The fact that operators were able to raise can prices more than bottle prices (2.9 points for cans, 1.85 points for bottles) as indicated in chart 7c resulted in better margins on cans. Operators felt more flexibility with can pricing partly because cans were less visible in other retail outlets for consumers to make price comparisons.
Many operators also favored cans since they are easier for drivers to haul; take up less inventory; can be transported on smaller, more fuel efficient vehicles; and require less frequent service.
Nevertheless, bottles remained the dominant package in 2007. In some geographic regions, operators complained that bottlers undersold them in their own (bottler owned) machines.
In many situations, operators felt they could not switch to cans because consumer demand for bottles was so entrenched.
Some observers believe that weakening consumer confidence will revive demand for the lower priced cans. If this happens, vending operators will be in a strong position compared to competitors relative to other retail channels, given the amount of cans they carry.
Where 20-ounce bottles accounted for 75 percent of vending sales in 2007, this configuration accounted for 90 percent of all carbonated soda sales, according to Beverage Digest, which tracks beverage trends.
Convenience stores, which also cater to single-serve purchases, were comparable to the vending channel in the amount of 20-ounce beverages sold in 2007. According to Beverage Digest, 40 percent of c-store soda was 20-ounce in 2007.
Compounding the pricing pressure on vending operators were retail outlets, such as supermarkets, mass merchants and convenience stores. In some cases, these outlets sold bottles as loss leaders.
More typically, competing retail outlets charged higher prices for 20-ounce bottles than vending operators.
The fact that cold drink sales rose more than the price for the main package configuration (2.9 points versus 1.85 points) while machine placements increased only slightly indicated turns improved in 2007. One explanation is the growth in glassfront machines, which typically boost sales by 20 to 50 percent.
Cold beverage preferences change
Vending operators with substantial cold beverage volume were locked into a profit squeeze that the beverage industry has struggled with in recent years due to changing consumer preferences.
The beverage industry has been challenged by rising demand for noncarbonated drinks in recent years as consumers have become more health conscious. Where the beverage industry once relied on a limited number of products, it has become a multiple product industry.
The proliferation of beverage products has expanded the distribution, sales and marketing requirements, bringing new costs to be shared by all channels, including vending.
According to Beverage Digest, carbonated sales in the U.S. fell by 2.3 percentage points in 2007, its biggest 1-year decline in many years. Given the fact that carbonated drinks commanded the largest share of beverage volume by far (63.7 percent), the decline hurt manufacturers’ profits, which resulted in higher prices.
Beverage manufacturers added non-carbonated offerings in 2007, continuing a trend from previous years.
According to Beverage Digest, all channel volume of non-carbonated beverages rose 6.4 percent in 2007, continuing a trend of more than a decade. Vending operators were slower than other retailers to capitalize on non-carbonated beverages since vending machines have much less capacity to sell variety.
The introduction of glassfront beverage machines in recent years has enabled the vending industry to catch up with other retail channels in selling noncarbonated offerings, but glassfronts continued to remain a small percentage of machines, as indicated in chart 7a.
Glassfront rollouts accelerated in 2007, but the majority were provided by bottlers, which restricted product variety for vending operators. The major bottlers did not offer the top selling energy drinks, a small but rapidly growing category.
Glassfronts also required more frequent servicing because the machines have less capacity than the older closed front machines. While the improved merchandising typically boosts sales, higher sales are necessary to cover higher labor costs.
Candy, snacks and confections face resistance