Been a while since we've done an Investor Day. It was actually here in Indianapolis about 40 years ago with our last Investor Day. We thank you for coming. I hope we have a very good lineup of speakers. We have a lot of exciting things going on at Fast Mill that we want to talk about.
I'm going to take just a few minutes in
the opening here to talk a little bit about the market and how we see it, then I'll turn it over to the presenters. As you know, we or as most of you know, one more thing before I go to that. We're going to do a format where we're not going to take questions until after the presenters. Otherwise, it gets too slow and it's hard to move through the presentations. As most of you know, we operate in a very large market, very fragmented.
We're confident in saying that it's at least $140,000,000,000 that's been used for many years. It's a very, very large market. You'll see numbers today that help support that. There are many channels in the market, different ways to distribute. We're the one our channel is store based model, which most of you know.
But there are many, many different channels. And we have many good competitors in our market. And there's really 2 types of competitors as we see it or 2 major types. There's a small independent distributors, normally regionalized, and there's a larger competitors. If you think of the small competitors, the greatest challenges as we look at it for them, there's really 3 things.
One is supplier support. As the suppliers become bigger, they want to deal with the bigger manufacturers or the bigger distributors. So it's harder for the small distributors to get the support from the manufacturers. 2 is customer demands. Our customers are demanding more today than they ever have and they expect more.
So if you're a small company, it's very hard to meet all the demands of broad product range, e commerce, quality systems. So the challenges are very great. And the third one is customer consolidation. So not only do the customers demand more, want to consolidate their spend amongst larger or fewer distributors, many times larger, not always, so that they can get the economies of greater volume through 1 distributor. So as a small distributor today, it's an uphill battle just because of those things.
The other type of competitor, we have large competitors. Most of you know them, most many of them are public. And there are a lot of good companies out there. We respect all of them. Most of them have large broad product selections, competitive pricing.
They ship the product well, good distribution, things similar to what we would do. They have good e commerce platforms. The thing that we believe, I believe and I believe our team thinks that we have an advantage over the large competitors. One is that we're far much closer to the customer. We are working very hard to get close to the customer, and you're going to hear about that today.
We believe we have better distribution, and I'm going to talk a little bit more about that in a minute. We have a lower cost distribution model. And understand the product we sell is generally inexpensive. It's processed steel. It's not like we're shipping electronics.
Inexpensive products. The distribution and the cost to do it is very important. And the third one I would say about most of our large competitors is relative to their business model, they have high operating expenses. The fact that we have lower operating expense than companies that are basically just shipping from central warehouses gives us a structural advantage because we're in the market where we're not spending any more to be in the market. Fastenal's strengths, when I sit back and look at our strengths, we know how to run small businesses competitively or profitably.
We're very good at running a $2,000,000 business at a very high profit level. Because of that, it gives us another strength. It gets us closer to the customers. We get more opportunities. The opportunities come to us.
And then as I said earlier, we have a very efficient distribution model. And I'm going to take just a second and talk about the and I have to work through this because it's an example, just the efficiency of our distribution. The reason I want to make this point is many, many investor meetings are talking about why don't you just ship it like everybody else. UPS is a great shipper, and I agree they're a great shipper. But just in the last week, I gathered information to make this point.
So if you look at Minneapolis as a market, in October, we shipped £959,000 from warehouses to Minneapolis, basically from Winona to Minneapolis. And then from our stores, we delivered that out to our customers. And if you look at the cost of our large trucks, our semis, you add in the cost of our store delivery, we spent about $65,000 in the March of in the month of October shipping the product from central distribution to the customer, so about 65,000. If you take that same £959,000 and you divide it in 20 pound boxes, typical UPS box, and you pay the lowest rate that we get, so you divide it up and you end up with about 48 1,000 packages that we would ship in those same packages. And our and you should divide excuse me, you multiply it times the $6.80 that it costs us to ship a 20 pound box, you end up with $337,000 to serve that same market with basically £1,000,000 which translates our costs are about 1.3% of revenue.
If we were to use the other guys, great supplier, we would spend 6.6 percent of revenue. I'm guessing the gap isn't that wide because there's other pieces of that, but it's a substantial It's probably 300 to 400 basis points advantage that we have using our own distribution, which doesn't include improved service because we get there earlier and improve this flexibility because we own the truck route. So it's a point I just really wanted to make because it's something that we often get questions on. And talking a little bit more about today, one thing I want to stress and you're going to see it is, as an organization, we are very committed to identify and focus on the opportunities that give us Fast Mall like returns. And so we spent a lot of time strategically thinking that way.
So if you're in a $140,000,000,000 industry, you don't have to do all the business. So which channels do we believe are going to give us the highest returns over a long period of time? That's what we're here to talk about today. The first presentation is going to be on our vending systems. The second one is going to be on our on-site, something we're very excited about along with vending.
And we have a presentation on e commerce. And then after lunch, we're going to go and look at our CSP store, our store local store and talk about that. And then Dan will fill in after the 3 presentations before lunch and give a broad overview of what we're doing. So again, thank you very much for coming, and I'd like to introduce Kevin Fitzgerald. Good morning, everybody.
My name is Kevin Fitzgerald. I've been with Fastenal for 6 years. I started as a part time employee in Richmond, Virginia, and have held various positions within the company. I run some stores. I have opened some stores.
I've worked in our national accounts within our government sales team. And today, I'm now within our vending department. I'm the Vice President of our Fastenal Solutions team, and I'm very excited to talk to you guys about vending. On the agenda today, I'm going to spend a little bit of time talking about history, but it's kind of nice talking to a group like this because you guys actually know a lot about our history when it comes to vending. So I'm not going to spend a ton of time on history.
I'm going to spend a lot more time talking about the market size, what the opportunity is. I'm really excited to introduce to you guys an investment we're making in a professional sales team, some initiatives we have going on and then lastly, why vending? Why is it good for our stores? Why is it good for our customers? And why is it good for you guys as investors and shareholders?
Whenever we do talk about history, today. It's about the technology, it's about the machines that you guys see in the corner, but it's also about our local people and our local stores. They're the ones that are at the frontline that are servicing the machines that we have in the field today. They're the ones that are out talking to our customers about technology, showing the cost savings that it presents and servicing the machines, not only stocking them, but also working on products that we can change out, working on optimizing the machines and making them better for the customer and for efficiencies in their store. Another piece of this is our regional sales specialists, which I'll get to in a few minutes.
We also have regional build centers. So we have 13 regional build centers strategically located across the country. One of them is right here in Indianapolis, where we configure the machines prior to sending them out to our customers and installing them to make sure everything works properly, to make sure everything vends right on our card. National distribution, actually where we're sitting today is called T Hub. T Hub is our distribution center that we've designed for vending.
So as you walk out of here today, look at some of the boxes that you see. They actually have product inside of it that are all wrapped specifically to fit inside of our coil machines. So we've developed a distribution model to service our customers and our machines more efficiently. Then national support and training. What we've developed as a company is to support our customers to unlock more of the power for our vending machines.
So we have a support team that can help train them on how to use the machines, how to use the software, how to use the resources to drive more cost savings and more resources out of the machine. So when we look back to 2011, in 2011, we ended the year we had about 9,400 machines installed across the country. We had a huge increase in 2012, jumping up to 26,900 machines, just under 27,000. Right now, we have 54,291 machines out there in the field, turning coils and turning product for our customers, saving our customers money every day. Speaking of 2011, and Will actually just mentioned it, it was our last Investor Day, and we had it right here in Indianapolis.
We went and
we pulled some information from that to show you guys where we were in 2011 and more importantly, where we are today. So in 2011, we actually estimated the market at about 258,000 machines. We did that by looking at customers that we had using machines, the technology that we had in 2011 and some of the products that we had vended. Today, we look at the market more like 1,700,000 machines, and I'll get to how we come up with that number in just one second. Back in April of 2011, we were signing about 1400 machines per quarter.
Today, we signed about 1400 per month. Let me talk about the next two bullet points kind of in conjunction. The total customer sales with customers with vending in 2011, about $23,000,000 a month and they were vending about $3,400,000 of that product. So they would do $3,400,000 out of the machine, total of 23,000,000 dollars Today, our total customer sales are $143,000,000 with customers with vending, and they're vending about $51,000,000 a month. We had about 11 70 customers in March of 2011.
Today, we have about 12,785 customers. And our total machine count at that time and point in time in March of 2011 was 2,850 and again 54,000 plus today. So when we look at the market, in order to figure out exactly what the market was, and I just said the 1,700,000 machines, we started looking at our own internal data, our own internal customer information. And we really identified 10 industries where we have a lot of successful vending machines. We see a lot of success in industries like manufacturing, industries like construction, industries like healthcare.
And when we looked at these 10 industries, we identified 48 5,000 potential customers. Well, we have 99,000 of those customers on account today. They're Fastenal customers today. We average within these 10 industries about 3.6 machines per customer. So that's where it gets us our 1.7 machines.
And it's important to note that that's with today's technology. With today's technology, we look at the market at about 1,700,000 machines. In 2011, we said it was 258,000 based on technology we sell then. So it's amazing how things change. Another important thing to note, sitting at 54 1,000 machines today and we valued the market at 258,000 machines in 2011, we did about 21% of that, which is just exciting to think about where we are today and how successful it's been.
If we were to look at $1 per machine at $1100 our current opportunity is about $22 plus 1,000,000,000 in the vending market. And as we work to increase our dollar per machine, if we look at a dollar per machine of $1,600 or $2,000 you can see how much it makes a huge impact. So just to follow you through there again, we have 485,000 customers, 3.6 machines on average within customers like this gives us 1,700,000 machine. Again, I'm really excited to talk about this portion of the presentation. It's definitely the number one initiative we have going on within vending today, and it's to introduce our investment in a professional sales team.
We're going to add about 280 people to our company to specifically sell vending within our markets. And I know a lot of you guys follow a lot of our organization. Really, that's looking at about 1 person per district to work within our with our stores and with our customers to add machines. We're about 75% of the way there. So we're hiring them now.
