City of Culver City, California
City Council Agenda Item Report
RECOMMENDATION:
Staff recommends that City Council discuss options regarding the Parks, Recreation
and Community Services (PRCS) Department’s Beverage Vending Machine
Program (the “Program”), including: 1) rejection of the Vendtech Company, Inc.
(“Vendtech”) bid for vending machine services and discontinuance of the Program;
2) approval of an agreement with Vendtech for vending machine services; and 3)
other alternatives for continuance of the Program.
BACKGROUND:
The Parks and Recreation Commission and the City Council considered and took
action regarding the Parks, Recreation and Community Services (PRCS)
Department’s Beverage Vending Machine Program several times since the program
was first discussed in 1999. A table highlighting the program’s milestones is
provided as Attachment 1.
As noted in Attachment 1, a request for proposals (RFP) for Beverage Vending
Machine Services in selected parks and recreation facilities was published in April
2007. A three week deadline was placed on the bidding process. Only one bid,
from Vendtech Company, was received by the May 10, 2007 deadline.
Meeting Date: 11/14/07 Item Number: A-4
AGENDA ITEM: Discussion of Options Regarding the Parks, Recreation and
Community Services (PRCS) Department’s Beverage Vending Machine Program,
Including: 1) Rejection of the Vendtech Company, Inc. Bid for Vending Machine Services
and Discontinuance of the Program; 2) Approval of an Agreement with Vendtech
Company, Inc. for Vending Machine Services; and 3) Other Alternatives for Continuance
of the Program.
Contact Person/Dept.: Patricia Mooney,
PRCS Senior Management Analyst
Phone Number: (310) 253-6668
Fiscal Impact: Yes [X] No [] General Fund: Yes [X] No []
Public Hearing: [] Action Item: [X] Attachments: [X]
Public Notification: Master Notification List (10/17/07); Parks and Recreation
Commission (10/17/07); Vendtech Company, Inc. (10/17/07).
Department Approval:
Bill La Pointe (10/11/07).
City Attorney Approval:
Carol Schwab (by H. Iker) (10/31/07)
Fiscal Impact Review:
Marlee Chang (by M. Noller) (11/07/07)
City Manager Approval:
Jerry B. Fulwood (11/08/07) City of Culver City, California
City Council Agenda Item Report
At the August 7, 2007 Parks and Recreation Commission meeting, the Commission
took action to recommend the City Council reject the Vendtech bid and discontinue
the PRCS beverage vending machine program. An excerpt of the minutes of the
meeting is provided as Attachment 2.
When staff proceeded to move forward with the Commission’s recommendation to
City Council, the City Manager’s Office requested that alternatives to the
discontinuation of the program be provided to Council. Specifically, staff was asked
to provide Council with information regarding reverting to a “traditional” beverage
selection and increasing the beverage pricing. Since these alternatives had not
been fully discussed at the August 7, 2007, Parks and Recreation Commission
meeting, it was determined that this item should come back to the Commission with
this additional information for further discussion and recommendation.
At the September 6, 2007 Parks and Recreation Commission meeting, the
Commission made the determination that its August 7
th
recommendation to City
Council to reject the Vendtech bid and discontinue the PRCS beverage vending
machine program would stand. An excerpt of the draft minutes of the meeting is
provided as Attachment 3.
DISCUSSION
Factors Supporting the Discontinuance of the Program
1 – Poor Performance: The table below shows the income generated by the
program over the past several fiscal years (not taking the cost of vending machine
operation into account):
$9,877
$13,558
$17,416
$12,939
$13,856
$11,120
01-02 02-03 03-04 04-05 05-06 06-07
City of Culver City, California
City Council Agenda Item Report
It should be noted that these figures are substantially lower than the approximately
$52,000 annually (based on the installation of 35 machines) that Coca Cola Bottling
Corporation, Inc. had projected when the program was first approved by the City
Council in 2001.
