Fiscal 2010 brought some relief to the vending industry as the recession that decimated sales in the previous two years grew less severe. While vending operators continued to lose sales on an aggregate basis, the dip in 2010 was mild compared to 2008 and 2009.
According to the Automatic Merchandiser State of the Vending Industry Report, aggregate vending sales fell 3 percentage points in 2010, taking the industry to $19.25 billion, the lowest level since 1994, which was $19.24 billion. The 3-point drop, however, was small compared to the aggregate 15-point fall from the prior two years.
The 18-point revenue loss in the last three years reflected the nation’s overall employment loss, which affected every sector of the U.S. economy. The nation’s unemployment rate since the recession began in late 2007 reached a high point of 10 percent in the fourth quarter of 2009 before falling to 8.8 percent in the fourth quarter of 2010.
While employment improved in 2010, it remained at a historically low level. The employment gain in 2010 did not significantly reverse the downward trend of the prior two years.
High joblessness not only reduced the number of vending customers. It also hurt the willingness of consumers to spend money.
On the upside, many vending operators noted high unemployment delivered a more dedicated work force to their companies.
Operators also noticed fewer operators in the business. But they were reluctant to cite this as a benefit since the level of competition remained high. Many operators believed the increasing level of investment required for vending reduced the number of players, but the existing players became more formidable.
The State of the Vending Industry Report tracked a decline in the number of medium size operators ($1 million to $4.9 million in annual sales) in recent years. This trend continued in 2010. In 2010, the number of large operators ($5 million to $9.9 million) also declined while the number of small operators (under $1 million) increased. The number of extra large operators remained the same in 2010, but their share of industry sales increased.
Vending operators enacted profit saving measures in response to lower sales to minimize the recession’s impact on their bottom lines. While the State of the Vending Industry Report does not measure profitability, the National Automatic Merchandising Association (NAMA) profit report indicated operator profits improved during the recession.
The NAMA profit report found that the pre-tax profit margin for a “typical” firm doing more than $2 million in sales improved for the third straight year in 2010. Pre-tax profit was 2.4 percent in 2010 compared to 1.5 percent in 2009 and 0.5 percent in 2008.
Operators continue profit protection
The State of the Vending Industry Report found operators continued many of the profit protection measures they enacted in 2008 and 2009, indicated in chart 6.
Operators enacted fewer layoffs in 2010 than in either of the previous two years.
More operators reported raising prices in 2010 than in either of the previous two years, also indicated in chart 6. The recession spurred more frequent price increases than any time sinceAutomatic Merchandiser began tracking vend prices.
Operators interviewed at random agreed that competition among operators limited their ability to raise prices.
Operators agreed that higher prices in other retail outlets made it easier to raise their own prices. However, the price increases did not fully compensate for higher operating costs.
Reflecting operators’ limitations in managing higher costs, more operators simply absorbed extra costs in 2010 than either of the prior two years, indicated in chart 6. Absorbing extra costs has been cited as the second most common strategy for handling higher costs in each of the last three years.
Reducing service frequency and rearranging delivery routes were the next most common cost management measures in 2010.