Automatic merchandising has often been described as a bellwether industry for the U.S. economy. When the economy is strong, vending and coffee service thrive as employers rely on refreshment service providers to sustain employee productivity. When the economy suffers, so does demand for refreshments in the work place.
The recession that began in 2007 and got progressively worse through 2008 has been described by many as a depression, with unemployment rising to unusual highs, consumer confidence hitting record lows and, as of August 2009, little sign of improvement.
Automatic merchandising, which never fully recovered from the “dotcom” implosion of the late 1990s, suffered heftier doses of work site downsizing, rising costs, consumer resistance to higher prices, and limited growth opportunities. The “mortgage meltdown” that struck in September of 2008 chipped the financial foundations of hundreds of thousands of businesses, spurring layoffs in almost all industries.
Automatic merchandising revenues slid 5 percentage points in 2008, ending a 4-year growth trend and returning to the 2003 level of $22.05 billion, according to the 2009 Automatic Merchandiser State of the Vending Industry Report, which is based on an online survey. The biggest losses came in the second half of 2008, as the unemployment gradually rose, hitting 7.2 percent in December.
By November of 2008, more than 1.9 million jobs had been lost and consumer confidence fell to record lows. The 7.2 percent unemployment in December of 2008 marked a significant 1-year change in national employment. Job losses were broad-based, with the manufacturing, construction, retail, financial service and business service sectors posting substantial declines. Only the health care and government sectors added jobs.
Vending losses were largely due to work site downsizing, which vending operators themselves were forced to do in their own operations to protect their profitability.
VENDING FACES ONGOING CHALLENGES
The rising unemployment and fallout in consumer confidence which gripped many industries in 2008 contributed to some larger challenges that the vending industry has struggled with for decades. Namely, the shifting of the nation’s work force from blue collar industrial jobs to white collar and “pink collar” service jobs.
Some observers claim negative consumer perception of vending prevented operators from capitalizing on a “trading down” trend that convenience stores and, to a lesser extent, fast food restaurants were able to do in 2008.
Consumers, in order to reduce expenditures, bought more food and refreshments at convenience stores and fast food restaurants rather than full-serve restaurants to save money. Data from food industry associations confirms that convenience stores and fast feeders outperformed the overall foodservice industry, which had one of its weakest years in 2008 with a 3.3 percentage point revenue growth, according to the National Restaurant Association (NRA).
Fast food restaurants, a competitive channel for vending and onsite foodservice, posted a 4.4 percent sales gain in 2008, outpacing the overall foodservice industry. The NRA noted that on an inflation-adjusted bases, fast food sales were flat, posting their weakest performance since 2002.
Convenience stores outperformed all other foodservice sectors in 2008, boosting sales by 8.1 percentage points, according to the National Association of Convenience Stores (NACS).
While many vending operators believe their industry’s long-term challenges are more serious than the current recession, a widespread consumer reluctance to spend money in all retail outlets certainly contributed to vending sales declines in 2008.
OPERATORS RESPOND IN VARIOUS WAYS
Vending operators responded to the challenge with a variety of actions, as indicated in chart 6, the most frequent being raising prices. Fiscal 2008 witnessed the second consecutive year of aggressive price increases. In 2008, operators raised prices in all product segments, as indicated in the charts in this report.