We're going to have a really specialized training program for this team where they train exactly how to become experts on selling machines and working to optimize those machines as well.
We're going to go through
a professional development, we're going
to really look to increase that dollar per machine, work to
make our stores more efficient when they service the machines, work on that implementation process to have our customers to be able to install a machine a lot faster so they can enjoy cost savings a lot more quickly. Also with new technology, any new technology that's out there today or working towards new technology that may be something we're not thinking about today, but it's something that we're going to identify in the market and develop for all of our customers. But they are a professional sales team. That's the goal is to hire the most professional sales team in Fastenal, and that's the track that we're on. And we have expectations of them to grow at 40%.
When we look at the vending initiatives that we have going on that I'd like to share with you guys, the things that I'm working on, the things that our team in Winona and our team throughout the country are working on as far as spending is concerned. Again, number 1 on that list is that sales team, making sure that they're trained, they have the right tools and that they're available to go out on sales calls as quickly as we possibly can. Increase our revenue by machine. Sometimes you guys hear that as optimization. It's optimizing our machine so that we increase our revenue by machine, which not only increases our sales and increases our growth, it also is beneficial for the customer because the more product we can put in the machines that are turning on a more regular basis, the more consumption they're reducing and the more savings that they have.
Store efficiencies, and I mentioned that at the last on the last slide as well. Making sure that our stores are so efficient when it comes to servicing our machines and using product like you see here today throughout this distribution center. So that when the product flows through our distribution and our stores go to service the machines, they can do it quickly and efficiently. Cost savings, providing different cost savings metrics for our customers so that 10 industries, what they're using, what's the most successful machines we have in the company, what products they're using, what products they're vending and be able to suggest more to our our customers so that we can more guide them into what products should be vending so that they have a better experience. Exclusive brands, a great opportunity for our exclusive brands and drive that product through our machines.
It's a great venue to put our exclusive brands in. We hear stories about having customers test our exclusive brands to our branded products. And you
can do it right there in
a vending machine with restrictions. So it's a great venue to do that. And then the machines itself, you guys can see over in the corner, I was talking to some of you guys right before it started. Machines that are new technology that we have out there that we're going to constantly be working towards and constantly be driving so that we can continue to be of service to our customers. When we think about vending and some of the other great speakers that we have today, whether it's on-site, e commerce or when we go to tour the CSP 16.
What I wanted to do is kind
of bring into why does vending or how does vending fit into these other initiatives that we have going on within Fast Knob? Well, first, if I look at e commerce, vending fits absolutely in e commerce because of some of the things that we're going to introduce. One of them is when you think about a spot buy. When you think of spot buy at a customer that has a vending machine and if we could figure out how to take that product and put it inside their locker, text them a code so that they can go pick that product up so it doesn't get lost in shipping and receiving or the box gets opened by accident. That would save a customer 1,000 and 1,000 of dollars just Almost the Almost the same or similar technology of what I just described, but have an outdoor locker where when a contractor rolls into town, maybe they're running a little late or maybe they're running really early and they need us to put something in a locker for them.
Our stores could put their order in the locker, text them a code, customer could pick it up. Nobody else can do that. No other supplier can provide that kind of service for our customers. In On-site, next you'll hear Chris talk about On-site and the opportunity with vending is enormous with just our on-site customers and his potential customers. Some of those customers today have vending or have Fastenal managing inventory, so they're warm to the idea of us coming on their site and managing their inventory.
It also makes our stores extremely efficient within our customers that are on-site. It could be 3rd shifts or other buildings where we use vending as an opportunity to serve the customers that may be further away within that on-site facility. So why vending? Why Fastenal vending? 1st and foremost, it's efficient for our customers.
It's extremely efficient for our customers. The technology itself, the reduction in consumption that it provides, the cost savings, it's efficient for them to buy. It's really changing the way that the industry is moving. It's changing the way that customers are buying. We're starting to see vending as some requirements in RFPs or proposals that go out, which is really exciting.
It's efficient for our efficient for our stores. We have a machine that's capturing data for us so that we can provide better and more efficient service to our customers. As I mentioned, the market is huge, dollars 22,000,000,000 and we look at 1,700,000 machines as a potential of being out there with today's technology. It's a great growth driver for the company. It has been and it will continue to be.
It also allows us to enter new customers, new markets, customers that we may not have gone after before, but vending provides the avenue for us to be able to go in and offer a service that maybe didn't exist before. It limits our competition. We have competition that provide industrial vending. We vending. We absolutely do and some of them are fantastic at it.
But it limits our competition where not every single industrial distributor offers vending as part of their distribution model. And again, lastly, it's the machine behind the machine. It creates opportunities for our employees. It creates opportunities for our existing teams to grow within the organization. And as we continue to support the machines that we have out there, we continue to grow our vending department.
So that's all I have for vending. I'm going to introduce Chris Van Dahlen for On-site.
Thanks, Kevin. My name is Chris Van Dallen. I'm the Director of Supply Chain Solutions, and I have responsibility over our on-site program. Zim looks fast in all 12 years, actually just under 12 years. Started in Chicago, Illinois as an assistant manager.
So participated in a few store openings in that market, but I've had the privilege over the majority of my career to really be involved with our On-site business through managing a team supporting our largest customers. And so I've been in this role a year and we've really taken a step back and looked at, is On-site a good solution for our business? And if so, how do we get there? So today, I really want to talk to you about defining On-site. How are we looking at On-site solution this fastenal?
What does it mean to us? What does it mean to our customers? From there, I want to talk a little bit about the history. It's not really a new concept to Fastenal. We've got some history in On-site business, and we want to talk about that.
I think it's important we touch on where we've been. The business status is important. What's going on? What's going on in On-site and where are we at? The market potential and what are we targeting, where do we feel the best value is for us to go out in the market and really attack the business.
And then why? Why are we going to be the competitive why are we going to be the distributor that has the competitive advantage in the market? And we feel that we have that today. I want to talk about the results of 2015 as we put some focus into this program. And then finally, really touching on why On-site.
So On-site, very simply, it's dedicated team of individuals serving a customer, sales service within their facility. Pretty simple concept. But what do we really get out of it? We get constant customer interaction, something that we strive for in our store model, but very difficult to achieve. We have a local market to service.
Even our biggest customers, we can't be there 40 or 60 or 80 hours a week. So our customers also get us as a direct available resource. There's a lot of places to go today for information, a lot of places to go to improve your supply chain. So when we're there on-site, we become that resource, that kind of that buffer that's between their purchasing and their procurement and the demand on the floor. So when we serve that purpose, we win.
So as I said, On-site is not a new concept to Fastenal. It's been 22 years, over 2 decades, we've been operating our business from inside our customers' facilities. This model has been relatively passive for us in terms of how we've gone about it. We haven't aggressively gone out into the market and attacked and said, we should be on-site with you as a customer. And here's the value proposition of getting there.
I'm going to talk a little bit more today about what we're doing to change that. But as you can see, if you look back just over the last 7 years, we've added on average 9 sites. And really, it supported our growth as an organization, outperformed some years, underperformed some others. But really, this subset of Fastenal's business has remained relatively constant in comparison and not really driven our growth. So taking a little bit deeper look into we've got at the end of 2014, we had 212 on-site locations.
What do they look like from a revenue and profitability standpoint? How do we get there? Average site is right around $1,800,000 in annual revenue. Nice business, larger than our average store size today. The margin, however, the gross margin runs about 30% less than our company average.
And so how does that work? Well, we're able to run this business a lot more efficiently. Our operating expense is about 40% less depending on the site, but runs on average 40% less. And when I talk to a lot of people, immediately they're like, well, that makes sense. No building, no utilities, phones, some of those expenses aren't really there.
Well, that's very true and certainly contributes. What we really see is the driving force behind our efficiency is our ability to align our labor with the customer's operation. Our local labor, we're moving 2.5x the cost of goods sold per labor dollar in our on-site model. And that's exciting for us because it allows us to go out into that market and be a little more aggressive on pricing where we need to and also aggressive with what we're willing to do in a scope of work to service that customer. Using our local resources, we're able to leverage them and really provide very attractive returns.
We know it's profitable business. We know we can do it. We've done it for a long time. But how do we change it from something that supported our company for 20 plus years into something that drives it forward for the next 10, 15 to 20 years? What do we need to do?
Kind of starts with creating focus. I'm here today talking to you. I think we've done that. But it's talking about branding the program, linking our sites together. We had 2 12 business units that weren't bound together.
They were somewhat isolated in our organization. And we had to identify what's the best market for us to approach. We'd have tailored tools around this business. It starts with training, systems and certainly compensation. This is not the same as our store model with how we should compensate people.
It's not the same type of market. So when we look at training, we look at systems, none of that stuff was really developed in the history of Fastenal to support an on-site business. And we have some misconception in our organization about what this can do and really what it is. From the profitability, to the staffing, the types of employees, the skill sets, who we put in to run these accounts. And then finally, our internal expense structure needs to be reviewed.
How do we allocate costs for things like this distribution center to on-site locations? Is it being done the right way so that we can really understand our true cost to serve and make good business decisions in the field. So the market potential is we feel very powerful, okay? When we took a look at where are we best in On-site, we took those 212 locations at the end of 2014 and what do they look like? Well, they're 75% manufacturing customers and that wasn't good enough for us to start there, okay?
Why repeat what we've done, this has been successful. So taking manufacturing customers in the United States, aligning the number of employees and what they do, we targeted 31,000 sites in North America that are potential on-site locations. We sent that list out to each DM on the locations within their area and said, please take a look at this and vet it for us. Tell us if this is a real opportunity. Tell us about your current relationship with this customer.
They came back and said 16,200 of them are for sure possibility based on what they do, the number of employees they have and there's a real opportunity here for On-site. In a little over close to 3,700 of them, they said this is a relationship that's in progress, or we've got a great relationship today. And On-site is an opportunity for us to move forward sometime in the next 12, 24, 36 months and a real opportunity to pursue. Out of those, 2,200 are still our current customers today. And out of that 2,200, you can see there's a subset of them that already are bought into Fastenal as a supply chain solution, whether it's through a vending platform or through a bin stock program.
