Small Business

Selling Healthy Snacks in Schools


A new law letting the USDA set standards for vending machine fare sold in schools could boost demand for healthy offerings

Jeff Lowell, an assistant principal at Interlake High School in Bellevue, Wash., normally dismisses the e-mails he gets from businesses trying to sell to his 1,500 students. He was intrigued, however, by the pitch he received in September from Fresh Healthy Vending, a San Diego franchise operation that offers vending machines stocked with snacks and drinks it touts as alternatives to junk food. "Everybody [understands] what eating right does for you and how much it ends up affecting your ability to think," Lowell says. "We decided we wanted to try it.

Lowell signed a one-year contract allowing Fresh Healthy to park its machines near Interlake's gym in exchange for 15 percent of profits. In late November, Fresh Healthy installed three machines, featuring goodies such as Kashi granola bars and Stonyfield Farm fruit smoothies, next to older machines that sell Powerade and Dasani water—though no soda—through a long-standing agreement with Coca-Cola Enterprises (KO). The top seller in the new machines so far: Pirate's Booty cheese puffs.

Fresh Healthy is one of more than a dozen small companies that aim to bring healthier fare to school vending machines. To do so they must navigate a tangle of rules created in the wake of a 2004 federal law that required school districts to establish local policies aimed at improving student nutrition and reducing childhood obesity. Those rules prompted the bulk of the 10,500 U.S. vending machine companies to avoid schools. "There were fewer and fewer operators handling school accounts because it was a tough process to find products that met the patchwork of school guidelines," says Ned Monroe, senior vice-president for government affairs for the National Automatic Merchandising Assn. The trade group estimates that just 10 percent of its vending operator members sell in schools now, down from about 25 percent a decade ago.

The hodgepodge of local policies will soon be replaced. Under a law that regulates schools participating in the federal school lunch program, which President Barack Obama signed on Dec. 13, the U.S. Agriculture Dept. now can impose nutritional standards on all snacks and refreshments sold in schools. The national guidelines will make it easier for vending companies to sell to many local districts. Producers are likely to be more willing to make foods suitable for vending machines if they know what requirements they must meet. "Food companies [are] trying to be ahead of the game and have products in the marketplace available to meet those standards as soon as they're published," says Diane Pratt-Heavner, a spokeswoman for the School Nutrition Assn., a trade group of food companies and school cafeteria managers.

Small vending machine operators that specialize in healthy snacks are confident the new law will boost their business. "I can't even tell you the response we're getting since this latest piece of legislation passed," says Fresh Healthy founder Jolly Backer, who launched the company in May to sell and supply franchises. He charges franchisees about $11,000 per machine, which they then manage, ordering from Fresh Healthy online and restocking once or twice a week. Fresh Healthy has machines in more than 2,000 locations, about three-quarters of them schools. "Our race is to get space," says Backer, 55. "A lot of schools would just as soon get rid of vending programs because they haven't found out about healthy options yet." He expects revenue at the 22-employee company to at least double this year, to more than $10 million.

Sean Kelly, the 27-year-old chief executive of Human Healthy Vending in Los Angeles, says the new law will help him expand from 300 machines to perhaps 1,500 by yearend. He hopes to convince schools that the vending machine business isn't "synonymous with scam" and that it sells more than junk food. Kelly expects revenue to triple this year, to more than $9 million. "We see tons of opportunity," he says.

The biggest U.S. vending machine operators—Canteen, Sodexo, and Aramark—have started offering healthier food in recent years. Canteen has a fledgling operation of about 200 machines (out of a total of 300,000) selling vegan foods and local fare. Since 2003, 15 percent of the products in its company-owned machines have met Canteen's reduced fat and sugar criteria. In 2001, Sodexo introduced a similar program for 20 percent of its products. The company says it plans to increase healthy choices to 30 percent by April. Aramark followed suit in 2005 with a labeling program showing nutritional values for products in its machines.

The new entrants say they aren't worried about industry giants muscling in on their niche. "I don't get that concerned about it because of the uniqueness of what we do," says William H. Carpenter Jr., president of Vend Natural in Annapolis, Md., which counts USDA headquarters among the locations for its 535 healthy vending machines. He says the company's revenue, "well north of $10 million," is on track to increase by more than 25 percent this year. "The growth is just so huge," Carpenter says, "not only because of what's happening under the current Administration but just how people want to eat."

The bottom line: Clearer legislative standards have been a boon to companies that provide schools with vending machines selling healthier fare.

Leiber is Small Business editor for Businessweek.com, Entrepreneurs editor for Bloomberg.com, and covers small business for Bloomberg Businessweek.

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