Food: Time to Get Back in the Game

Slumping profits have forced vending operators to focus on reducing costs, but some changes in consumer buying habits indicate that a cost-based approach will prevent operators from maximizing sales, especially as it relates to the food segment.

Vending operators have always regarded food as an unprofitable business, and many welcome the current wave of location downsizing as justification for eliminating the unprofitable food machine. While operators need to take all necessary measures to remain profitable, exiting the food business will not help the vending industry to improve consumer perception of vending.

Today’s consumer is looking to minimize purchases, a trend that vending operators are well aware of. At the same time, this “trading down” has created an opportunity for value meals, and some convenience retailers — notably McDonald’s — are capitalizing on it.

While vending operators face a unique set of challenges in the food segment, the fact that they offer some of the best values available gives them a new opportunity to meet consumer needs.

While account downsizing has hurt food sales more than other product segments, the vending industry needs to keep in mind that operators in general have always focused on managing costs as opposed to selling food. This has been particularly detrimental in a segment where variety, quality and marketing are especially important.

Some observers point out that if more consumers patronized the food machines to begin with, downsizing would have less impact on sales.

Automatic Merchandiser surveyed worksite consumers nationwide this past summer and found that only 6.5 percent of vending consumers bought from vending machines as a meal and 10.2 percent bought from machines for part of a meal. Vending machines are mostly used for snacking.

CONVENIENCE STORES SURGE

Convenience stores, which, like vending, address convenience, have responded to changing consumer needs and have found new relevance. The c-store industry, the vending industry’s closest competitor, has experienced rapid growth in the food segment while retail foodservice sales overall have suffered.

On-site prepared food jumped from 5.7 percent to 6.8 percent of in-store c-store sales from 2006 to 2007, according to The National Association of Convenience Stores.

Food manufacturers that sell through c-stores agree that consumers are buying more meals in this channel, even as the retail foodservice sales have fallen. C-stores have invested aggressively in foodservice programs in recent years and are finding an audience among bargain conscious consumers.

White Castle Food Products, LLC provides sandwiches to vending, c-stores and restaurants. Kelly Collins, marketing supervisor, confirmed that sales through c-stores have outpaced vending and foodservice, which have been flat.

“Foodservice has become more important to them (c-stores),” noted Mike Elliott, vice president of sales and marketing at Don Miguel Foods Inc., which sells to c-stores as well as vending. He said c-stores that prepare foods to go have been especially successful; To-go meals do 20 to 100 times more sales than prepackaged food sales in c-stores, he said.

RETAIL FOODSERVICE SALES FALL

The fact that c-stores have been able to grow these sales is especially noteworthy in light of the fact that retail foodservice sales overall have declined in the past year. According to foodservice consultancy Technomic Inc., three out of five consumers who reported purchasing more supermarket prepared meals than a year ago are doing so at the expense of fast-food restaurants.

While c-stores have several advantages over vending machines, food manufacturers are quick to point out that c-stores have invested a lot of resources in improving quality, variety, freshness and merchandising. Most product manufacturers believe that vending operators could improve food sales by investing in these areas.