They've bought in and said Fastenal will be part of our supply chain and help us solve our problem. And really that's the core of what makes this makes On successful. What does this mean? We've gotten 16,200 validated prospects, a market that's worth well over $25,000,000,000 in projected revenue. And we look at our on-site average revenue today at $1,800,000 per site and project that out over $25,000,000,000 And I know today we don't have all the market share within those 212 sites.
So tremendous opportunity for Fastenal moving forward with Oncrate. We had a market, massive market, why are we going to be good? It separates us and Will has touched on it, Kevin has touched on it today and I'm going to hammer on it. It's still about our local store, it's still about our local resources of people, the products we stock in our stores and our distribution. All those things are the reason that we will be successful taking that additional step from local to on site, okay?
You look at the network we've built over 50 years, the investment for us to go and set up a crib and add some resources and go within a customer's facility, Our trucks driving by already going to the local store. Our people are in place to help support and backfill that business. The products are there. It's a minimal investment. The lower cost investment, we believe, in our national competition.
And that will help us win. So make our point of entry from a revenue standpoint into these customers much lower than our national competition, and we believe that we will win in that environment. We're going to be able to create more value. It's our on-site representatives and the team that works within that customer's responsibility for us to build an inventory model and service and really support that customer. But it's the back up of the local store and the additional resources, which help us drive additional value.
And we're very excited about that. We've also got a barrier to competition. We're more on-site. We're that direct available resource, and we're the easiest place to buy from, the most progressive company they deal with, and consistently good how we service them, again, that's a good thing for us. We can be more agile than our customers in running their supply chain.
So today, what's been done, it's November 2015, and we've made some headway and created this focus within Fastenal. We got our program branded, and we are bringing our current on-site locations together from operations to training and all those things we're really working hard on doing that. We've got our market identified. There's additional opportunity outside of manufacturing. The 16,200 prospects is plenty for us to go out and provide plenty of opportunity for us to go add business.
We're working on heavy lifting, building tailored tools. There's a lot of work that goes into this, specifically the training program. We're building an academy for our on-site personnel to give them the skills and the tools to go out and run their businesses more efficiently. We believe that's critical to the long term success of what we do. The misconceptions within our business.
We're going
to
with our DMs and RVPs and national accounts team that we can make this business very profitable even at the reduced gross margin. We know that the staffing and how we staff these stores has been a challenge, and we've also run into the misconception and really the challenge of cannibalizing our store business. That's a real hurdle for us in terms of how we go and sell this in the market. And we worked hard on continuing to drive home what's good for our stores and what's good for our people and what's good for our district managers. And one of the things that's exposed itself is we see accelerated growth in our store environment when we remove that large account and go on-site.
That store is reenergized from a sales perspective. They can go out and be aggressive. We all know the market potential for industrial supplies is extremely large. Take the burden of that large account out of our store, let them go be aggressive and do what they do best and that serve the local market. Our internal expense structure, we're still working very diligently at tackling what we need to there, but we've made a lot of progress, and we're excited about what those changes will bring for us in the future.
So some of the results in 2015, and we're excited about where we're at and we know we can do a lot better next year. But year to date, we had 65 new on-site customers sign on with Fastenal. Actually, That's 66, we had one yesterday. We're on pace to add 80 for the year, and that will be just about just under a 40% increase in 2015 over where we're at the end of 2014. Dollars 1,000,000 that number is extremely exciting for us because we take a customer that's run out of a standard model or brand new customer to our business and we put them on-site.
We take that business that we had before, which is some subset, some offset amounts, some cannibalized business in the store and push that aside, we're adding $1,000,000 we're pacing to add $1,000,000 per new on-site customer in the 1st 12 months, dollars 88,000 and change a month. So that's new revenue, new market share for Fastenal First Sight. Where we've districts where we've added an on-site location and implementation and implemented it, in 2015, those districts are growing at 12.8% and represents about 13.5% of our revenue. That number is going to continue to grow as we have more district manager participation and more on-site customers. The last point here, an 18.2% growth.
So on the line of the stand in January, our business is up a daily average 18.2%. In October, it was $42,700,000 or excuse me, dollars 42,300,000 in revenue. There's a $500,000,000 chunk of Fastenal's revenue growing at just over 18% today. And we expect that to continue hopefully into the future as we add more customers and continue to grow our market share with them. So who are they?
We've got these 65 customers, 66 customers, 85 percent of them are manufacturing. Again, we're hitting that target majority of the time with where we're putting our energy. They've got on average 280 employees, and we figure that market where those customers have brought on board and what that market potential is at over 100 $15,000,000 So we'll get through this 1st 12 months of rapid growth, but there's a ton more market potential beyond that. If you look at the math, I mean, they're global. This is a part of our strategy as a company outside the U.
S, into Canada, Mexico and
around the world.
We finished 2014, dollars 394,000,000 dollars in revenue through this model. We're going to add about $73,000,000 in revenue through the on-site model in 2015. And we estimate based on the business as we've turned it on to have 265 implemented customers. So we'll pay 80 new customers. We'll get a subset of those implemented in revenue through those channels yet before the end of the year, some will spill over into 20 16.
Very exciting for us. We're happy with the performance. And given today's economy, we're very happy with how this performed in the 1st year of the focus of this program. So finally, why On-site? And it really touches on all the stakeholders for Fastenal, starting with our customers.
The trend in supply chain today is to really integrate the procurement logistics functions of their business. And we feel we're very well positioned to come in and help our customers do that, help them change their culture, help them save money, be more productive. In times like this, companies are begging for people to help them, and we're very excited about that. Their shareholders, we talked about the dynamic growth possibilities to this, and we know that it's going to be profitable growth. We're going to be very about how we go about this, and we're going to remain fast and all alike returns moving forward with our on-site business and for our employees.
We talk a lot internally about continuing to add people to Fastenal and recruit people in the company and make sure we retain our good talent. This is
an alternative career path and something we can speak
to in terms of developing in 2016. So additional opportunity for current employees and new employees into Fastwell. That's all I have on On-site. I'm going to introduce Kurt Talmanis, VP of E Business.
Good morning. My name is Kirk Talmontis. I'm the Vice President of E Commerce here at Fastenal. I started Jishai 13 years ago in Chicago as to myself. Today, really what I want to do is I want to share with you how Fast and Ole Commerce fits into our existing store based model and really presents an exit for the high cost transactional environment.
I'll begin with our competitive advantage, specifically as it relates to the online marketplace, move on to our value It is well known that Fast Knell's competitive advantage is a local store servicing the local market, all of which is supported by a world class distribution system. This system, as well as store footprint, creates an even greater advantage within the online marketplace and something no other orders as well as early a. M. Next day service for regionally stocked products. Who else can provide same day service on more than 10,000 parts in more than 2,600 markets?
Or better yet, who can go from this to this in just 1 hour of delivering a locally stocked online order? If one of these 10,000 locally stocked products does not satisfy our customers' needs, then one of our 14 distribution centers can provide locally stocked products and deliver to the local servicing store before many doors even open within many businesses, beating any type of third party carrier service. Fastenal has a solid grasp on the plant environment, helping our customers this piece of their supply chain by leveraging our distribution system, servicing stores, vendor managed programs and industrial vending solutions. However, on average, 40% of a customer spend is considered unplanned. And unfortunately, a majority of this business goes to our online competitors.
Because the strategic supply environment is Fastenal's domain, we are positioned to win standardization opportunities of online purchases and suggest to migrate reoccurring Spot buys to an existing vendor managed program or industrial vending solution, ultimately driving lower total cost of ownership for our customers and shrinking the unplanned spend bucket. The value proposition is to provide our customers with an avenue to exit the high cost transactional model and shift more and more reoccurring needs to a strategic solution. We truly believe that the unplanned spend bucket does not have to be as large as 40% for our customers. Fastenal's immediate opportunity is to capture more of the unplanned spend within our existing customer base. The greatest chance to win this business is with our customers that are generating over $50,000 a year and have an existing and 5 business days per week.
This allows us to meet the 24 expectations associated with online orders when a customer selects local store delivery as they reduce cost shipping options during checkout. Because these customers also have procurement goals, Fastenal can continue to add value within the supply chain by migrating unplanned spend and driving cost savings. I've identified opportunities within 3 segments providing a macro or excuse me, a micro to a macro view. Please note that each of these segments has the 60% planned and 40% unplanned spend buckets represented. Within the unplanned portion is a share equaling 66% and is Fastenal's immediate opportunity.
This percentage is coming directly from our customers, as 66% of them have identified through a survey that they procure most, if not all, of their unplanned needs through an online marketplace. The first segment is a target market which I just spoke to, customers generating over $50,000 a year with an existing solution in place. By taking this group's 2014 spend, we can calculate close to a $740,000,000 opportunity. The next segment is Fastenal's overall customer base. By taking Fastenal's 20 14 revenue of $3,700,000,000 we can identify close to a $1,500,000,000 opportunity just within Fastenal's Note's existing customer base.
And lastly, following those same principles, one can estimate a $37,000,000,000 internal applications and schedule to be deployed sometime in Q1. However, we respect that this new search engine is only as
good as the data that it
is retrieving. That is why Faxnal's entire product development team spent all of Q3 validating our reference expansion project. The objective of this project was to review and build out both our internal and external cross references. Internally, we validated and expanded our related items as well as our in stock alternative products. Externally, we focused on our top competitors by category as well as our non supported to supported manufacturer cross references.
Development of fastenal. Ca, our Canadian specific website, is also underway and scheduled to be released sometime in Q1. By incorporating a new workflow, an improved customer interface, a new search engine and cleanse data, our goal is to deliver an experience that will create excitement and customer retention. The plan is to migrate this new experience to fastenal.com in the latter half of twenty sixteen once some additional new features are ready to be deployed. As an organization, our greatest challenge moving forward is breaking our customers' existing habits as today they procure a majority of their online needs from our online competitors.
