2009 State of the Vending Industry Report

The Great Recession has led to the Great Restructuring.

Fiscal 2009 marked the biggest 1-year decline in vending sales and the first double digit drop in the industry’s recorded history. According to the Automatic Merchandiser State of the Vending Industry Report, vending sales fell 10 percentage points in 2009, sending aggregate sales to just below the $20 billion mark.

The decline, fueled by the record unemployment that afflicted almost every sector of the U.S. economy, began in late 2007, gained momentum through 2008, and reached its apex in the third quarter of 2009. The nation’s jobless rate more than doubled from 4.5 percent in early 2007 to 10 percent in late 2009.

The aggregate 15 percentage point fall in aggregate vending industry sales for the last 2-year period reversed nearly 15 years’ worth of vending industry sales growth.

Operators responded with a slew of profit protection measures, first reported in last year’s State of the Vending Industry Report and continuing through 2009. As a result, operators posted healthier profits in 2009 than 2008, according to the National Automatic Merchandising Association (NAMA) 2010 Profit Report, which measures 2009 performance.

The NAMA report, which unlike the Automatic Merchandiser survey examines operating ratios, found that operators improved gross margins in 2009 which allowed them to improve pre-tax profits over 2008. The NAMA report noted that the ability to maintain margins in the face of declining sales was the major reason firms were able to improve profits in a down market.

The NAMA report is based on a more limited operator base than the AM survey. However, both surveys found the sales decline was larger in 2009 than 2008, and that the decline affected all key product segments.

The NAMA report found that pre-tax profit margin for a “typical” firm doing more than $2 million in sales was 1.5 percent in 2009 compared to 0.5 percent in 2008.

The AM State of the Vending Industry Report is based on returned email questionnaires sent to more than 9,000 operators in the magazine’s subscription list, which generated a 13 percent response.

Unemployment hurts sales

High unemployment not only decimated work place populations, it also caused those workers who were not laid off to cut back on spending.
Hence, vending sales took a hit on two fronts: fewer people to buy products, and those who did buy bought less.

Vending, being primarily a work place service, suffered more from the employment fallout than foodservice in general. The National Restaurant Association (NRA) reported overall foodservice sales fell 2.9 percent in 2009 in inflation-adjusted terms, marking the worst loss since NRA began tracking sales in 1971, but less than a third the loss suffered by vending. Hence, vendors had to compete with channels that faced less bottom-line pressure.

operators raise prices

The Great Recession has ushered in the longest period of vending price increases in recent history, even though the gains fell far short of making up for the unit sales declines. In 2007, 2008 and 2009, operators raised prices in all product segments.

Raising prices was the most common profit improvement measure operators took in both 2008 and 2009, as indicated in chart 6.

Operators raised prices on candy and snacks more than any other category and more than in the previous year, despite the fact that there were fewer manufacturer price increases in 2009 than 2008.

With costs rising in other areas, such as payroll, vehicles, benefits and equipment, operators recognized they needed to be more aggressive raising prices than they were in the past.

Operators found location managers more accepting of price increases than before the Great Recession, but consumers remained resistant, even though other retail outlets charged more for comparable products.

Operators absorb higher costs

Absorbing the cost was the second most common profit improvement measure in both 2008 and 2009. The fact that cost absorption ranked so high among profit protection measures demonstrates how few choices operators had to meet the challenges they faced.