2 – Failure to Cover Operating Costs in FY 06-07: A representative of Southern
California Edison has provided detailed information regarding the cost of electricity
during the 2006-07 fiscal year at various parks and recreation facilities where
beverage vending machines were located. A representative of Coca-Cola Bottling
Company has stated that one beverage vending machine generally uses an average
of 270 kilowatt hours during a one month period. A table showing fiscal year 2006-
07 Beverage Vending Machine Program revenues and expenses based on this
information is provided as Attachment 4.
The excerpt from Attachment 4 below provides an average summary of commission
paid and electricity used for the period before the program was significantly reduced
in size and scope (July 2006 – December 2006) compared to the period after this
transition (January 2007 – June 2007):
Number
of
Machines Commission
Av cost of
electricity
per kWh
Av cost to
operate
vending
machine
Revenue minus
cost of
electricity
July-Dec
2006 24 $ 7,554.82 $ 0.19 $ 7,225.20 $ 329.62
Jan-June
2007 12 $ 3,565.07 $ 0.19 $ 4,266.00 ($ 700.93)
Based on these calculations, the Beverage Vending Machine Program ended fiscal
year 2006-07 with a deficit of $371.31 when electrical costs are taken into account.
3 – Vandalism: Recently, there has been increased vandalism. Machines at
Tellefson, Syd Kronenthal and El Marino Parks have been broken into. The vending
machines were left disabled and in need of repair or replacement by the vendor.
The “vandal-proof” cage at Syd Kronenthal Park was jarred loose from its footing
and so unstable that it presented a hazard to the public before it was finally removed
by the vendor.
4 - Aesthetics: The security cages that surround the vending machines have
become an eyesore in the parks. The wind blows leaves and debris into the cages
which then remains lodged there causing the area to look dirty and unkempt. City of Culver City, California
City Council Agenda Item Report
5 – Service Delays: Due to higher priority duties, PRCS staff is not able to
continuously monitor the condition of the machines; therefore if the vendor is not
vigilant, considerable time may pass before the onset of a problem (such as sold out
or out-of-date product) and its resolution, resulting in a loss of potential revenue.
6 – Staff Time: It is estimated that staff spends approximately ten (10) hours per
month administering the program. When the program loses money, valuable staff
time is being spent on a project that is already being subsidized by the City, resulting
in an even greater drain on the Cities resources.
Re-bidding beverage vending machine services with a revised RFP could result in
changes to the program that may address financial issues and could also ameliorate
issues 2 through 4 noted above; but to what degree has yet to be determined.
Alternatives for Consideration Should City Council Wish To Continue the Program
The Council may determine that, as a matter of policy, beverage vending machines
should remain in parks within Culver City for the convenience of patrons. Should the
City Council wish to consider alternatives to the discontinuation of the Program,
alternatives which either reduce program expenditures or increase program income
(or some combination of both) are offered for consideration.
1 - Re-Bidding with Revised Specifications: The request for proposals (RFP)
published on April 19, 2007, stipulated the following: (1) Installation of eleven
beverage vending machines at eight outdoor and three indoor park and recreation
facilities; (2) Vend “healthier beverage choices only” as defined by the California
”Health Beverage Bill,” SB 965. (3) Beverages must be offered to the public at
reasonable prices; (4) Commission rate, to be determined during negotiations, paid
to the City of Culver City. (5) Twenty-four hour repair response for malfunctioning
machines; (6) Forty-eight hour graffiti response on all machines;
It is assumed that stipulations 5 and 6 are in the best interest of the City and should
remain in the RFP. However, Council may want to consider revising stipulations one
(1) through four (4).
RFP stipulation one (1) called for the installation of eleven (11) beverage vending
machines at eight (8) outdoor and three (3) indoor park and recreation facilities.
One of the service providers who choose not to bid the earlier RFP suggested that a
program offering just eleven (11) machines is not worth the trouble that it takes for a
vendor to go through the bidding process. The table presented earlier shows that
the program was at its most productive during fiscal year 2003-04. There were City of Culver City, California
City Council Agenda Item Report
thirty-two (32) machines in service during that time. The RFP could be revised to
increase the number of machines back to that level or higher.