We acknowledge in order for a customer to change their habits, they must have a compelling reason to do so. With that in mind, we are building out distinct features that we believe will not only create separation from our online competitors, but also be the compelling reason for more and more customers to migrate to fastenal.com. 2 of these features were referenced earlier in Kevin's presentation, Fast360 as well as Shift to Locker. The concept behind Fast360 is to provide our customers with a holistic view into their entire relationship with Fastenal. Our customers are asking for a single point of truth as well as for Fastenal to act as a single entity no matter how they transact.
One of the most powerful tools being developed within Fast360 is My Inventory. This is a place where a customer can come, enter a part number, description, navigate through a category tree and we will populate the products and or products and where they live today, whether that's an existing Fastenal service device, customer bin stock or vending machine or dedicated inventory back at the local servicing store right down the street. Instead of having our customers purchase an item that they may already physically have on-site or wait until tomorrow for today's needs, our goal is to provide visibility into our customers' inventory by location, help control spend and provide today's needs today. The other sneak peek feature that you had visibility into is ship to locker. This is really about bridging e commerce and our industrial vending solutions.
During checkout, providing our customers with a 20 fourseven well call option where we will place their order in 1 of the outdoor lockers that are currently being deployed and then send a pickup notification via text and email with an access code. Or we will deliver this product to an existing locker within one of our customers' facilities that has these devices in place today. So these are just two examples with more to come of what we are doing to make it easier for our customers to buy as well as to bring additional value to these customers. What creates the most value for our customers is not having a world class e commerce platform that is built to react and ship remotely, but to have a world class distribution system that is built to plan and manage locally. For us, an e commerce platform is the digital means to harness that physical advantage.
As a recap, Fastenal can deliver unmatched service for locally and regionally stocked online orders as well as drive cost savings by shrinking the unplanned spend bucket and providing an exit to the high cost transactional model. For our employees, they can capitalize on the efficiencies gained from orders placed online as well as have access to the new opportunities across departments as e commerce grows. And then lastly, for the shareholders, we can leverage the operational benefits gained from orders placed online as well as realize the revenue and profit lift that Fastenal experiences from online versus offline orders, creating greater return on investment. Thank you. And Mr.
Dan Flores.
Good morning, everybody, and thank you for making it to Indianapolis this morning. Earlier today, Kevin and Chris and Kirk were somewhat anxious about their opportunity to talk to a group of shareholders. And I mentioned to them earlier today as well as earlier in the week, guys, you know what your subject you know your subject matter. You're talking to a group of individuals that want to learn about your subject matter, tell them your story. And I have to say, I'm incredibly proud of the job these 3 young men just did.
And one thing I think probably stands out as well, as I'm listening to these 3 young men talk, I'll probably say young men, I turned 52 last weekend. So I can say that now when I'm talking about 30 40 year olds. But Kevin has been with Fastenal for 16 years. Chris has been with Fastenal for 12 years and Kirk for 13. I think I wrote those down correctly this morning.
The great news is they're not unique within Fastenal. When I travel around and visit stores within Fastenal, visit distribution centers within Fastenal, go to our manufacturing division, meet with people within Fastenal, that's a common theme. You meet people that are 30, and 35, and 40, or 25 years old, but they've been with Fastenal for 10 or 15 years. They have a wealth of experience to bring to our organization and to our customers, And they have a long runway of future, a benefit for Fastenal as well as our customers and for you, our shareholders. And that's what I find truly exciting about the Fastenal organization is the raw energy, the raw talent and the future potential to have raw energy and raw talent.
Earlier this morning, we put out our October sales numbers. And here are some things that I concluded when I was looking through all the data. Felt a lot like September. We're seeing customers that are struggling. But we're also seeing some bright spots.
A few things I'll touch on is our non passenger business, the growth actually improved marginally from what we saw in September to what we saw in October. Unfortunately, our fast business continues to struggle because a big piece of our fastener business is OEM fasteners and that business is struggling and that's a sign that our customers are struggling. Because what you heard from Chris when he was talking about new business we're turning on and what you've heard from Will and Dan and others over our last few months is what we're seeing in success with our National existing customers. In both September October, we saw a similar thing with our top 100 customers. About 40 of them are negative.
About 30 of them are negative double digit. That's not because we lost business. That's because those customers are struggling within their own business and we're feeling it from the standpoint of OEM fasteners. If you produce 10% or 15% or 20% fewer widgets, you need 10% or 15% or 20% fewer fasteners to tie those widgets together. Another thing that might have jumped out in the numbers, we completed our Fasteners Inc.
Acquisition on the last weekend, so on October 31. So in our store count you saw this morning, there's 13 stores from that acquisition. There's about 178 employees that show up in the numbers scattered through store piece, the distribution piece and the support function. And I'd like to report an early win that we saw from that new acquisition. We had one of the locations in the Seattle area, had a customer that was planning to implement a handful of vending machines from 1 of our competitors.
I received an e mail this morning that we've just signed 8 Fastenal Blue vending machines to go in that facility. It's our first win with our new Fasteners partners up in Pacific Northwest. So excited for more to come in the future. Sorry, I didn't put that too now.
Just going to touch on
a few things. Will touched on this a bit earlier in the talk, But introduced what we're going to talk about today. As I mentioned, Kevin, Chris and Kirk, I think, did a wonderful job of giving some insight to what's going on with vending in 2015 beyond, what's going on in On-site, really an introduction to that for the first time, just like 2011 was an introduction for the first time of Fastenal Bending. And we are now here to give you a 4 year update. And then the e commerce and some of the plans we had going in 2016, another thing that might jump out for you when you look at our release that went out this morning is in the bottom section, we talk about our headcount.
And as I mentioned earlier, part of the headcount increase is people we've added at the store. Part of the headcount increase is our recent acquisition of Fasteners Inc. You might also notice in our support function, our support areas, an increase of, and I'll get the exact number, 60 58 of those 66 are in our IT function. So some of the things that Kurt talked about are there because we're building our IT resources. I believe it's next week or the week after Will is going to be traveling to Bangalore, India to visit our facility we have there that we set up over the last 2 years.
We currently have about 75 individuals in that facility with a goal of having about 100 people there in the next year. Half of our IT increase was there, the other half was here domestically. But it's continuing to build the energy and the resources to do some of the things we want to deploy to tie together what is fundamentally a great distribution business, but tie it better to the e channel that we want to tap into. Another thing is as we end the visit today or end the presentation today, we're going to have 3 tours. 1 is going to be going over to the store that you saw perhaps when you parked here this morning and see what we call CFT 16, they're going to give you a lot more details about what that is.
But when you're going over there, take a look at what you see and how that enhances our ability to provide same day service to our customers. One thing you might see, I'm not sure if they replenished the shelf. When I got there yesterday, one of the folks that put up the store was a call that I think that we didn't have that many hard hats. And I'm like, my reaction was that it's not a big deal. Well, we had a customer that called and they needed 14 and they bought out our inventory.
I'm like, please tell that story to every shareholder that comes through. I'd love to see a few more empty shelves because of that story, but that was a nice early win in our CSP 16. But CSP, if you recall, from a little over a decade ago, was what we call customer service project.
It was our merchandising of
the store. And we did a wonderful job with CSP for about 6 or 7 years. And in 2008, 2009, when the world was coming to an end, we completely dialed down DSP. And as we emerge from the recession of 2,008 and 'nine, we were dialing up a lot of things. Our business was taking off.
We were getting into this new venture called vending, and
we were putting a lot of energy and a lot of resources into it. And to be honest with you, our old friend CSP, we kind of forgot about them for a few years and we never dialed that back up. So right now, what you're going to see over that is a nice catch ourselves up to date and bring it to the information we know about all of our customers across 2,006 100 stores and that's step up our storefront. One thing we learned when we were doing the due diligence on the Fasteners Inc. Acquisition is we learned a lot about their business versus our business.
They're a regional distribution business, a lot of Fasteners in their business model. National Accounts is not part of their business because they're not a national distributor. So it's all about regional and local customers. When I look at how much product they have going out the front door versus the back door, because when I think of our business, most of our sales, most of our inventory goes out the back door of a Fastenal location into a Fastenal truck and we supply it to the customer's business. We have a relatively small piece, 15%, 20% in the if our average store does a little over $100,000 we probably have $20,000 $25,000 going out the front door.
These folks have 4 times that number going out the front door. We're going to see what we're going to learn from them as well because we think we bring a lot to their table. They bring some fresh ideas to ours as well and they reinforce things that we inherently know about our business and needs. Right behind you and you've heard us talk over the last years about T Hub, this new distribution center we were building to support our vending initiative. One thing to think about when you're touring T Hub and then when you're touring I Hub is they're fundamentally 2 different facilities.
If you think of our business for many years, so our public numbers, we stock about 160, 165 days' worth of inventory. And if I think about our supply chain, about 60 days of that time frame is inventory sitting in a distribution center. And about 100 to 110 days of supply chain is inventory physically sitting in a store. So our distribution centers are fundamentally about restocking on a periodic basis, inventory going to the store and we sell it from the inventory is sold from there. What fundamentally changed with vending is the breadth of SKUs that you're talking about isn't this wide anymore.
It becomes this wide, but the frequency is off the chart. So it requires a fundamentally different type of distribution center to handle that. And that's what you will see when you're looking through a T Hub facility versus what you're looking at an industrial a typical industrial distribution replenishing a store versus replenishing a machine. Because in the machine, you're talking about days weeks of inventory, not weeks months. Hopefully, everybody can see this slide.
I know it's maybe a little bit busy, but I want to talk through some of the aspects of what you're seeing here. And over the last 6, 7 years, we've talked at length in our quarterly releases about what we call pathway to profit. And I wanted to take a little bit of a revisit down that and then start talking how the On-site business that Chris talked about earlier compares to that business and how it's grown over time. So if you look at the first two lines on the table here, we've taken the five lines that used to be in our pathway to profit disclosure in the 10 Q and in the annual report, and we pulled it down to, hey, here's the stores over $100,000 and here the stores doing under $100,000 Now if I go back to 2,000, our average store did about $70,000 a month in revenue. And our pretax that year was 17.4%.
