The Case For Vending, Part 3: Product Manufacturers Value Vending, but Face Challenges

The vending channel enabled Kar’s Nuts to establish national presence, noted Nick Nicolay, company president. “It opened the doors for us in other retail channels,” he said.

For Nicolay, there are many positive aspects of doing business with the vending channel. It consists of a large number of smaller buying units compared to other channels, which Nicolay does not consider negative. The distributor network, being more centralized than the operator customer base, is a real advantage because it gives the manufacturer a way to reach the operators efficiently. The vend broker network is also a big help to manufacturers, especially for manufacturers that don’t have a large presence to begin with, explained Nicolay.

Deli Express, though well established in the convenience store market, added vending to its distribution for incremental sales growth. Dale Dearstyne, sales manager, said the ability to use most of the same products in the vending class of trade with very few alterations made vending attractive, and it’s worked well. “For us, vending sales over the last few years have been up,” said Dearstyne.

The comparatively small buying volume in vending, however, does inhibit the creation of new products for some manufacturers. “If we develop a new product, it has to be something that we can use in other channels as well,” said Dearstyne. “The volume in vending doesn’t warrant special raw materials.”

SINGLE-SERVE PACKAGES ARE MORE PROFITABLE

Manufacturers gave different views about the profitability of the vending channel compared to other channels.

Single-serve products are usually more profitable on a percentage basis than other types of packages. Since vending is entirely a single-serve channel, it is one of the more profitable channels on a percentage basis.

However, the channel does have more layers of distribution.

Price sensitivity is another issue. Because vending consumers are more price sensitive than consumers in other channels, there is less price elasticity in vending, which limits profitability.

“So many hands are involved with the flow of the product by the time it gets to the machines,” noted Eric Russell, national sales manager for foodservice and vending at Clif Bar & Co.

Russell further noted that while the vending channel gives a manufacturer a good way to reach more customers conveniently, point-of-sale merchandising options are more limited than in other venues. He noted that in traditional stores, there is a chance to communicate not only on the package, but the box. Furthermore, the package and box can be picked up before deciding to purchase the product.

COMMISSIONS ADD TO COST

One product manufacturer executive who has worked for several product manufacturers said the vending channel costs more for a product manufacturer to sell to. Furthermore, operators pay commissions to locations, which adds costs in vending. The executive, who did not want to be identified in print, said the price structure is such that many popular products can’t be sold in vending. In fact, in recent years, the number of candy stock keeping units (SKUs) has drastically declined in vending; not so in other channels. “It doesn’t reflect the consumer demand, it reflects the cost,” he said.

Manufacturers had different views about the availability of operator sales data, but all agreed there is a big lack of consumer sales information.

“The syndicated data available doesn’t have the breath and depth of resources on the retail side,” said PepsiCo Foodservice’s Reynolds.

“Growth strategies that are successful in retail channels are difficult to apply to vending. Space constraints in the machine make product innovation more risky and difficult to sustain,” said Eric Prosperi, director single serve snacks for foodservice and vending at Kellogg’s Food Away From Home division. “The low margins that operators make also discourage investment in technology that could support consumer promotions.”

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