Can you give a sense of what percentage of sales include these contracts, or how has that been progressing?

It's product dependent. For scales and balances, which are really the heart and core of Mettler-Toledo, the service component is very significant. It's over 50% with every sale. They have a huge service organization built around that specifically. In fact, it was the model used within the scale and balance division, covering all scales and balances from lab to industrial to load cells. They recognized that other products in their portfolio fit well with this model, so they made a strong push to expand their go-to-market strategy with product and service as part of the total package.

Can you give a sense of what percentage of sales include these contracts, or how has that been progressing?

For example, in analytics, the percentage is much lower, probably around 20%, because some products are high precision and have FDA requirements for calibration. Customers are willing to pay for that because it ensures they're covered, making it an easy sell. In retail, it's a much harder sell because it's not as precise. If you're off by a few tenths of an ounce when slicing deli meat, it's not a big deal. However, if you're measuring a drug in a lab or a component in micrograms, it's a big deal and an easy sell. They capture a high portion of it, but it depends on the product and industry.

As a side question, since we were discussing retail and the division doesn't have that attractive service component, how does that division make sense in Mettler-Toledo? It seems like a harder business than the lab and industrial side, and the products might be more commoditized or easier to manufacture. What's the strategy behind that?

You are absolutely right. It is a commoditized business with extremely low margins. The only way they make business is through corporate contracts with large retailers and establishments, not small-scale deals. They approach global chains, offering scale solutions at a corporate cost. This has been a legacy strategy since Mettler-Toledo's early days, allowing them to expand their brand and market share.