RFP stipulation two (2) stated that the service provider must vend “healthier
beverage choices only” as defined by the California ”Health Beverage Bill,” SB 965.
Council may wish to reconsider its earlier decision to limit the program to “healthier
beverage choices only.” At its most productive point, the program offered a
“traditional” beverage selection which included carbonated beverages sweetened
with sugar or artificial sweeteners.
RFP stipulation three (3) stated that beverages must be offered to the public at
reasonable prices. The Council may wish to revise the RFP to state that beverages
must be priced at a level which results in the City breaking even or profiting from the
program after electricity costs are taken into account.
RFP stipulation four (4) stated that a commission rate, to be determined during
negotiations, must be paid to the City of Culver City. The Council may wish to
stipulate that any commission formula proposed by the service provider must include
a guarantee to cover the City’s operating costs for the program.
2 - Working with Vendtech to Increase the Viability of the Program: The Council
may determine that staff should work with Vendtech to increase the viability of the
program rather than to re-bid the program. Under Vendtech’s proposal, the
commission paid to the City on beverage sales would be computed by the following
formula: suggested sales price minus Vendtech’s internal cost times twenty-
five percent. Using the price lists included in Vendtech’s proposal, anticipated
revenue would be as follows
Beverage Type Size
Suggested
Customer
Price
Vendor
Cost
Net
Profit
Profit
Per Case
City
Commission
Per Case
Welch's 100% Juice 12 oz. 0.85
0.57
0.28
6.72 1.68
Dasani Water 20 oz. 1.00
0.77
0.23
5.52 1.38
Powerade (all flavors) 20 oz. 1.25
0.56
0.69
16.56 4.14
It is reasonable to assume that if eleven (11) vending machines are in full operation,
a minimum of fifty (50) cases of product per month may be sold if a beverage
vending machine program is in place next fiscal year. Based on previous sales, one
possible scenario for product sales over time is 14% juice, 26% water, and 60%
Powerade. If this were the case, the commission to the City could be projected as City of Culver City, California
City Council Agenda Item Report
$153.90 per month (an average of $13.99 per machine per month) using the rates
above, or a total of $1,846.80 annually.
The annual cost of electricity for one vending machine during fiscal year 2007-08 is
estimated as $581.58 (please see Fiscal Analysis section). For eleven machines,
the cost of electricity is $6,397.38 annually. This leaves us with a balance of
negative $4,550.58 annually ($1,846.80 in annual commission minus $6,397.38 in
annual electricity costs) for the Program.
If consumer prices were increased to $2.00 for all beverages, the anticipated
revenue would be as follows:
Beverage Type Size
New
Customer
Price
Vendor
Cost
Net
Profit
Profit
Per Case
City
Commission
Per Case
Welch's 100% Juice 12 oz. 2.00 0.57 1.43 34.32 8.58
Dasani Water 20 oz. 2.00 0.77 1.23 29.52 7.38
Powerade (all flavors) 20 oz. 2.00 0.56 1.44 34.56 8.64
Using the same formula for types of beverage sold with these recalculated
commission rates, sales of fifty cases per month would then yield $4,982.40
annually. This leaves us with a balance of negative $1,414.98 annually ($4,982.40
in annual commission minus $6,397.38 in annual electricity costs). Since even this
increase in pricing does not enable the program to cover the cost of electricity in
Fiscal Year 07-08, it is important to look at options for reducing the cost of electricity
used to operate the machines.
3 - Steps to Reduce the Cost of Electricity: VendingMiser® incorporates energy-
saving technology into a small device that installs either on the wall or on the
vending machine. Maintenance savings is generated through reduced running time
of vendor components, such as the compressor, using an embedded “Sensor
Repeater” to cycle the machine off when not in use. The estimate received for
purchasing controls for eleven vending machines (3 indoor and 8 outdoor) is
$1,748.73. SCE’s “Express Efficiency Program” offers a $90.00 rebate per control.
This would reduce the total cost to $758.73.
