Jack Keough: Fastenal "Becoming Much Better" At Vending Business

Jack Keough discusses Fastenal CEO Dan Florness' July 12 comments on the company's state of industrial vending, including its ongoing optimization plan and progress in Onsite signings.

Fastenal, No. 12 on Industrial Distribution’s 2015 Big 50 List, is becoming even better at one of its core competencies — its vending machine business that accounts for nearly 45 percent of revenues — CEO Dan Florness told analysts in a call following release of its Q2 earnings.

"I believe we have a much better business vending business today than we did six months ago," Florness said, according to a transcript of the call as provided by Seeking Alpha. "We continue to see great traction in our signings and every day we are doing a better job and getting more new signings. We are becoming a much better vending company."

During the first two quarters of this year, Fastenal signed 9,516 devices, more in the second quarter compared to the first quarter. Fastenal also added about 230 employees to support vending and drive new signings.

Fastenal has undertaken a plan with these new employees to optimize its existing devices.

“In many cases that optimization involved adding products into the machines to improve the throughput of the machine," Florness explained. "In some cases it was changing the configuration of the machines to improve the efficiency of replenishing the machine and so an optimization is an all revenue based and might be service based aspect."

That optimization plan also meant that the company removed 7,200 machines in the first six months of this year as it went through its optimization process.

"Unfortunately some of the machines we removed were examples where we had the machine in an environment where either the business had changed or the business never truly justified the vending machine and we went from one to zero or two to zero," Florness added.

The company's count of installed vending machines at the end of Q2 was 58,346, up 15.3 percent year-over-year and up 5.1 percent since Q4 2015. Fastenal said vending comprised 44.6 percent of total sales in Q2 while daily sales to customers with industrial vending were up 2.7 percent year-over-year. Beyond that, Fastenal said daily sales of non-fastener products to customers with industrial vending grew 5.9 percent YOY, while daily sales of fasteners to customers with industrial vending contracted 5.1 percent.

The growth of vending has been phenomenal for Fastenal. Five years ago there were only 7,000 vending machines in place.

Fastenal’s Q2 was also highlighted by its Onsite signings. Onsites involve Fastenal setting up a store inside a company’s facility and can lead to a closer relationship with those customers. In the first six months of this year Fastenal signed 92 Onsite customers, 48 in the first quarter, 44 in the second quarter. The company’s goal is to have 200 signed this year.

"So far, I believe in the first two quarters of the year we've made a tremendous transition in our ability to sign Onsites," Florness said.

About 75 percent of the Onsite agreements have been with national account customers.

The company has also seen success from its new locker program with Wal-Mart that was instituted this year. The locker service is designed to store on-line purchases from retailers at a number of Wal-Mart sites. Shoppers who choose to use the locker service will be notified when and where their item arrives and use an access code to open the locker. Wal-Mart will store the items for about two weeks after delivery. Wal-Mart will store the items for about two weeks after delivery. Internally, the locker system improve asset management, allowing the store to place valuable assets like portable mobile comptuers, printers and high value equipment in the lockers. Wal-Mart sets check out and return rules for employees using Cloud software from Apex Supply Chain Technologies, which alerts Wal-Mart if an employee doesn't return an asset in a defined amount of time.

"We think it's an excellent program for us long term," Florness said.

Florness also mentioned the company’s outdoor locker program that was unveiled last year.  

"As of today we have approximately 30 outdoor store lockers in place. We expect to have about 50 by September," he explained. "And while it's not very meaningful from a revenue perspective when I look at 2016 or 2017, it’s one more step we're taking to be a much better supplier to our customers."

As reported by ID on July 12, Fastenal reported Q2 sales of $1.014 billion, up 1.6 percent year-over-year, while profit of $131.5 million decreased 6.3 percent. Daily sales also increased 1.6 percent. Sequentially, total sales increased 2.7 percent from Q1.

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