Wake Up Vending

Changes in the American workplace, increasing costs and constant competitive pressures from a variety of sources threaten the survival of vending operators who are unable to adapt to shifts in the basic parameters of automatic merchandising. Over the past few years, it has become clear that a new business model is being created. It requires a higher front-end investment, investment in technology, and intense focus on controlling all cost elements.

Operators must provide greater customer service and satisfaction, yet improve their cost efficiency and profitability. There will be no simple formula for putting these steps in place.

Through research and in-the-field knowledge, Automatic Merchandiser magazine has recognized the key areas where the market is shifting, and identified best practices of progressive vending businesses. This "White Paper" highlights the significant changes the vending marktplace must face, emphasizes those areas that operators must scrutinize, and points to facets which will require investment.

The vending industry is at a crossroad. Only those operators who take quick, thoughtful, progressive action will grow in the years ahead.

The Warning Signs
The vending industry has not kept pace with the rate of economic improvement in the U.S., nor has it fared as well as the foodservice industry.

Historically, the vending industry's growth reflected that of the U.S. economy. It was fairly healthy in the middle and late 1990s as the economy surged, then suffered with the fallout of the implosion of the "tech bubble" and the 2001 terrorist attacks. In the post-2001 recovery, Automatic Merchandiser noted that this "matching pace" trend did not continue.

For example, in an Aug. 8, 2005, Wall Street Journal editorial, "The Great American Jobs Machine," the author stated that U.S. payroll employment jumped from 130 million in 2003 to 138 million in the first quarter of 2005 after dropping from 132.5 million in 2001. This, the editorial claimed, marked an end to the "jobless recovery."

Typically, as jobless rates decreased, vending business increased. No longer. Despite having more potential customers in the workplaces of America, vending revenues rose only 1 percent in 2004, according to the Automatic Merchandiser State of the Vending Industry Report. This is significantly below the 5-point increase in commodity food prices and clearly will not cover the more rapid increases in operating costs.

Foodservice industry outpaces vending
Conversely, the U.S. foodservice industry has improved with the nation's growing economy. Sales jumped 5.5 percentage points in 2004, following one-year gains of 4.4 points in 2003 and 3.8 points in 2002, marking steady recovery from the 2001 recession.

It is important to recognize, though, that while the vending industry overall has not enjoyed the economic improvement, the largest vending firms performed better than the smaller firms, though not by a wide margin.

Generally, larger firms are more readily able to invest in human resources, in state-of-the-art equipment and technology that yield greater customer satisfaction and more efficient operations. According to the NAMA Operating Report, companies showing the highest growth rate were those with sales over $10 million. Growth rates were 1.8 percent for companies with sales between $3 million and $10 million.

Sales growth is not in and of itself the measure of success. However, in a growing economy, it is reasonable to expect that a business service industry would rise with the economic tide.

Because that is not occurring throughout the vending market, it's important to understand that larger operators in general have the critical mass or scale that has helped them take advantage of an improving economy.

Not all improvement is in revenue, though. Key changes in internal operations help increase margins and total profitability of top vending operators, providing a greater return as well as opportunity for continued investment.