Untapped revenue market: Honor boxes

How to serve smaller locations has always been a challenge for vending operators. The answer, it turns out, is an old one - honor boxes. Mark Legler, owner of V.E.N. Enterprises, has a thriving vending business, half of which consists of placing and servicing honor boxes.

No maintenance, easy servicing and minimal upfront cost compared to vending make up for the lower revenues from honor boxes, according to Legler. He has some vending accounts, but only because certain locations have multiple shifts with too many people to remain honorable. "I'd have all honor boxes, if I could," he said.

Getting new accounts is easy because of the small number of honor box operators, but a quarter of Legler's new business doesn't evolve into a long-term contract. The attrition rate means he is continuously adding new business.

Acquired honor box vending

Before his vending company, Legler worked in the trucking industry. When the company he worked for moved to another town in the fall of 2000, Legler wanted to do something else, something close to home and different. During this time he ran into Harold Gooden who operated a 100-account honor box business in the Remington, Ind. area. Gooden wanted to retire and sell his operation.

"It sounded like a fun thing to do, better than trucking," said Legler when he decided to buy the business in September. He wasn't thinking long term, but knew from the start the key to success was in getting more locations.

As Legler started knocking on doors trying to add honor box accounts, he discovered a vending niche for locations around 20 to 75 employees. "The factories were covered, but the smaller places in vending were not being served," said Legler." He decided to add vending services for these locations.

Currently, Legler has 150 vending account and 2,500 honor box accounts and serves a 70- to 80-mile radius around Remington. The revenue is roughly 50/50, half from honor boxes and the rest from the vending accounts.

He started out renting a portion of a friend's garage for his warehouse, but quickly outgrew the space and rented a block building with no heat or air conditioning. "They were some cold winters," Legler remembered.

In 2008, Legler bought the current building from his brother in law and sectioned off a 2,500-square-foot section for his warehouse, adding climate control. He plans to rent out the rest of the 12,000-square-foot building.

Recession: vending turns to honor boxes

One trend Legler has noticed is during the current recession, companies have been reducing staff. Some of his small vending accounts became honor box accounts because of the shrinking employee numbers. And some honor box accounts closed completely. "We have to be adding accounts constantly because they're closing," he said.

Legler charges two prices in his honor boxes, $.75 for snacks and a dollar for candy. "I had gone away from candy because it cost more," said Legler, "but people argued and fussed." He agreed to put candy back in, but at a higher price point. Customers didn't complain. They pay the premium price. "I don't think I could put more candy bars in than they would buy," said Legler.

An interesting difference Legler sees between honor boxes and vending machines is what people will buy. Honor box patrons are more likely to buy a granola bar, for instance. The granola bar doesn't sell as well in the vending machine. Other items Legler sells more via honor boxes than vending machines are the cracker and cheese combos as well as certain snacks like Combos and Snackwells. Legler doesn't have a reason for this. He guessed that it might be what customers buy after the candy bars are gone.

Legler has a retired couple come in three days a week to pack the boxes. Before them, he hired various people from the town to pack boxes, including his own kids on Friday night when he first bought the business.

Honor box service is fast

It takes 15 seconds to service an honor box account since the driver goes in with a full box and brings back the old one regardless of what's left. This means Legler's route drivers can do 70 or 80 stops a day versus 12 or 15 vending stops.

Legler doesn't always separate out the vending and honor boxes routes. Many times the route drivers will do both, whatever works best with the geography of the accounts. Most days Legler still runs a route himself.

Shrinkage factored into cost

The only real drawback to honor boxes is shrinkage, which Legler estimates to be about 18 percent. He factors that into his costs and the price he charges.

"The key to getting them to pay is a relationship with a person at the location, either the boss or the people sitting in the breakroom," said Legler. If there's been some theft, he will go to the person, or people, and say "There's X amount of money missing, come on -- help me out here." According to Legler, this approach only works with someone he knows. Otherwise, the person gets defensive, and more often than not, doesn't renew the honor box service.

"Plus, it's harder to steal from someone you know than just some invisible route guy," added Legler.

Legler has honor boxes in small rural areas as well as city locations and in many types of business. He does not see one place or type of location as having more or less shrinkage on average. He does notice that a location with more men tends to do better than having more women. "They eat more," he said.

Having both doesn't work

There have been times a location has asked for both a vending machine and an honor box, but Legler finds this doesn't work well. "If they have money, they spend it in the vending machine. If they don't, they take it from the honor box," he said. The only exception is soda machines, which tend to pair well with honor boxes.

While the vending machine side has higher revenue per account, the drawbacks are expense and maintenance of the machines. Legler repairs the machines himself, often with the help of the manufacturer's telephone helpline.

Unsaturated market

While Legler used to sell all the accounts himself, for the past five years he has hired an independent salesperson to help him grow his business, Harry Movsesian. Every few months Movsesian takes a number of prepacked boxes and heads to a city Legler has targeted for new business. He stops in and talks with the decision maker. If it's a location V.E.N. already serves, Movsesian turns the interview into a service call. If not, he delivers an honor box and brings the business card back to Legler.

"I couldn't have gotten to the size I am without Harry," said Legler.

Of the new accounts, Legler estimates in the next two months, he'll retain 75 percent. These accounts will likely stay with Legler a long time. "I still have most of accounts I bought from Harold," he said.

The other accounts will either decide they don't want to renew the honor box or will have shrinkage rates that are too high.

Legler doesn’t offer commissions to honor box locations and only 20 percent of his vending locations get commissions. He values both halves of his business, but he sees a real benefit to honor boxes. "There's still a market out there for honor boxes," he said.