Recession Drives Profit Protection Initiatives

Operators noted that raising prices in 2008 was less difficult than in prior years since customers recognized food prices were rising in other retail channels. Wholesale food prices rose 8 percent in 2008 following a 7.6 percent rise in 2007, according to the NRA, marking the largest 1-year gain in three decades.

Many operators found it helped to provide customers notices of price increases from product manufacturers. In the case of coffee price increases, operators could provide copies of newspaper reports about these increases.

While operators found it easier to convince account decision makers to let them raise prices in 2008 than in previous years, consumers — the end users — were not as accepting of the increases, even when similar products were priced higher in other retail channels. Most operators noticed that higher prices usually resulted in lower sales for several weeks and longer.

In addition, the price increases were far from enough to make up for the decline in population counts. Operators were limited by competition and consumer “buying angst” from raising prices to the levels at other retail channels.

Aside from raising prices, the second most frequent profit protective measure for vending operators in 2008 was to absorb the higher costs, as indicated in chart 6. This hurt profitability. The impact of higher operating expenses on profitability in 2008 was measured in the National Automatic Merchandising Association (NAMA) Operating Ratio Report. (See page 6).

The pressure on profitability once again compromised operators’ efforts to invest in technology that theoretically will improve profitability. The survey once again reported few operators invested in cashless readers, remote machine monitoring (RMM) and bill recyclers, although there was an increase over 2007 in some areas, as indicated
in chart 9.

Among the new payment technologies available, more operators reported installing bill recyclers than RMM or card readers. Bill recyclers represent a much less costly investment than the other options. But the level of activity in this area, 25 percent, was slightly less than in the previous year, indicating reluctance to invest in technology.

Investment in RMM increased in 2008. This was most likely due to the fact that RMM is a technology that supports both pre-kitting and dynamic routing. Pre-kitting and dynamic routing result in more efficient servicing, which took on greater importance to many operators in 2008.

MORE STAFF CHANGES

More than half of all operators either added or reduced staff in 2008, shown in chart 4A, with more reducing (39.7 percent) than adding (23.5 percent). Consistent with the routing changes noted above, the most common area of staff reduction was in deliveries, cited by 63.5 percent who reduced staff, followed by office staff reductions cited by 21.1 percent.

OPERATORS SEEK DIVERSIFICATION

More than a fifth of the respondents (21 percent) expanded into new services in 2008, and the results indicate that much of this activity was outside of the refreshment services area. When asked which areas they expanded into, 44 percent cited “other” areas versus businesses within refreshment services, as shown in chart 8B. The most common refreshment service field mentioned was OCS, cited by 24 percent of the respondents.

Health and wellness continued to be an important consumer issue in 2008, but consumer research indicated that the recession dampened its importance due to heightened concerns about saving money. Schools and government agencies continued to enact nutrition restrictions, and while these do not represent major amounts
of business for most operators, the restrictions continued to hurt sales.

In August of 2008, California became the first state to mandate nutrition rules for school vending machines.

The only product with a strong “better for you” association that drove sales in 2008 was bottled water, which has been growing for years. In 2008, state and local governments began considering taxes on bottled water to reduce landfill wastes and protect water resources.

Following is a summary of the main product segments.

COLD DRINKS: CANS COME BACK