Recession Drives Profit Protection Initiatives

CANDY, SNACK AND CONFECTION PRICES RISE

The candy, snack and confection segment posted the biggest price increases among all vend product segments in 2008, driven by manufacturer price hikes. This segment nonetheless fared little better than vending as a whole in revenue performance, due to account downsizing, elimination of accounts and a move by many operators to replace certain items with lower priced products.

Candy in particular experienced some of the steepest manufacturer price increases for the third straight year in 2008. The government announced it was investigating some big chocolate manufacturers for price fixing early in the year. This did not stop some of these companies from raising prices again later in the year.

Many operators have long observed consumers resist candy price increases in vending machines due to the heavy price promotions in other retail outlets.

In 2008, many operators responded to the candy price increases by reducing candy facings and replacing them with snacks. In recent years, snack manufacturers have introduced more products that fit in candy spirals.

Fourteen of the top 15 placement gainers in 2008 were salty snacks and one was a cookie, as indicated in chart 12G.

CANDY SALES FALL FURTHER

This marked the third straight year that candy sales declined at the expense of snacks, as indicated in chart 12B, which is based on data provided by Management Science Associates Inc. (MSA). Candy sales declined 8.78 points in 2008, following a 1.39-point drop in 2007 and a 0.09-point drop in 2006.

In 2008, baked goods gained by double digits after losing volume in 2007. One reason the segment rose was that operators stocked more of these items in machines, indicated in chart 12C. This segment also benefitted from vending operators’ efforts to replace candy with less expensive offerings.

MSA reported that the number of candy items stocked in machines declined by 6.8 percentage points in 2008 while snacks and baked goods increased.

Some industry observers claimed that the move to reduce candy facings resulted in lower sales since candy products generate faster turns than many snacks.

Product manufacturers noted that the decline in candy facings was more common among smaller operators. Some claimed that product manufacturers were more flexible in their terms with larger operators.

Operators continued to increase placements of large size candy and snack packages in 2008 in order to raise prices in the machines, as indicated in chart 12D. Operators interviewed noted that large size snacks accounted for most of these premium size offerings, as opposed to large size confections.

Large size snacks could still be offered for less than $1.00 in many accounts, whereas large size confections could not. Many operators, facing a cost conscious consumer, did not feel confident about offering confections priced over $1.00. In addition, many operators were not convinced that a large consumer demand exists for large size confections.

“Nutrition snacks” declined in 2008, marking a reverse from the prior year, despite the finding that operators increased placements of these products, as indicated in chart 12C. This supports the finding that when the recession struck, consumers became less concerned about nutrition in favor of better pricing. Products that market nutrition typically carry a premium price point.

However, nuts and seeds, which were not categorized as “nutrition snacks” by MSA but nonetheless carry nutrition connotation, posted a slight market share gain, despite the fact operators stocked fewer of these items.

HOT BEVERAGES FALL AGAIN

Hot beverages posted one of the biggest declines in 2008, continuing a long-term trend that reflects the fallout of large industrial locations that have always been the mainstay of hot drink vending machines. Vending operators included this segment in their pricing increases — operators were especially confident about raising coffee prices due to the well publicized retail price increases of the major consumer brand coffees — but the downsizing in large industrial work sites impacted this segment’s sales more than any other factor in 2008.