According to VendingMiser® Company, the controls reduce the energy consumption
of vending machines an average of 46%. If the company’s claims prove true, the
annual electricity costs for eleven machines would be reduced from $6,397.38 to
$3,454.59. If beverages are priced at $2.00 each, then based on the projections
above, the Program would more than cover its operating costs ($4,982.40 in annual
commission minus $3,454.59 in annual electricity costs equals $1,527.81).
City of Culver City, California
City Council Agenda Item Report
An SCE representative suggested that removing the light bulb that illuminates the
inside of the vending machine could also result in energy savings.
4 - Other Possible Alternatives for the Beverage Vending Machine Program: The
same potential service provider mentioned earlier (who did not place a bid) also
suggested that the City’s program had too many stipulations. Another option for the
program is to make an open-ended agreement with a service provider for a period of
time that could be thought of as a “trial period” to see how the program fares under
that company’s direction. In this case, the City would have to be willing to subsidize
the program if it did not meet performance goals.
Another option might be that the Council may determine that providing beverages in
parks and recreation facilities is an amenity that it wants to provide to its users under
any circumstances; even if financial subsidy is required. In this case, the Council
could direct the City to subsidize the program without regard to its performance or
operating costs.
Several options other than the discontinuance of the program have been presented
to the Council in this report. However, Council’s final determination regarding the
PRCS Beverage Vending Machine Program is not limited by this discussion.
Council may have other suggestions regarding the continuance of the program.
Information from Other Cities
A short survey regarding the operation of beverage vending machine programs at
park and recreation facilities was emailed to the members of the California Parks
and Recreation Society’s (CPRS) Administrators list serve and to cities surrounding
Culver City during on August 21, 2007. A summary of the responses to this survey
is provided as Attachment 5.
FISCAL ANALYSIS:
Any future fiscal impact of the Beverage Vending Machine Program is dependent
upon the terms of the contract with the service provider. It will be determined by the
City Council whether or not the program must cover the basic cost of electricity to
operate the machines.
In calculating projections, the median rate from last year of $0.175 is being used.
The average rate of $0.19 may not be appropriate for projections since the Lindberg
Park electricity rate is higher than the rate at all other parks. Therefore, using the
median rate from last year, the cost of electricity to operate one vending machine in
parks and recreation facilities can be estimated as $47.25 monthly (270 kWh times City of Culver City, California
City Council Agenda Item Report
$0.175 per machine per month). If the rate increases by 5% in 2008 (as estimated
by a representative of SCE), the rate will be $49.68 monthly after the first of the year
(270 kWh times $0.184). With this adjustment, the cost of electricity for one vending
machine during fiscal year 2007-08 is estimated as $581.58 annually. If the
VendingMiser® is installed on the machine, this cost could be reduced to $314.05
annually.
Depending on the action taken and/or direction given by the City Council this
evening, when it is necessary, further information on the fiscal impact of other
alternatives would be provided at the time they are brought back to Council.
ATTACHMENTS:
1. Table Presenting the Milestones of the PRCS Beverage Vending Machine
Program.
2. Excerpt of the Minutes of the August 7, 2007 Parks and Recreation Commission
Meeting.
3. Excerpt of the Minutes of the September 6, 2007 Parks and Recreation
Commission Meeting.
4. Fiscal Year 2006-07 Beverage Vending Machine Revenue and Expense.
5. Summary of Survey Responses Regarding Beverage Vending Machine
Programs from Representatives of Other California Cities.
MOTION:
That the City Council:
1. Reject the Vendtech bid and discontinue the Parks, Recreation and Community
Services (PRCS) Department’s Beverage Vending Machine Program.
or
2. Approve a Professional Services Agreement with Vendtech and continue the
Parks, Recreation and Community Services (PRCS) Department’s Beverage
Vending Machine Program; and
3. Authorize the City Attorney to review/prepare the necessary documents and
authorize the City Manager to execute such documents on behalf of the City.
or
City of Culver City, California
City Council Agenda Item Report
4. Consider and take action on one or more of the alternatives to the
discontinuation of the Beverage Vending Machine Program which either reduce
program expenditures or increase program income (or some combination of
both) presented in this report.
or
5. Discuss the item and provide further direction to staff.