Recession Drives Profit Protection Initiatives

Vending operators unanimously agreed they faced a price barrier with 20-ounce bottles in 2008 and were unable to match the price points being charged by competing retail outlets. While chart 11C indicates that operators did make progress raising bottle prices, many complained that the increase did not match the higher costs that suppliers were charging.

The most notable change in the cold beverage segment in 2008 was the gain in cans’ share of sales, despite the fact that can prices remained flat. This marked the first market share gain for cans and the first decline for bottles in four years. The return to cans was more common among smaller vending operators who have less buying clout with product suppliers.

Most operators interviewed said that suppliers did not raise prices on cans as much as bottles. More importantly, they said cans gave them the opportunity to offer a lower priced product at a time when customers want to save money. Some operators said consumers realized a better value buying two 12-ounce cans than one 20-ounce bottle.

Some further noted that government agencies levied deposit fees on 20-ounce bottles that did not apply to cans.

The majority of operators did not make the switch to cans, however. Many noted that while the profit margin was better with cans on a percentage basis, the dollar margin was lower.

The survey indicated that cold beverage prices rose more than any product segment in 2008 except for candy and snacks. Cold beverages, being the largest single vend product segment next to manual foodservice, affected the overall revenue change more than any product segment in 2008.

COLD DRINK MACHINES DECLINE

For the first time ever, the total number of cold drink machines declined in 2008, reflecting operators’ efforts to protect profitability by eliminating unprofitable accounts. The decline in the number of machines, while not radical, contributed to the category’s negative growth in 2008.

One positive sign was that while total beverage machine counts fell, glassfront beverage machines increased in 2008, continuing a trend since these merchandisers were introduced in the mid 1990s. Glassfront machines allow operators to showcase more variety and thereby capitalize on the more diverse tastes that have driven the nation’s cold drink business in recent years.

While glassfront machines increase sales, some operators argue that on a per-machine basis, they are less profitable due to the higher level of servicing and product warehousing required. Many also note that only the latest glassfront models are mechanically reliable.

Another factor contributing to the decline in cold drink sales was the segment’s negative performance across all retail channels.

Beverage Digest, a beverage industry newsletter, reported that the total liquid refreshment business decreased in 2008 for the first time. The decline was 2.2 percentage points. Carbonated drinks, long the dominant segment, have fallen for several years, while growth in non-carbonated beverages prior to 2008 offset soda performance and generated overall growth for beverages in recent years.

Beverage Digest noted that the recession, along with other factors, caused consumers to reduce consumption of all liquid refreshments and switch to tap water. Other observers noted that the perceived environmental impact of single-serve bottled water contributed to this trend.

BOTTLED WATER SALES SLOW DOWN

Growth slowed in the once fast-growing single-serve bottled water business in 2008, accounting for 19.7 percent of liquid refreshment volume, compared to 19.3 percent in 2007, according to Beverage Digest.

Teas, juice drinks, sports drinks and shelf-stable dairy drinks were essentially flat over 2007, rising a collective 0.1 percentage point.

Even energy drinks, a small category that posted a 54.1 percentage point growth in 2007, rose only 4 points in 2008. Energy drinks are among the highest priced beverages that vending operators offer, commanding price points in excess of $2.00. The high price point is believed to have contributed to its slowdown in the current recession.

While some question the health benefits of diet soda, sports drinks and energy drinks, most of the health concerns have been directed at high calories and high-fructose corn syrup and artificial sweeteners, which are commonly associated with soda.