Costs Rise In First HIIII
A REVI EW SURVEY
In a pre,-ious article (Feb_ issue, page
12), it was suggested that the postwar trend
in rising costs is still under way, and that
in planning for the year operators would
necessarily have to give major attention to
the problem of costs and how to reduce
them, if possible.
Shortly after the article appeared in print,
a major event in the national price picture
happened when commodity prices hroke
severely in a short space of time. Thi gave
some promise that prices might start down-
ward and that eventually costs of doing
husiness would also be reduced for the
operator of coin machines.
The problem of rising costs for the opera-
tor is definitely a part of the general busi-
ness picture, in which price have increased
steadily since the war and costs of doing
husiness also rise as a part of the upward
price trend. Everything tends to go up-
except that operators of coin machines
have not been able to increa e their prices
to the public.
Enough time has elapsed now so that it
can be said, as a matter of record, that costs
of doing business for the operator of coin
machines tended upward during the first
half of 1948. Operators are thus faced with
the job of cutting costs in every way Jlossi-
ble.
It wa estimated that a. period of six
months would probably elapse, after the
commodity price break in February, before
prices and costs in general began to show
a downward trend-if nothing should hap-
pen to reverse the effects of the break in
commodities.
But something did happen to reverse the
break. Among other things, U. S. Steel, the
prime mover in industrial prices, announced
a new increase and organized labor set its
plans for the third round in wage increases.
Then war plans were suddenly given a new
pitch to dominate all business influences
and to start prices and costs upward again.
The momentum generated by war plans
and its stimulation to industry certainly
carried through the first half of 1948, keep-
ing costs in general on a high level, and
many think the full effects of the present
national program will not be felt until early
in 1949. If that is the course of events, the
operator will still have to give more atten-
tion to cutting costs than to anything else.
There may be other changes, however,
since changes come often in the modern
world. U. S. Steel has already taken the
initiative in reversing its previous action
and now pro po es to lead busines in a
general movement to reduce prices and thus
cut the cost of doing business. The good
effects of such action could begin to reach
the operator in a matter of two or three
month, if business in general joins the
parade. But the lIsual course of such move-
ments would suggest that six months to a
year will pass before costs are materially
reduced for the operator-if no other cross
currents are .i ntroduced to keep costs go·
ing up.
The world situation is now having more
to do with costs than our own domestic af-
fairs, so the whole setup is unpredictable.
Most operators have already decided on
ways of cutting costs and they could well
manage if earnings of machines could be
kept at a high level. The most serious
thing for the operator probably is the fact
that the high cost of living becomes in-
creasingly serious for the public and peo-
JULY, 1948
pIe may get still tighter on their spending.
The summer tourist season is expected to
boost business for operators in many ways,
but new alarms could upset that hope.
Reader Opinion
In addition to the effect of general con-
ditions on operating costs, the opinion of
readers of THE REVIEW in different parts
of the country was sought on two general
questions-in what ways are costs continu-
ing to rise, and what is being done to cut
costs, if possible.
All operators in the survey reported an
increase in the cost of necessary supplies,
whether merchandise, records, repair parts,
etc.; 90 per cent reported a recent increase
in the cost of gasoline; 60 per cent re-
ported advances in rent; 70 per cent re-
ported recent purchase of new car or truck
and at high prices; 80 per cent said grow-
ing competition increased the cost of doing
business; 70 per cent reported an increase
in wages to employees; 60 per cent re-
ported new or increased taxes as a boost
to costs; 30 per cent said financing had
added to costs; and 70 per cent said repair
costs are higher.
On ways to cut costs, 40 per cent reponed
selling off older machines; 50 per cent re-
ported having taken definite steps to shorten
routes; 40 per cent reported having cut
down on help employed; 50 per cent said
they had been able to adjust commissions
to locations on a downward scale; and 80
per cent said they had been able to cut
costs by servicing routes less often.
In trade meetings, operators find costs
one of the most interesting topics and there
is always a wide variety of opinion as to
the best methods of cutting costs. Because
there are always competitive dangers in
retrenching, each individual must adjust
his business according to personal experi-
ence in meeting his own problems. Some
would say that, as competition increases,
cutting down on service given to routes
would be one of the la t steps to take.
But many operators find it necessary.
Recent reports suggest an increase in a
new type of co t problem, which has been
Cllrrent in other lines of business for many
years and which showed up in the coin
machine business to some extent before
the war. It is quite common in the tavern
busine s where distributors of beer may in-
stall equipment or make a business loan to
the tavern owner, in order to hold his ac-
count. If one distributor doesn't, another
will.
A number of trades are confronted with
this problem, and now that it appears in
the coin machine trade, it mu t be reckoned
with as an item which may increase the
operator's cost of doing business to a con-
siderable extent. For when an operator must
make a business loan to a location, in order
to hold it, that is a real cost problem.
Reg ion a l Re ports
There are always wide variations in
items that make up the total cost of run-
ning a coin machine operation, depending
on locality and also the individual oper-
ator. A digest of some of the opinions given
by readers of THE REVIEW will help to
illustrate some of the variations, as follows:
Operator C, in northern New York: Since
Jan. 1 we have not had increase in price
on gasoline and rents have not been in-
creased. There is noticeable increase in
competition, but we are able to reduce
commissions to locations slowly. The com-
missions problem is being handled by form-
ing an association and by organization we
are also moving to eliminate "loans to all
new customers." Supplies of all kinds cost
more and financing costs are higher, but
taxes have not been hiked recently and
wages paid to employees remain stable. We
do find that repairs and service calls are a
cause of increased cost on all new machines.
In order to reduce total costs, I have
reduced number of employees and also
service route less often. Earnings on pin
ball and music machines have been holding
fairly steady, while console play has shown
declines.
Operator M, in Utah: New taxes have
helped to increase the total cost of doing
bu iness; higher gasoline and rents must
also be included. We have not bought a
new car this year; some wage increases
have been made to employees, and all sup-
plie seem to cost more. Our records show
more service calls must be made. We do
not find increased competition as an item
in upping costs.
In order to cut costs, we have shortened
routes, use fewer employees, have sold off
some machines and in general have tried to
condense operations. Commissions to loca-
tions have been lowered to some extent.
Earnings on pin ball and music are lower,
and console are slow in the area.
Operator P, in Wyoming: Among the rea-
sons for increasing costs in operating,
there is more competition which must be
met, merchandise supplies cost more and
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