2007: outlook challenging
With 2007 at the mid point, vending operators continue to face a challenging environment, with cost pressures rising even more than in 2006.
Early in 2007, cold beverage suppliers socked vending operators with what many called unprecedented price increases of as much as 25 percent. Coca-Cola Enterprises, the nation’s largest bottler, said increases were necessary due to higher costs for raw goods and aluminum.
Many vending operators felt it was impossible to pass on the soda price increases needed to sustain a reasonable profit.
Other product manufacturers also raised prices as the year progressed.
In addition to higher product costs, gasoline prices shot up in 2007. Average price for a gallon of gasoline rose from $2.30 in January to $3.20 in June, according to the Energy Information Administration. This further hurt vending operators’ bottom lines.
Inflation hurts disposable income
Higher gasoline prices affected vending operators in another way as well; the higher prices cut into consumers’ disposable income. Many operators claimed they noticed a direct correlation between higher gasoline prices and lower vending sales.
Some operators noticed the opposite effect; higher gasoline prices encouraged customers to take more meals at work rather than driving off to a restaurant.
The higher energy costs are also expected to add more costs to food prices, which will result in even more product price inflation.
Rising employee benefit costs, particularly health care and workers compensation, also continue to plague vending operators.
Still another challenging factor is continued job growth. The nation’s unemployment remained at 4.5 percent through the first half of the year, a near record low.
While higher employment helps retail industries because consumers have money to spend, it also drives up wages, hurting operators’ bottom lines. The Conference Board reported that the annual 4 percent increase in wages carried over from 2006 into 2007.
Competition from other channels
Vending operators will continue to face stiff competition from other foodservice channels. The National Restaurant Association reported that fast food restaurant sales, which outpaced overall foodservice sales in 2006, is expected to leap by 6 points in 2007.
Fast food restaurants have been quick to introduce consumer conveniences such as contactless credit card acceptance.
Health and nutrition continue to be an issue as more consumers ask for healthier products.
The many challenges affecting vending operators offered no indication of subsiding in 2007. To improve their profitability, vending operators need to evaluate their assumptions about how much they need to invest in equipment, technology, personnel and training.