Vending Machine case study: Background

Situation:  Office Vending Services, Inc. is the market leader

in office vending machine services
 The business services provided include sales and
delivery of product, restocking of machines, and
repair of faulty equipment

Complication:  Profits are substantially down in the business

Key question:  The CEO of Office Vending Services needs Bain to

assess the root causes of the profitability decline

CHI Vending Machine Case 1

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Office Vending Services market trend

Total market sales CAGR

Total: 3%
$500M
Others 17%
400 Candy & Pop Co 22%

300
Vend International
44%
200

Office Vending Services

100
(20%)

0
1996 1997 1998

In a growing market, OVS is losing market

share
Source: Market Research; Company Annual Reports; Office Vending Services Financials CHI Vending Machine Case 2
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Office Vending Services cost per delivery
Cost Per Delivery

$125
$105
Other
100 $95 $94
Repair

75 Delivery

50 SG&A

25
COGS

0
Office Vending Vend Cand & Pop Co
Services International

OVS has a higher cost structure

Source: Financial Statements & Annual Reports CHI Vending Machine Case 3
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Customer satisfaction

Importance/Performance: 1=Low, 10=High

10 10
10
9

8 8
8
7 7

6
6
5 5 5 5

4 4 4 Cand &
4 Pop Co
Vend
International
2 Office
Vending
Services
Importance
0 Price Product Variety/ Delivery Machine Complaint
Selection Reliability Service/Repair Resolution

Source: Bain Customer/Market Research for Office Vending Services (n=3500) CHI Vending Machine Case 4
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Summary

• Profitability falling due to lower quantity sold

- Lower quantity sold, lower capacity utilization
- Decrease in capacity utilization, increase in fixed costs as a percentage of
sales

• In a growing market, we are losing share and our costs are high
- According to customer satisfaction, we are good at what customers don’t
care about (repair), and terrible at what they care about (price)

• Solution is to re-allocate investment from the areas where we are over-

delivering to those which the customer values most
- Ex. Reduce focus on machine repair and increase product variety/selection

CHI Vending Machine Case 5

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.
Task 2: What should our client do?

Background:  Our client is experiencing declining profitability

 This has been caused by a decrease in sales volume

Next Step: • What can be done to reverse the trend (i.e. why are
sales decreasing)

How do we evaluate what to do?

CHI Vending Machine Case 6

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Interviewer notes

Cost = Fixed Cost + (Variable Cost

Revenue = Quantity * Price
* Quantity)

Variable Cost =
Price =PP
Price = Quantity
Quantity ==QQ Fixed
Fixed Cost
Cost ==FC
FC Variable Cost = VC
VC

Q: “Have prices “Has quantity “Have fixed “Have variable

dropped as a dropped as a costs increased costs increased
result of result of people due to due to more
increased buying less at significant expensive raw
competition?” our vending investments?” materials?”
machines?”

A: No Yes! No No

Profit is declining due to

decreases in quantity
CHI Vending Machine Case 7
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 Interviewer notes, part 2

Determine the factor(s) that is affecting our sales decline

4C’s

Customers Competitors Costs Company

Q: “Have the “Have our “Are our costs “Does our

demographics of competitors different than company
our customers been taking some of our possess a one
changed?” away market competitors?” of a kind
share?” capability?”

A: No Yes! Yes! No

CHI Vending Machine Case 8

This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent.