and brutal, and it seemed like this vending company was growing. My friend needed help, and the next thing I knew, I was in. I never looked back.”

Duxbury said the owners of Ace Vending were very encouraging and that he trusted their experience and wisdom. With such a supportive network, Duxbury felt confident to go all-in on technology. 

Technology tools from day one

When we started out there were no micro markets, cashless or credit card readers on any machines,” Duxbury recalled.

“We didn’t own any assets other than snack machines. It really was just a cash-based vending business. We got aggressive on the technology side with some of our own ideas and communication with Ace Vending. We had a parallel vision with them; the idea was that cashless was going to become more important."

Duxbury admits that his first couple of years in the industry involved “just surviving” and trying to learn as much as he could about vending. However, from day one, he was using tech tools like vending management software (VMS) Streamware and prekitting.

“In a smaller market like Yuma, that immediately gave us a distinct advantage over our competition because we were more efficient and our trucks were capable of servicing more machines a day,” he said. “That was a baseline that we started with, making things much more efficient in the warehouse and on the routes.” 

By 2012, Duxbury felt that he had basic operations down and was ready to think — and act — more strategically. He said that when he learned Avanti Markets had introduced micro markets to the industry, he knew that customers would want a new experience beyond vending machines. Any free cash flow went into investing into technology for the business, including cashless and telemetry on the vending machines, kiosks in micro markets, and office coffee, bottled water and pantry services.

“We just always doubled down on technology — we probably had more courage than brains, but we were intelligently ignorant. We didn’t know what we couldn’t do,” Duxbury recalled, laughing. “I think that a lot of people in the industry were reluctant to spend the kind of money that was required at that point to upgrade equipment the way that we were, especially considering our size. But we just saw it as the only pathway to long-term survival and growth, and, eventually, outperforming our competition. We really haven’t stopped that.” 

Micro markets change the game

Duxbury oversaw the installation of the company’s first Avanti micro markets in 2012. He said this was a “game-changer” as theirs was the only company in the area offering micro markets.

“The revenue jump was substantial — I would say close to triple-digit — converting our vending accounts to micro markets,” he said. “It gave us a pretty powerful sales tool when we were going after competitors’ accounts.”

At the same time the company launched micro markets, they also started deploying credit card readers in vending machines as fast as they could, installing Crane Merchandising Systems’ Navigator telemetry platform. He noticed that when his company installed the credit card readers, their overall vending sales climbed 14%. Cashless sales grew significantly as well, leading Duxbury to feel confident that they were on the right path.

In 2014, Duxbury and his partners made what he described as an expensive yet necessary choice: purchasing glass front vending machines, which averaged around $4,000 per unit.

“The bottlers had too much leverage,” he explained. “In almost any type of negotiation, they would point to their investment in their equipment that they were allowing us to use. If we tried to negotiate a price or a larger rebate, their response would almost inevitably be, ‘Well, because we spent so much money buying machines for you, we can’t do that.’ So, we wanted to deleverage the bottlers and buy our own equipment.”

Duxbury also noted that once they owned glass front beverage machines, they could save valuable space in break rooms by merchandising a variety of products in the same machine. Customers were happier, too, and Duxbury said the company experienced a 61% lift in gross sales. The company had also moved from static scheduling to dynamic scheduling, resulting in greater efficiency in routing and increased revenue per route. As the company grew more efficient in managing vending and micro market routes, Duxbury said they hoped to expand into office coffee service (OCS).

“We wanted to get into [OCS] for all kinds of reasons,” he said. “The ROI looked better on the equipment, and having an accounts receivable revenue stream from a simple cashbased business looked great when we were looking at growing and talking to banks and financiers.”

The company’s geographic region created significant barriers to OCS.

“Yuma is extremely hot — it’s 120 degrees at the peak of the summer,” Duxbury said. “It’s also not a major metro area. You have a few large accounts that were willing to pay for coffee, so we only got so far and not as far as we wanted. While we were looking at how to bring anything consumable into an office, we found out that everybody wanted bottled water because it was so hot. So, we really became more successful with bottled water than we ever did with coffee down in southern Arizona.”

