Operators Slow to Invest; Sales Rise 3 Points in 2005

The automatic merchandising industry stands at the bottom of a ladder, ready to climb, but barely moving. The ladder is firm, the rungs all in place, yet the industry hardly raises its foot to take the first step.

Automatic merchandising industry revenue increased by 3 percentage points in 2005, building on a slight movement that began in 2004.

Vending again trailed overall foodservice industry, which grew 5 points, and the convenience store industry, which saw foodservice sales rise by 14.2 points, according to industry sources. Given the competitive pressure, the vending industry continues to lag the competition in a market that promises to remain challenging unless operators become more aggressive about investing in new tools.

There is a variety of tools available to vending operators to improve sales and profitability that operators, for the most part, have not embraced. Tools exist to enhance efficiency and improve sales, such as remote machine monitoring, electronic cash audit, electronic locks and cashless capability. Yet few operators were able and/or willing to make the necessary investments in equipment, training and salaries that will allow them to utilize these advantages.

In the meantime, the operators' fortunes rest mainly on external economic forces, which in the short term can be described as non-threatening, but not generous.

Last two years: work site downsizing ebbs

The best news for vending operators in the last two years has been an end to the employee downsizing that characterized the previous three years. The U.S. economy gained 4.5 million jobs from June of 2003 to November of 2005, according to the Department of Labor.

Vending operator sales posted a 3 percentage point increase 2005, pushing aggregate industry sales to $21.89 billion.

Aggregate sales improved a total 4 percentage points in 2004 and 2005, which hardly compensates for the 14 points lost in the previous three years, when operators pulled machines by the thousands out of locations suffering declining head counts.

Operators took comfort in 2004 and 2005 that locations stopped shedding employees, but work site populations did not come close to pre-2001 levels.

Manual foodservice leads other segments

The 2006 survey found that in 2005, vending operators continued their efforts to raise prices that began in 2004, but once again these efforts did not bear much fruit, as average retail vend prices rose only slightly. A disproportionate amount of the aggregate sales gain in 2005 came from manual foodservice.

This marked the fourth consecutive year that manual foodservice was the largest revenue producer. This finding was consistent with data from the National Restaurant Association, which reported a 14.2 percentage point gain for food and beverage sales for managed services from 2003 to 2005.

Changing work sites don't help

Changes in the nation's work force have hamstrung the vending industry's ability to increase revenue. While the nation's employment has improved since the post 9/11 period -- with unemployment staying below 5 percent through 2005 -- much of the improvement has occurred in sectors where vend product consumption is traditionally less than in blue collar manufacturing accounts, the vending industry's main customer base.

White collar employees typically buy less from vending machines than blue collar workers because they usually have more time for meals and are less inclined to remain on-site.

As technology, finance, health care, distribution and education industries grew at the expense of manufacturing, the market has become more challenging for vending operators.

As the economy becomes more diversified, the non-blue-collar locations have assumed a bigger share of the work force, reducing vending operators' per-location sales and profits.

The Wall Street Journal reported that manufacturing jobs declined by 0.5 percentage points in 2005. By contrast, construction jobs rose by 4.3 points, health care by 2.4 points, leisure and hospitality by 2 points, finance by 1.3 points and education services by 1 point.