95% of our sales went through a store. The other 5% went through this thing that we were kind of doing, but we didn't really get much thought to. We had a bunch of district managers out there that were being innovative and creative with how to service their customers' needs. And we were starting to do on-site, but we didn't really give it much thought. But it was about 5% of our business was either going through an on-site or what we call a strategic account store, which is similar to an on-site, but we're not on-site and maybe we're handling 2 or 3 or 4 large customers rather than just 1 in that facility.
By 2,005, our average store in that first group doing now 91% of our sales had grown to about $73,000 a month and the on-site business, the large comp business was now about 9%. And
for the year
of 2,005, our pre tax was about 17.7%. You were seeing a slight pickup because we were doing some things to improve our business. We had set up Shanghai, our sourcing entity in 2,003. We were bypassing some of the master importers. We were doing a better job of sourcing.
But we were tuning up our business a little bit, but the inherent profitability was shining through with our average store size is starting to grow. By 2010, 83% of our sales were going through a traditional store either in U. S. Or Canada. About 14% of our sales were going through a large account business, principally through an on-site.
And about 3% was coming outside of the U. S. And Canadian markets, so Mexico, outside North America in general. And there was a little piece that was added into that because we acquired Holochrome late in 2,009. So our average store was doing $78,000 a month and we are now at 19% pretax.
That number is moving up because our store base is slowly maturing and it put us in a luxurious position of being able to fund the on-site at the same time and learn more and more about it. Now let's flash forward to 2015, the Q3 that just ended. About 80% of our sales go through a traditional FAFSAIL store if you look only at U. S. And Canada.
Note the pre tax of the subsets. We talked about pathway to profit years ago and we said, you know what, we can get to 23%. It's going to take time and a slow maturing of the store base. We hit 23% in our store base in both second and third because of the fruit of our labor in the last 7 years of growing the average store site. Today, our average store is about 100 and 6.
One thing that might jump out as well, if you look at that under 100,000 group, the average store there does about a little over $60 between $60,000 $65,000 a month, does 17.5 percent pretax. Looks a lot like Fastenaw circa 2000 and 2,005 when our average store was a little over $70,000 a month. But the fact that we're have the same level of profitability is because we've improved the engine. We've improved the business in the last 10, 12 years, and that's why we can get there with a slightly smaller store. The other thing that jumps out, Will talked earlier about the fact that there's things that we can do because we have a structural advantage in the marketplace.
My wife and I have been blessed with 4 wonderful children. We have 2 kids in high school, we have 2 kids in middle school. One thing that I've impressed upon them over the years is have passion in what you do, whether that's your school activities or your extra school activities, sports, etcetera. But know one thing, your mom brings a offsets every one of them. Your odds of Olympic caliber competition are probably pretty limited because you don't have you might have passion, but you don't have the structural advantage.
The thing that excites me about fastenal is we have the passion and we have the structural advantage to be an Olympic caliber distribution business and allows us to do things others can't. And it shines through when I look at that 100,000 plus group of stores.
The group
there does a little over $165,000 a month on average. We've talked previously about how the gross margin actually drops over time and our gross margin there is lower than the company average. However, so was our operating cost structure. One thing I've learned from looking at the public distribution businesses over the years, as well as any acquisition targets that we've looked at over the years. Here's what I'm typically going to see when I look at that financial statement.
You're going to see a business with gross margin somewhere between upper 30s and low 50s. That's what I expect to see before I open something up. You're going to see operating expenses that are probably upper 29, 30 neighborhood to 34 neighborhood. It's typically what you're going to see. Now if it's a uniquely different business, you might see a number that's materially above that, but it's because it's a unique business.
And you typically see operating margins somewhere between 8% 12%. When I think of a lot of the public players that scale, you probably see that number move up into the 13%, 14%, 15% neighborhood. It always makes me scratch my head a little bit. They don't have 2,600 stores. That's a tremendous weight on our P and L.
But because of the aspect of Fastenal, and I'm going to touch on a little bit more in my closing, but because of Fastenal's history and the way we go to market, we developed a frugal nature. And again, I'll touch on that in a few minutes. But I wanted to point out the pieces to the equation. Now the other thing might jump out to you is, hey, Dan, if your stores are at 23% and you just reported 22%, The other 20% has got to be lower than 23%. And you're right.
The other 20% is the international is a very young business for us. The On-site, as Chris mentioned, operates with lower gross Because the inventory with that kind of volume, the inventory turns much
more rapidly. Bob Kerlin
has told us for sell, I'm in my 20th year. So I've heard it for 20 years. Will and some of the other guys have heard it for 30 years. And these folks over here have heard it for 10 to 15. Folks, it's about the return.
Never lose sight of when we're looking at store to store, we're looking at common metrics of the business. But at the end of the day, it's about what is your return on that business. On-site is incredibly attractive returns. That's why I'm excited about it. Because with our existing business model, it fits us.
Just like 4 5 years ago, vending had incredibly attractive returns because of our store footprint. Touch on a little bit here about some of our CapEx needs. So this is something that I don't know everybody appreciates, but we're working out through a massive capital investment that's occurred over the last 4 or 5 years. If I go back to the period 2000 to 2010, if I took all the years and start looking at, hey, what's CapEx relative to net earnings? Because that's how we think of the number.
Some people think about a CapEx relative to sales. We think about a CapEx relative to net earnings because that's what's paying for it. And most years you'd look at, we're probably going to be in a range somewhere between 25% 30% of earnings we put back into the business in the form of CapEx. And depending on how fast we're growing, we'll influence how much is going back into the business as far as working capital. Back in 2011, when we had the Investor Day, we started talking to you about some things that we were going to be doing.
One thing we talked about is there was going to be a massive we were really, really confident and we were excited about this new vending initiative. And we were going to put some infrastructure in place and we're going to start buying some vending machines. We weren't sure how fast it was going to grow until we bought ahead and we have an inventory of vending machines ready to deploy today. So we're not dependent on the speed at which our manufacturer can produce month to month, quarter to quarter. The second thing is we've learned a lot when we first put automation into the Indianapolis facility that you're going to see later this morning as well as our Dallas, Texas facility.
And we liked what we learned and we said our CapEx is going to go through the roof. It's going to be there for about 3 or 4 years. And over the last 4 year period, our CapEx has averaged about 35% of earnings and we peaked out 2 years ago at 45%. This year based on Street estimates will come in around low 30s, around 30%. That's what the future looks like too.
So we're going to have another 5 points of operating income that's falling into free cash. I frankly hope we spend it on more capital because we're growing faster, but we'll have that gunpowder that we haven't had in the last 4 or 5 years. And that's the exciting piece of the business going forward. I'll recap on a few points that Kevin made. The vending opportunity is huge.
And we know with 54,000 machines out there, we know a lot about that business. And with our store network, it's a natural complement that we can fill the machine. It works really, really well with what we do. We have that structural advantage I talked about earlier. We have the market leading capabilities because we have a great vending platform and we have the machine behind the machine to support it.
Nobody can come close to that from a pure supply chain efficiency. Will touched on it earlier too with his comments about freight. Tremendous advantages that we have built into our model because we were fortunate enough to start with faster. Faster is going to have a lot of value per pound and they're really expensive move because there's a lot of secondary operations. So if you want to get good at that business, you get good at moving product.
You get good at great source of supply around the country, so you have to move it a shorter distance. There's a lot of touches, a lot of movements, and we built a better machine, and now that machine can service all the other products and all the other output in our supply chain. Same thing with On-site, as Chris identified earlier,
about,
our average on-site does about $150,000 a month. Most of our competitors that are in this space don't have sufficient profit margins for their model to work in a customer doing under $200,000 or $250,000 a month. That works for us because it fits our existing distribution network and we can make money there. Our competitors can't because their cost structure is too high. The e commerce, probably the biggest thing that I think about when I think of e commerce is everybody that's involved in that space is trying to figure out ways to deliver faster, more efficiently, the flying drones, get you the product before the next day if it's not in the store.
We can get you the product before the next day if it's not in the store at a competitive shipping cost. So we can operate and we can make money in that space, some of our competitors can't. And that's exciting when you think about our capabilities going forward. CSP-sixteen, I'm not going to touch too much on that other than to say, please take a look around the store, ask a lot of questions. The folks that are going to guiding you through that are very, very knowledgeable on what we're doing there.
Now your one question might be, geez, you're adding a bunch of inventory per store. How much working capital? How much inventory are you talking about? What's the cash?
We're going to do
about 900 stores yet this year that we're converting. You're visiting 1 of the 900 here in a few minutes. And we're going to introduce $25,000,000 to $30,000,000 worth of inventory in those locations. With those locations, we are going to forward deploy inventory in our distribution centers because part of our redundancy will be at the store now rather than the DC. So we will fund that from inventory of our DC.
As we go into 2016, we probably will add in today's dollars around 5 days of inventory into our business because of CSP 16. We're excited for the opportunity to make that investment. But as Bob has always told us, it's about the return you can generate on that investment. Never be never shy away from great opportunities to improve your return and grow your business. We've heard about why vending, why on-site, why e commerce, why Fast Mill in that equation.
Two closing points I'd like to make. One is like you saw on these 3 young gentlemen that were up here speaking earlier, great people, great people close to the customer. And when you have great people close to the customer, you have incredible flexibility of what you do. When you think about that chart that you saw at Vending and how fast we moved up that scale from 2011 to 2012 to 2013, what you see is an organization that was able do that because we weren't ready to do that. We were able to do that because every shortcoming we might have had structurally within the company was there to be supported by the smart people in our stores who are innovative every day and bring solutions to the customer.
That's why it works so well for us that we can do it so rapidly, so fast. The second thing is TruGaly in the business. I remember when I first joined Fastenal back in the mid-1990s, I went on a trip with Bob Kirlin and Bob was in, I think it was business week at the time, but he was publicized as the Chief of CEO in America. And he had talked about his used suits and eating at Burger King. I got Bob to switch Taco Bell, but that's on our trips.
That's a different subject for day. But it wasn't about being cheap. It's about being frugal. And here's what frugal means within FastNom. First thing it means, the further you get away from your customer or the supply line that goes from your supplier to your customer, the less willing you are to spend money.
