Recession Drives Profit Protection Initiatives

The reduction in large work sites that are needed to support hot beverage machines, which are among the most expensive machines for operators to buy and maintain, has made it difficult for operators to invest in the newest hot beverage equipment with more attractive designs and, in some cases, more product variety than the older machines.

VEND FOOD STRUGGLES ON

Vend food sales suffered one of the biggest hits in 2008, continuing a long-term trend that, like hot beverage machines, has been driven by the decline in large work sites.

Vending operators posted some of their biggest price increases in the food segment, largely because the price points in this category are among the highest to begin with. But the price increases did not come close to compensating for the volume drop caused by lower work site populations and the elimination of machines.

Fiscal 2008 marked the first decrease in the number of frozen food machines. Since frozen machines were introduced in the mid 1990s, they have increased every year until 2008. These machines, which are oftentimes used as ice cream machines, eliminate food waste. Hence, they allow operators to provide food to locations that are not big enough to justify the service that refrigerated food requires.

The reduction in frozen food machines in 2008 reflects the impact of location downsizing.

Another factor was the removal of many of these machines from schools that no longer allowed ice cream due to nutrition restrictions.

Refrigerated machines continued to decline in 2008, sustaining a decades-long trend.

Frozen-prepared and shelf-stable food both gained slightly at the expense of freshly-prepared food in 2008, reflecting the reduction in in-house food preparation.

While commissaries have declined for several years due to the unfavorable economics of food vending, many of the larger operators continued to operate commissaries and still claim they are an important customer pleaser. Operators who can profitably manage commissaries claim they provide good quality food more economically than relying on frozen-prepared and shelf-stable food.
Commissaries also give operators the ability to meet customer requests faster.

COMPETING CHANNELS AFFECT FOOD SALES

Another factor contributing to the loss in food sales was the increasing competition from fast food restaurants and c-stores for meal purchases. Both fast feeders and c-stores aggressively promoted breakfast and lunch meals and invested in better quality and more variety and improved their value offerings.

C-stores have been driven by declines in tobacco and cigarette sales to capture more food and beverage sales and have succeeded in doing so, according to the National Association of Convenience Stores. C-store foodservice sales rose 7.7 points in 2008 while sales of prepared food rose 9.1 percent on a per-store basis.

Food manufacturers have noticed that c-store chains work more closely with them in point-of-sale marketing than vending operators.

MILK SALES TAKE A HIT

For the first time in several years, milk sales fell in 2008, largely due to the erosion of all types of machines that vend milk. Most vended milk is sold in refrigerated food machines as opposed to dedicated milk machines and cold drink machines, as indicated in chart 15A.

The number of dedicated milk machines declined in 2008. Most of these machines are in schools, amusement locations and industrial sites. The population fallout in many industrial sites made dedicated milk machines unprofitable.

Population drops in industrial sites also forced vending operators to remove many of the cold food machines that sold milk in these locations.

The percentage of milk sold in cold drink venders and dedicated milk machines both declined in 2008.

Vending operators included milk in their overall price increases in 2008, as indicated in chart 15C.

Up until 2008, vend milk sales rode the category’s overall growth which was driven in large measure by the milk industry’s aggressive advertising, which highlighted milk’s health benefits. The category overall continued to grow in 2008, according to the Beverage Marketing Corp. (BMC), which tracks beverage trends. BMC reported that milk volume in all retail outlets was essentially flat in 2008 and dollar sales rose by about 4 percentage points.