2007: Vending Becomes a Tougher Balancing Act

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By now, observant vending operators have recognized what factors they can and cannot control in the current operating environment. The environment will not improve any time in the near future.

The visionaries look forward to a time when customers will appreciate the benefits that vending provides and be willing to pay for it. They also believe that new technology will facilitate this change.

For the time being, that future remains distant. The Automatic Merchandiser 2008 Vending State of The Industry Report indicated that fiscal 2007 was another year of struggling to maintain profitability in the face of challenging business conditions. Fiscal 2007 was the third consecutive year in which vending operators posted a 3 percentage point revenue gain, driven mainly by manufacturer price increases.

Vending operators continued to struggle to raise prices in 2007 in the face of higher product costs, higher fuel costs and higher labor costs.

Operating costs rise on several fronts

The National Restaurant Association (NRA) reported that wholesale food prices jumped 7.4 percent in 2007, the biggest 1-year increase in 27 years. And clearly higher than retail prices being passed on to customers.

The average price for a gallon of gasoline rose from $2.30 in January to $3.20 in June, according to the government.

The higher labor costs mainly came from surging benefit costs, which operators must cover to maintain their work forces.

In addition, currency redesigns continued through 2007, requiring currency equipment upgrades. The survey found that close to 60 percent of operators upgraded currency handling equipment to accommodate new currency in 2007, as indicated in chart 6.

Vending operators were forced to find ways to reduce operating costs in order to protect profit margins. Fiscal 2007 marked the third straight year in which operators needed to find ways to reduce expenses since the opportunity for top line growth was limited to passing on manufacturer price increases. Location populations continued to downsize in most parts of the country in 2007.

One piece of positive news came from the National Automatic Merchandising Association (NAMA); the Operating Ratio Report found that NAMA members posted their third consecutive year of profit recovery in 2007. According to the report, which was based on 125 participating firms, return on assets rose to 5.9 percent in 2007. NAMA noted that this figure is only slightly above the 5.0 percent that most analysts view as the minimum acceptable level of profitability.

The NAMA report indicated that over the past five years, operating profit has varied from 0.9 percent in 2006 to 1.5 percent in 2004. That figure was 1.4 percent in 2007. The NAMA report found that sales for participating members rose 4.3 percent, surpassing the 3 percent figure from the Automatic Merchandiser report.

The Automatic Merchandiser State of the Vending Industry Report includes a larger sampling than the NAMA report.

Since NAMA members surpassed the industry as a whole in sales growth, it would stand to reason that the typical operating company also fell short of the NAMA members’ profit performance.

All operators were forced to focus on profitability in 2007 in order to maintain positive cash flow.

The economy grew progressively worse during 2007. National unemployment was 4.6 percent at the start of the year and remained level all year long until December when it jumped to 5 percent, the largest monthly gain since 2001. This marked the first decline in employment following three years of steady growth.

Vending operators, like other service providers, suffered the impact of lower population counts in customer locations. However, the rise in unemployment brought one beneficial result: it helped stabilize operators’ employee turnover. During high employment, business owners experience higher employee turnover and upward pressure on wages.