One thing you'll see when you walk through this facility, we put over $100,000,000 into this facility over the last 6 years and expanding the facility. That's not counting buying the property. That's just improvements we make to the facility. We've invested about $400,000,000 into vending over the last 5 years. Today, we have a business that does about $600,000,000 a year in revenue.
Perrugal is about the things we don't spend. You come to my office, it's used furniture. That doesn't help our service to our customer. That doesn't help what we want to do at the store. But you go to the store, you will see new vehicles.
You look at our semi fleet going down the road, you will see new semis. You look at what we're willing to spend in adding energy to our stores, we're willing to spend dollars there because that affects our ability to serve our customers' needs. But by being frugal, we can make money in a $50,000 a month store. That 8% to 12%, I talked about earlier, that is the industry norm. That's our profit level in $50,000 a month store.
Nobody else can go there and make money. That's why in $150,000 on-site with $50,000 in gross profit, we can make money. And if you have inventory and people close by, you have great redundancy of resources to cover the unexpected things that come up and provide a high level of service to your customer. Thank you.
Deane, maybe we're running a little bit ahead. Maybe we should take a 15 minute break and then we'll start at 20 minutes too and give us 50 minutes for Q and A.
Perfect.
If you can be back in your seat at 20 minutes to
the hour, we would appreciate it.
At this point, we'll start the Q and A. And I guess what we'd is if you have a question, when we point you out, stand up and speak as loudly as possible. If it isn't real loud, we'll repeat it for folks that listening online, so everybody knows what the question is. Ryan, I think you raised your hand over there.
Some of the initiatives that we talked about today, it seems focused on non fastener. So just talk about that first. And then second part of that question is, it seems the big growth opportunity for FAFSA going forward is in the non fasteners. So if that becomes 80% of sales, 90% of sales someday, how should we think about gross margins over the next, call it, 5 to 10 years? And what's the trade off then to EBIT margin in return?
I'm going to take the first half of that question. This is not about non fasteners. If you think about the initiatives, vending is mainly non fasteners, I'll give you that. On-site is predominantly fastener business, that's at least fifty-fifty, if not more. The e commerce, we believe if we build the right site, that will be largely faster.
A lot of business that should be equally fastener business, there's no reason it won't be, because we make it convenient to buy. Not a lot of fasteners are bought online today. We build a better system. We can move it that way. In a few minutes, you're going to see CSP-sixteen.
The products that we put in the front of the store are generally non fastener products, but the idea is bringing the people in with those products so we do sell more products, get more fasteners. If you remember what Dan said, he talked about Fasteners Inc, 50% of their business is fasteners in a store that looks just like a Fastenal store. So they actually have a higher percentage of Fasteners. So as far as your margin, if I look at Fastenal, I look at where we think we're going to grow, we will probably see a lower gross margin. And there's really three reasons.
One is the product mix will pull away from because the other markets are much larger. It's just natural. 2nd is that sorry, lose my mind here. 2nd is that the vending will continue to grow very rapidly. Sorry, I'm thinking about products.
And the third one is the On-site. So On-site is going to pull the gross margin down, great growth, great return. Vending will push non fastener products and overall our average growth size gets bigger.
The piece about EBIT, that's really a function of how the mix works out. As the average store size continues to grow, that benefit we've been seeing there in the past, that will continue to be there because that piece of the business that's in the under 100, they keep moving up that profit curve. The real question is on EBIT, we've grown from 5% to about 16% through that large customer segment, largely on-site. If that were to double to 30%, that would impact our gross margin, as Will mentioned, and it would impact our EBIT margin. It would be really attractive total returns and we love the business.
Brad?
Hey, guys. Thanks. Just a couple of questions. First, Dan, your first observation on monthly sales was that October looked a lot like September. Is there any reason had a follow-up.
I came out kind of strong on the October call and I found myself above the fold in the Wall Street Journal being quoted. And don't know that I necessarily needed to be there for that. But 1 month is not a trend. 2 months isn't a trend. We're going to hold off and see what the market is going to do what it's going to do.
We want to look at it and say, what can we do to defeat some of the negativity of what the market is creating in our business? The other thing that I didn't point out earlier that should also jump out, if you look at that slide that looked at the 2000, 2005, 2010, When that slide was first pulled together, I have an individual that works for me, she's worked for me for 10 years, the most polite, sincere person you ever met. And I called her up and I said, Miriam, I'm looking at the 2010 data and the greater than $100,000 store dropped materially as a percent of our business, your data has got to be wrong. And she thought I'd double check it and she double checked and she said came back and said, no, it's correct. And I said, Miriam, it has to be wrong.
And she told me in a very polite fashion that I was full of something. And but you know what I learned when I really delved into it? That was because of 2,009. 2,009 hammered our business. You saw it in that greater than 100,000 population.
Some of those stores went backwards. Some of those stores went backwards enough that they moved down into the sub-one 100 group. And so it went from like it went down to like 40% of our business was there versus the 50 something we got today. But you don't see that pattern emerging in today's business. And the reason you don't see that pattern emerging in today's business is we're doing a whole bunch of things, vending being a big part of it, but we're doing a whole bunch of things that give us a different arsenal because I meant it when I said, I believe the industrial marketplace is an obsession.
I meant it when I said that. However, the impact on us is much different than we've seen in prior slow periods because we have more arrows in our
quiver at the store level to defend our business. We're struggling to grow
right now. That's a function of the market. But we're maintaining growth with an ever Yes. Yes.
No,
fair enough. The Yes. Fair enough. The second question was really just about, I guess, paying for all of the very interesting things that you've outlined here today, lots of compelling ways to potentially start growing or accelerating the revenue growth. But as you invest to engender this growth and that happens now, but the growth comes later.
I mean, how should we be thinking about the contribution margins over the next year or however you wanted to mention it, the incremental growth investment to do all of these things that you've outlined this morning. Sure. If I think of incremental margin, the things we've talked about are probably not that hardly meaningful to where that number comes in at.
At the
end of the day, it's going to be how much growth do they create for us, short term and longer term? That's the real $128,000 question. Because if I think of the 200 people that Kevin talked about adding, for example, in the group is largely being funded by what we're seeing in early wins and what we believe we'll see in early wins with optimizing machine. Because all the expenses of that business is already there.
We have
the vending machine in place. We're going to that vending machine multiple times a week. We have the supply chain built to bring the tote and you're going to see the tote that come off the line that are going to a vending machine. That's still going there, but you're putting in 10 more items into that tote. And so those costs are there.
The only cost we're introducing is the 200 people to go out and optimize those machines to help optimize those machines and the added commissions and profit bonuses that we're paying. And that one's covered by the optimization. But if I look at the rest of them, they're really no different than the inherent growth drivers we've had in our business for years. They're just manifesting themselves a little bit differently. But they're really no different because the on-site expense comes when you sign the on-site.
It's not like you open a store and you wait until the store gets to $5,000 $10,000 $20,000 $50,000 in revenue before you break even and start money. If we sign 10 on sites tomorrow, there will be some ramp up costs on that, just like to be ramped up on any business, but the business is there. You're putting in teams to support the business as opposed to building a team to get business. Hopefully, I covered that one.
Yes, up
in front here, team.
You mentioned that the proportion of sales going out the front door at Fastenal Inc. Is 4 times the typical Fastenal score. Just curious if you have any theories as to why that's the case and whether that is something you can control or whether it's really a function of location and geography, which would be harder to do well. Wondering if that's location based discrepancy or whether it's something you have more control over. Why the company we bought has so much more walking out the front.
I think there are actually several reasons. One is they didn't have the other things to sell. As Dan mentioned, when the economy came back after the last major recession, vending a national account and a bunch of things. And that customer segment went away from us during 2,009, 2010. So the customers came back, they just didn't come back to us because we had refocused.
That was a big mistake on our part. We're willing to acknowledge that. But when we look at Fasteners, Inc, and Dan and I have had the opportunity to look at some other businesses that are similar over the last year. That's what their focus is. They have better front room inventories.
They've worked very hard to get people in and out the door very rapidly. And so what we have to do is we have to learn. And it's not that we don't know a lot about this. We have hundreds of stores that are very good at this. Unfortunately, we don't have thousands of stores that are very good at this.
So we have a good model and we really have 2 big data points. 1 is what we're learning from the company we bought and one is the other is focusing on probably our best 100 stores and think what are they selling, how many traffic, what's the traffic count. And so we think the CSP6, I'm very confident that our investment in our stores is going to be a great decision. And when we talk to our managers at a group in this week, they are also very confident saying this is fantastic. Same day, same day, same day.
And so we think we can duplicate it. Part of it is location and some stores we're probably going to have to move. But most of our locations are actually quite good when we look around the entire population of Fast Mill stores. Does that answer your question?
One thing I will throw out. When you're doing the tour of the CSP-sixteen, I hope the store manager is going to be there the tour as well. Make sure we ask the store manager to tell his story about the fastener sale he just got because of the expanded inventory. Because of the item he was selling, we typically would stock 200 or 300 and a customer came in and needed over 1,000 of them and we had them right there for that sale. And that's an example of the out the front door business that we would not have gotten 2 months ago.
The other piece of information we have is the person who's ran Fasteners Inc. Has been 93, whatever, 20 years knows Fastenal extremely well, almost a little weirdly well from meeting with them. And so he's telling us, well, so here's why people aren't coming to your stores. I'm talking to my customers and saying, what can I do against these guys? Because we're like the Darth Vader in the neighborhood.
And so we have an inside resource now that's been selling against this very bright guy for 20 years and now he's on our team. So we do have some good knowledge. And again, it isn't just there. It's all over the country talking to our people. Yes, thanks guys.
A few questions here. Number 1, just in terms of the latest and greatest in terms of your Canada and energy exposure. Did the recent October sales give you any further insight into stabilization there or any kind of narrative or information about those markets as we look into 2016 and all?
I can't talk explicitly to Western Canada. I can tell you on previous earnings calls, I've talked about that Oklahoma, Louisiana, Texas market, when we lump those 3 regions together and we look at our sequential patterns, what we're seeing. And we have seen stabilization in that business from June to August. The growth numbers were pretty ugly, but I'm just talking about the sequential patterns. We had seen stabilization there.