The warm climate also led Duxbury and his partners to invest in fully refrigerated box trucks in 2016.

“Because of geography and the extreme heat, we wanted to reduce the liability of carrying potentially hazardous foods in markets, so we started to buy and operate fully refrigerated box trucks with digital controls inside the driver’s dash,” he said.    

A change in direction

The extreme heat wasn’t the only issue with southern Arizona. Duxbury and his partners, who had also expanded into Tucson in 2014, realized they only had so much growth left in the area.

“We started to talk with Canteen,” Duxbury said. “My partners and I really liked the idea of working with Canteen long-term — at the time, we were competing — but we wanted to continue to work with a large company in the industry.”

In 2014, Duxbury and his partners sold the Tucson branch to Canteen and signed a franchise agreement for Yuma. This paved the way for further expansion into northern Nevada in 2018, where Duxbury said there was a “hole in the map” in the Canteen franchise network at the time.

“We wanted a new market to grow into and we’d heard good things about the economy up in northern Nevada. So, in early 2018, George Caruso and I flew up to Reno and took a look around,” Duxbury recalled. “It looked like a phenomenal market to us. The Silicon Valley tech companies had figured out they could save money by having operations in northern Nevada, and it was a 35-minute direct flight from San Francisco. The local government helped this vision along; they built the largest industrial park in the United States just 15 miles east of Reno. The local economy diversified very quickly as Silicon Valley technology money started pouring into this small metro area with only 450,000 people."

A fresh start

Tahoe Vending opened their northern Nevada warehouse doors in July 2018 (the Yuma branch still operates as Sonoran Coffee). Duxbury now travels back and forth between Reno and Yuma, and three out of the company’s four partners relocated to Reno along with many of the company’s middle management, drivers and technicians.

“We had a completely fresh start,” he recalled. “So, the first question was, ‘What technology do we want to use?’”

Duxbury said they decided they wanted to own every machine outright. They bought new vending machines with built-in credit card readers and RFID capability (enabling customers to use mobile payment options such as Apple Pay) from Crane Merchandising Systems. They were also starting to see the value in the capability to advertise digitally through their equipment’s touchscreens.

“Crane was really at the forefront at that time in pushing advertising,” he said, noting that ADA compliance was another benefit Crane’s machines offered. “They were starting to work with multiple different vendors in developing advertising contracts. We went with the Media Platform with 4G radios with Crane telemetry built in, cashless built in and LED lighting so the machines use less power than fluorescent counterparts, and they looked quite a bit nicer.”

Duxbury said that since the company was already using Streamware for its VMS, they wanted to see how they could use their software better. They gravitated toward Simplifi because it offered the capability to move away from Motorola handhelds and into iPhones.

“A lot of our employee base was in their 20s and 30s, so for our technicians and drivers, it was much more intuitive and easier to use on an iPhone rather than a 15-year old Motorola handheld,” he explained. “Simplifi also had the capability to look at snapshots of data that was relevant to us whether it was product information, daily sales, revenue, costs of goods or other key metrics. It had the ability to look at the data faster and simpler than  Streamware did. So, we decided to run both side by side at the same time.”

Tahoe Vending also built an entirely new database for its Nevada operation as the leadership team wanted it compartmentalized and separate from Sonoran Coffee.

“We wanted to structure it differently and didn’t want any confusion in reporting,” Duxbury noted. “Streamware recommended Tech2Success to help us do remote hosting of our servers. We like being vertically integrated, so we took a look at having our own servers in-house, but when we looked at our own capabilities to scale and the investment in IT and IT employment, Tech2Success was a good fit and more economically viable. So, we partnered with Tech2Success for cloud hosting and that’s gone really well.”

Duxbury said Reno’s booming economy made it an ideal place to expand operations, particularly for OCS.

“All kinds of accounts are willing to pay to get that perk of office coffee to help retain employees,” he said, comparing the region to Yuma. “It’s not 120 degrees in the summer, there are cold days in the winter, so office coffee really became much more hyperbolic when we came to Nevada.”

