Fiscal 2006 was not a year of great expectations for the vending industry.
The industry remained constrained by the same forces that have stymied its growth since the end of the “dotcom” implosion of the late 1990s, which was its last prosperous period. Worksite downsizing ebbed after 2002, but the vending industry has not been able to share in the nation’s economic growth due to several industry specific challenges.
Fiscal 2006 matched 2005’s growth rate; aggregate sales increased by 3 percentage points to a total $22.54 billion.
The industry’s challenges, identified by Automatic Merchandiser in a special “Wake Up Vending” series in 2006, rest on its reliance on an operating model that evolved in the old industrial economy. That was an economy dominated by large work sites with captive audiences.
As the manufacturing base has given way to a service and technology economy, the vending industry must adapt to new customer needs.
New market realities emerge
In the current operating environment, locations have fewer employees, employees have more diverse lifestyles and product preferences, and they typically are free to leave the work site for meals. Hence, the vending operator, to be competitive, must cater to a demographically diverse audience with products that are competitive with other retail outlets.
The State of the Industry Report in recent years has examined the industry’s performance in comparison to that of the overall foodservice industry. Based on this criterion, the vending industry once again trailed its retail competition in 2006.
According to the National Restaurant Association, foodservice sales rose by 5 percentage points in 2006. This marked the second consecutive 5-point gain for foodservice, and a total 16-point gain for a 3-year period, compared to the vending industry’s seven points in this 3-year period.
Automatic Merchandiser magazine does not regard sales growth as the most important financial measurement. However, given the increasing operating costs, industry observers recognize that vending operators must increase sales in order to maintain profitability.
Historically, vending revenues reflected overall economic output. The last four years, by contrast, represents the first period in which vending revenues have failed to keep pace with gains in industrial growth.
The vending industry’s aggregate revenue, indicated in chart 1, largely tracked the nations’ economic productivity up until 2002.
Vending no longer tracks the economy
An examination of three recent economic cycles demonstrates the recent slowdown in vending sales relative to overall economic conditions.
From 1997 to 2000, the nation’s gross domestic product (GDP), the value of goods and services produced in the U.S., averaged about 4.2 percentage points per year, according to the U.S. Commerce Department.
Vending industry revenues, based on Automatic Merchandiser’s historical data, slightly exceeded this growth rate.
When GDP plummeted below 2 points in both 2000 and 2001, vending performance reflected the downward trend.
In 2004 through 2006, GDP rebounded, averaging about 3.45 points growth per year while vending sales only averaged 2.33 points.
In retrospect, vending industry revenues rose in concert with the U.S. economy in the 1997 to 2000 period, suffered with the economy during the 2000/2001 recession, but did not keep pace during the 2002 to 2006 expansion.
Competing retail channels outpace vending
Automatic Merchandiser, in its “Wake Up Vending” series, noted that competing foodservice channels, by contrast, posted strong sales growth in the recent period. Foodservice sales increased about 5 points annually for the past four years.
The vending industry’s 3 percentage point revenue increase in 2006 largely reflected price increases driven by product manufacturers. This was the second consecutive year the report noted that revenue increases were mainly due to operators passing on higher prices from their suppliers, as opposed to adding customers or selling more to existing customers.