And in September, we took a big step down. In October, we got about a quarter of that step back. Again, to Rob's point earlier, 1 month isn't a trend, but it felt pretty good getting another piece back. But the business there dropped 8.5% from August to September from what we would have normally expected. And we got 1.5% of that back.
Okay. And then the next question is in terms of long term vending. I think you highlighted 10 industries that are going to be fertile for vending and some of which you are not in.
Could you talk about the ones
that you're not in that you're thinking in terms of proof of concept? We are actually in all 10 of those industries. Those are the we're in far more than 10 industries. 10 industries that we've had the greatest success. And so for Kevin's information that we presented today, we narrowed it down and say, let's make sure we really know that we're really confident in these.
So we're in them all with a great deal of success, all ten. And then just in terms of vending as a whole, could you comment on maybe your most potential or highest potential markets in terms of what are your highest vending turns or machine revenues per month? In other words, can we get a sense of what the potential could be for the existing vending fleet? We have one area of the country that stands out by like this much and it's the country of Mexico. If Terry is back, where's Terry?
How many vending machines do we have in Mexico, Terry? We have a couple of 1,000 machines in Mexico and our revenue per machine is $2,600 a month. So it's light years ahead. When I talk to Terry, who actually developed that business for us, it's because we went in with a different strategy from the beginning. Instead of going in and asking the customer, what do you want, and then it's kind of a free for all, we went in and said to the customer, here's what we can provide.
And I don't know if that was just good planning or if that's all we had a narrow product line in Mexico at the time. And so we went in and made it very focused. But the result is that our average machines revenue is almost 2.5x or at 2.5x.
The other place where you can see a meaningful difference in the revenue per machine can be heavily influenced by what is the product you've been spending. I visited a plant not too long ago. We were doing about $4,200 a month for machines, a lot of welding kits, a lot of more expensive products rather than safety glasses and gloves.
Hi, Will and Dan. Thinking about the market that we're in right now and if that were to continue in terms of the underlying demand fundamentals in the next couple of years or so in this sort of slow growth environment, How should we think about the initiatives you have with vending on-site and online in terms of the type of growth it can add to your top line over the next call it 2 to 3 years or so?
I probably don't want to step too far into that answer to be honest with you. Other than to say, we identified a big chunk of customer opportunities for On-site, for example. And let's say we can do the 200 a month or 200 a year that Chris talked about. And there truly is an additional $1,000,000 in annual spend that we're going to drive in the 1st 12 months. After that, it becomes more of a steady state.
And if we make some advances, it's because we're making some more inroads. Other than doing the math and extending that out, I probably want to I wouldn't want to get too deep into that.
Sure. That's fine. The main other question is just and I'm sorry if I missed this, but can can you talk a little bit about as a percentage of your revenue what online is right now, the amount of sales are going through online? And then is there a way of thinking about is there a near term or intermediate term goal or where you'd like that to be going forward?
We historically haven't disclosed it. It's a relatively small piece. It would be upper single digits. But then you have to start asking a question about should we measure it against the company because unlike if I think of most of the companies that are out there, they're much more pure MRO businesses. And so you're comparing apples and apples because all of a sudden, if you look at our business and say, well, geez, 30% of the customers with vending is going through the vending machine.
So 13% of our sales is vending products, going through a vending machine. That is electronics by definition. So if you take that out, now you're talking about the other 87. And then you look at it and say, well, 18% of our sales are going into OEM fastener settings, where we are by definition, that that isn't eligible to be bought online because we're the supply chain. And we're managing it through technology for barcodes and scanning and things like that.
All of a sudden, you take that piece, now you're talking 65%, 70% of what. Then you start going into bin stocks and walk in business in our front going at the front door, even though it's a smaller piece than I think it should be, still is a meaningful piece. And you start carving those out. And then it's a question of, are you measuring it against the 100% of our revenue or are you measuring it against 50% of our revenue, which is really maybe eligible or 40% that's really eligible for that channel? And then the amendment numbers change quite a bit.
As On-site grows, which is lower gross margin, but I think you've said similar or higher returns on capital, is there a need to change kind of the historical very strong focus internally, internal messaging on that 50% gross margin? And just changing the way you talk about it to employees about here's how we focus our financial targets to more of a return on capital than a laser focus on that gross margin?
No, we have about we just broke 20,000 employees in month of October for China. And if I think of those 20,000 employees, about 13,000, 14,000 of them are physically working in a store or on-site. For the some of that population, 12,000 or so that work in a store, nothing has changed. But the subset of people that work on an on-site, that's a fundamentally different business and the message to them is fundamentally different. And one of the reasons we brought Chris into his role was to help us understand it ourselves from somebody who had lived and breathed it for many years, so we can craft that message.
So if you have 200 implants, yes, or on-site and you double that to 400 or to 500, given the ones we added this year, It's really what's the message going to those 400 locations and the people that work there as opposed to the folks that work in the 2,600 stores. And structuring their pay plans to fit that is important. Just like structuring the pay plans in our traditional store to fit that business was important.
To incent the store managers and the DMs to move some of that business potentially to an on-site, they have to get the message as well. They have to get the message
as well. And the biggest message is going to come from that one slide that Chris had where it said, hey, districts that are doing a bunch of on-site, here's how fast they're growing. They're up 18% from January, October 20, sorry, 20% year to date versus what's going on in the business. So the district manager piece, I think, is the easiest sell, if you will. The store employees is really looking at it and saying, painting the picture of what we see happen in stores and then having a fair compensation program that addresses that.
If I'm giving up 30,000 of my revenue and it's going to this On-site, how will I be treated? And the big issue is how will I be treated for the next 12 months because of the tiered program we have with commission.
Yes. Hi, Jamie Anderson from Credit Suisse. So we saw a little bit of a deceleration in September in average daily sales. And now that's kind of continuing into October. Some of your competitors in the space are seeing further deceleration in November.
One of your competitors came out and said that they're expecting November to be down mid single digits. Another industrial distributor came out, now they expect December to be worse tied to the lower oilfield services spending. So kind of looking out into the balance of the year, one, how are you seeing November shape up given that we're only a few selling days into the month? How are you kind of viewing December? Are you kind of seeing the same thing in your business?
And then what gives you the confidence looking into 'sixteen that we can start to see kind of a pickup again in that growth?
One thing, and I think we'll agree with this. Years ago, we a few times, especially on the January call, we would actually respond to what we're seeing in the month of January when we're reporting Q4. And every time we do
it, we're wrong. The question is by
how much. And so November, I guess, I'll wait through early December when we report that. But there's nothing we're seeing in the trends that tells us it's going to get better. We don't frankly know what's going to happen as we get into the New Year. What we do know is that when I think of in early December, we'll have our annual employee, tradeshow, our employee expo.
In that room, you will see a couple of 1,000 Fast Home employees in a blue shirt. And what I know is whatever the marketplace delivers to us in the next 5 months or the next 15 months, we're going into that market with that group of individuals in those blue shirts. And I can't think of a better group to go with it in because they can react and adapt for what we're seeing today, in a few months, not in a few quarters. They're able to react and adapt very quickly because we manage in a very decentralized fashion. We have 280 district managers that are making decisions every day because they know what's going on in their business.
And they are partnered and led by 24 regional VPs that have been stellar operators in their own right, both as a store manager,
as a district manager, possibly as
a hub manager. And the best way to approach uncertainty is to have a great team you can tell me. I know I didn't really answer your question, but I don't know if there is an
answer. Hopefully, in the last two hours, you saw that we're very optimistic the industrial distribution business. We can't affect the economy. We can only affect our execution and first focusing on our growth. But as Dan mentioned earlier, when we looked at our strategy, we started really thinking, okay, where do we invest?
We also said at the same meeting, where do we how do we pay for? We add 200 vending reps, and we figure out we go, you know what, we can pay for every one of them with optimization. We wanted to do CSP 16. We met with Nick Lemquist, who runs our supply chain and said, Nick, tell us how much you can take out of the hubs without hurting service. He came back, said, I think I'm comfortable with $35,000,000 we got.
And the reason our inventories are higher is because our sales are down. So you're projecting where to put it. He said, I can take that out. So we're going to pay for C16. We also went to the suppliers that are helping us to do this and said, hey, we need some help.
We can't bear the whole load here. You need to help us transition this cost so we can do these store openings, not openings, but improvements without adding it. We went to Chris and Chris said, well, man, I could really use a sales force for my on-site program. If I could get it like that like Kevin did, I said, no. We have 2 80 district managers.
You have to train them because we don't have any money to add. So we pushed all these initiatives with really adding no expense. And we believe if whatever happens with the economy, we will accelerate our growth out of whatever that would be because of what we're doing. Our growth out of whatever that would be because of what we're doing. And we also communicated, and Dan and I worked hard on this along with pretty much everyone in the blue shirt, getting that word out to our field that we have to be tough on expenses.
And you look at the great job that Dan and the team have done over the last year, basically no sales growth are very low and we still have been leveraging. So we're in a great position. It's not like we're spending like we're crazy to if it accelerates to bring it to the bottom line. And I'd like to say that the biggest reason we want to do that is for you, but that's not true. The biggest reason we want to do it is for all the Fastenal people that are working with smaller bonuses this year.
And if they win, you win. And so that's a really important point that we need to reaccelerate our earnings growth, our sales growth, our profit growth to pay the team. And if we do that, everybody in the room is going to win. But we're very, very focused on keeping these things going and not adding a lot of other expense. And we're looking around the entire business going, maybe we could do without that for a while.
Maybe we don't do this for a while to save that money to drive growth and profitability. With a historically fragmented industry and your balance sheet, very little debt,
Do you think
there's an opportunity to leverage that more, use acquisitions for growth going forward or just even without acquisition, just more opportunity to leverage the balance sheet in the future and what are your
thoughts around that? Historically, 100% of our energy has gone into creating and enhancing a beautiful business. And we've never used any leverage on the balance sheet to speak of in that process. In the last 12 months, we've taken on some debt. We're actually, as I mentioned on the Q3 call in October, we're expanding our line of credit from $500,000,000 to 7 $100,000,000 And we want to be in a position from a stock perspective, we bought more stock back in the last 12 months than we've done in 50 years.