Noting that Canteen has a strong relationship with 365 Retail Markets, Duxbury and his partners made the decision to expand micro markets in both the Reno and Yuma markets with 365.

“365 supplied us with internet-connected temperature sensors so every single freezer and food refrigerator that we put out is connected online,” he said. “So, we have third-party verification of the temperature of those refrigerators and freezers. We really liked the capability to know what happened on a given day or time. That gave us some relief; we really wanted to reduce that potential liability.”

While Duxbury has prekitted from day one, he noted that LightSpeed Automation took the company’s prekitting abilities to an entirely new level.

“It’s one thing to prekit. It’s a whole other thing to prekit using LightSpeed,” he enthused. “We use LightSpeed Mobile, which makes us as fast as we can reasonably be. And, just recently, we started working with LightSpeed to use Level, their inventory management software. We’ve been very impressed with it. We’re starting to use it for generating our purchase orders instead of ordering direct with our vendors, and we’re using it to ultimately control our cost of goods and reduce the amount of inventory that we have tied up on the shelf.”

Duxbury credits Caruso, the company’s CTO, with keeping Tahoe Vending and Sonoran Coffee on the leading edge of technology.

“He’s been pretty relentless,” Duxbury said. “All of us partners have been in alignment. We would not have been able to scale at the rate we have without consistently using technology to gain efficiency.”    

The rise of COVID-19

Like most businesses in America — and the world — Tahoe Vending and Sonoran Coffee have been impacted by the rise of the coronavirus pandemic. Duxbury’s main concern is the safety and health of his employees and clients. He said they have taken extra precautions beyond their already strict hygiene and sanitization practices to prevent the spread of COVID-19 among their accounts, particularly in micro markets that serve essential businesses, like hospitals and food and beverage retailers.

“Our industry services essential businesses, and we go from one to the other, especially as we’re losing the non-essential customers,” Duxbury explained. “And that creates a pretty unique responsibility and problem, specifically for micro markets. If you have a micro market driver going from one essential business break room to another, the odds of that micro market driver coming into contact with COVID-19 is probably fairly substantial.

“I can see our industry spreading this into break room after break room if we don’t take a lot of responsibility for how we’re operating the markets,” he added, noting that training the drivers properly and using masks, gloves, hand sanitizer and hospital-grade disinfectants are additional necessary steps.

Duxbury said that he wanted to create an “air gap” between his employees and his clients’ employees to ensure safety.

“We’re prekitting the micro market, loading the prekits on the palettes and then delivering the palettes to their docks,” he explained. “They’ve got a point of contact that’s taking the prekits inside. They’re stocking the markets and then bringing crates back out to us. So, our drivers aren’t coming in and out of their break rooms.”

The company’s longtime affinity for technology is also providing helpful ways to prevent the spread of COVID-19 in their clients’ micro markets. Duxbury said they’ve been installing 365’s 365Beacon devices in all their customers’ markets so users can have an entirely contactless payment option.

“We can plug the device in and link to the kiosks and create a Bluetooth network,” he said. “After the employees download the [365Pay] app, they’ll be able to make purchases on their phones instead of touching the kiosks. We’re trying to eliminate the central point of contact that everybody touches — the kiosks.”

While the effects of the coronavirus pandemic on the industry are yet to be known, he advises that all operators take necessary safety precautions. “I really want our industry to pay attention to how much responsibility we have to service [accounts] correctly in this time of COVID-19. Because if we’re not careful, we may be the weak link that shuts these businesses down.” 

Looking forward

As for what drives Duxbury each day, he doesn’t look at the company’s past accomplishments. Instead, he looks toward the future.

“I love working with friends and family. I like that my children — and my business partners’ children — can see an entrepreneur’s perspective,” he said. “I like seeing employees grow. When you have an employee that buys their first house and they’ve done that using their career with you, that’s pretty rewarding. I like the creativity and I like the freedom of being able to work hard, but structure it at my will. I have a 6-yearold, a 5-year-old and a 2-year-old. I still work full-time and then some, but four out of five days I get to go pick up my kids from school. It’s a beautiful thing; it really is."