And it's more of a statement about 50 years than the last 12 months, perfectly frank. But we've demonstrated that we're willing to take some of that on because we didn't want to pull back on any of the investments we were making in the business. We decided to maintain our dividend in place and essentially buy all that stock back with leverage and we're open to do more of that. And as I mentioned in that CapEx discussion, one of the pieces we'll have to do more of is the fact that our inherent CapEx, our structural CapEx is coming back down to a more normal level than it's been in the last 4 years. And that means in quick math, about 5% more of our net earnings and our net earnings last about $500,000,000 So it's about 5% of that number is now available to do some things with, too.
Relatively small in the scheme of what we're doing, but it's still a component.
Thank you. Fastenal clearly has a good position in on-site sales. But from your comments earlier, it seems like this business could have been nurtured sooner to take advantage of that position and get a greater head start on some of your competitors that are doing the same. Organizationally, what didn't filter up to the top to invest more resources in on-site earlier and what will change communication wise so that you can take advantage of that positioning better going forward?
I'll throw a few things into that. One is over a 15 year period, we grew it from 5% of our business to 16% of our business. And in that time frame, we went from a $1,000,000,000 distributor to a $4,000,000,000 distributor. So we have been nicely investing in it. And if you start putting the pieces together, it's about 30% of our national account business is going through an on-site rating.
And so we've made meaningful installments in that that growth driver. But at the same time, if you go back to the mid-1990s or late-1990s, We put a lot of energy into expanding our product line. And in the last 20 years, non fasteners have gone from 15% of our revenue to 60% of our revenue. We made a big investment into national accounts. In that time frame, national accounts went from 2% of revenue.
So right now, it's approaching 50%. And if I add government and large regionals on top of that, we have about 57%, 58% of our business with large accounts. So we've done a number of things. And then in the last 10 to 15 years, we did a bunch of very transformational things. We improved our ability to source product with our trading company we established in 2003.
We started our initial CSP initiatives and we slowly tuned up the business and allowed the inherent profitability to shine through and we developed a vending platform that was completely new to the industry. So when Will made a comment earlier, maybe we didn't invest in this one heavily enough or made the stake here. He's talking about CSP 16, maybe we should have done this couple of years ago. I'm not going to beat ourselves up too badly because there were a lot of things we're investing in. At the same time, it is 16% of our business today.
I just want to add one thing to answer the end
of your question.
You said what's going to change? There's 2 huge points. One is that we build these tools that Chris talked about from looking at the structure, understanding the business. And the other is we take the hurdle down on the manager's pay. A store manager.
It's the largest customer I have. The old way of doing it before we had the pay program, we'd say, oh, we'll pay on that account for a year or so. That's not enough because they're saying, hey, I'm going to be here for 10 years. We've developed a new program that we're going to write them out a big check. So if they can take their biggest customer, hand it over, we're going to give them a lot more than they'd make off that over the next 3, 4, 5 years.
And when I look at that expense, I say, I would do that all day long for every manager in the company. If I can add $1,500,000 or $2,000,000 look at what we would spend to open a new store over the last 25 years, we could write a big check and still be a fraction of that. So we're structurally looking at our business differently and that's going to be the difference. And I believe that's part of the reason. And this year we went from averaging 9 over 5 years to hopefully 80, that's without making these changes.
We've been pretty steadfast about hiring sales personnel in the face of a tough macro environment this year. And we've seen a big discrepancy in growth in your store FTEs versus daily sales. You've managed to do that without having a big negative impact on your margins. I'm wondering if that is a repeatable trick, if the macro environment remains, we'll say stagnant for next year? Or did you benefit from things like lower variable compensation where that's sort of a are there one time benefits?
Or is this something that you feel you can continue to do with this investment in the store personnel?
I mean, if you look at 2015, we had a number of things that helped us out. As Will mentioned, we have a lot of individuals that are paid off the gunpowder to keep adding energy into your stores and defend your the gunpowder to keep adding energy into your stores and defend your operating margin. That becomes more challenging once we anniversary a slowdown period. That become more challenging when we get into the New Year. The other thing is, if you think about the headcount we've added at the store, we've added a lot of headcount.
We've created a lot of capacity in our stores. And some of our needs for adding headcount are going spending on next year. I'll pass for growing to service some of that business. We haven't officially come out with what we plan to add for next year. We'll be talking about that internally with our employees when we're in our meetings in December.
But we are optimistic, as Will mentioned, about what these things we're talking about to mean as far as revenue growth, and that by extension will require we're adding people. Absent that, you the same kind of additions in 2016 that you saw in 2015.
One thing we always have to remind ourselves and everyone is it's not that we aren't taking share in 2015, it's that our existing $3,800,000,000 from last year, that customer base shrunk. So we're taking shares. So if we could just get into an economic state where that business continue to stop declining, even if it didn't grow, it would stack up much faster on top. And that's something that, like I said, we all have to get our heads around because if the economy stays slow but not shrinking, we would be in a pretty good position with what we're doing with all of our growth drivers and offset what you're talking about.
Quick example of that is, if you look at our national account business, and we talked about what's happening in the top 100. And that top 100 is about 40% of our national account business. If you look at the other 6% of our national account business, that business right now is growing at 10%. And our vending itself is at 17%. Okay.
Would you talk about some of the differentiators of your vending solution outside of just the ability to more efficiently restock and service those machines, maybe touch on some of the technology and software involved? All right.
I'm the vending guy. Some of the software things involved, probably the biggest one from a software standpoint is we developed a very good software for inside the store to process the order. Unfortunately, and I know you don't owe me well, I'm willing to say what we don't do well. And what we haven't done well in this case is deployed it. Only about 20% of our business or 20% of our stores use it 100% of the time.
So one of Kevin's initiatives with his new team is that he's going to take this software and deploy it throughout the organization. I'll give you a quick story, the best story I've heard on this. I saw a young district manager, manages 70 vending a business with 70 vending machines. He went out and went through this process on his own, forward thinking person. And not only did he add about $28,000 a month in incremental revenue, additional revenue, But the biggest thing that got me excited, well, that was nice too, but he was able to take the replenishment of the machine from 3 times to 2 times per week, which doesn't sound like a big deal.
So I'm driving home from this dinner, my mind is always spinning. And I did the math on that and I said, wow, that's 50000 hours a month because we estimate it takes about 15 minutes per machine. So in 50000 hours, if we could just get that done and then I do the math on the 4 in this, we actually got $400 per machine. Our overall experience, we've done about 5,000 machines. We're getting about 2.40 But you do the math on those two things by deploying the software and using it to its full extent and everything looks much better overnight.
So we're looking at that. We're looking at a lot of new devices. We think there's a pretty big or a very big opportunity, large opportunity with lower cost items like fasteners through a simpler device. So we have thousands of on sites. There are thousands of bin stocks within our business.
And every week, somebody is out there scanning them with a hand scanner, which is a pretty good process. But think if we could develop a way that when that drops down, it would just send a signal. And so we don't have to go out there, we can just take the order already in our system and go out and deliver that order. 1000 and thousands of personnel hours would be saved overnight. Now is that going to be an inexpensive solution?
Probably not. But everything we've looked at say the returns are fantastic because all of you know the hardest thing to do is find talented people and keep them in the field. So we have some great things going with vending. And Kevin has a wonderful team that's working hard on it to get these things out there. So the sky is the limit.
We're really in the early stages.
Well, Stephen, if you bring it up to Bruce. And then after question, we'll wrap up the Q and A.
Two questions, if that's okay. It will be brief.
One is acquisitions. There was a recent
what degree of what type of if you were to see 2% additional revenue growth over the next 5 years on average from acquisitions, would that be unrealistic
or might that be possible to
see things work out? And then the second question is with the branch, the new branches you mentioned for next year. I'd be curious if that's more geographic expansion or is it something where you're did you sign a deal, say, with Cargill and they have a plan in a location where you're in a location where you don't have a presence. And so maybe they sense maybe you want to have a location where they are, but it's more customer specific.
I'll take the last one first and then I'll collect the first one. If I think the stores are going to open, I don't necessarily see any geographic bias to those locations the standpoint, they're not going to be in Minnesota, Wisconsin and they all will be all in California. I don't think there's a geographic bias to that because we see opportunities in all areas for opening additional locations. And I think only time will tell how that will play out.
In the first half, remind me of the first half question. Pardon?
On acquisitions. Could I see Fastel having 1% to 2% of additional revenue over the next 5 years from acquisitions? Sure. Could I see it being less than that? Yes.
Could I see it being more than that? Probably not. And never say never, but what was attractive in the Fasteners Inc. Acquisition as an example. We didn't acquire that business to acquire $36,000,000 in revenue.
We acquired that business, we wanted to learn a couple of things. One thing we
want to learn is, can we play in
the sandbox with somebody else? Because we want to be mindful of how we roll that into our business. Do we bring forth and bring across our 2,600 locations a handful of things that we can learn from them that make us this much
better in 2,600 locations? Because if we can do that, what we just
paid for the business, 600 locations. Because if we can do that, what we just paid for the business, it's an unbelievable return. But the other question is what we want to be mindful of too is that we don't just rush to make it us and not nurture that growth opportunity in the process. And so this I could see us doing a few acquisitions a year. I don't know that we're going to start becoming acquisition experts, 0 acquirers by any means, We have so many as you learned from these 3 gentlemen this morning, we have so many opportunities to continue growing the business organically, but we always need to be open to fresh ideas.
Thank you everybody for your time today. And we'll break now for lunch next door. And then after lunch, we'll be breaking up into 3 groups. 1 group will be going to the store, another group will be staying here on the C Hub facility, another group will be going over to the I Hub facility. I do know for the group that's going to the there are some folks that have to leave early and those folks have been explicitly put in the CSC 16 tour first.
But if you're going to miss if you're going to only make one thing, we want