Rising Candy Costs Cause Operators to Consider New Merchandising Strategies

It couldn’t have come at a worse time, with gasoline and other costs rising, but changes in a key supplier’s program are forcing vending operators
to rethink plans in one of the most important product segments: candy bars. Vending operators already suffered one round of price increases earlier this year, only to face another one.

Technically speaking, Masterfoods USA has not announced a price increase, but it has changed its rebate program in such a way that many operators view it as such.

Operators reconsider buying plans
That costs are rising in such an important category has caused operators to reconsider their buying plans. Most operators feel they cannot raise prices more than they already have, due to competitive pressure.

The rebate change, which doesn’t take place until the fourth quarter, has caused some operators to consider larger size bars. Larger size products allow operators to provide greater value in exchange for a higher price.

While many operators were unsure of their plans at this writing, many agreed there could be more changes to candy bar offerings in the coming year than at any time since the introduction of the glassfront candy/snack machine.

Masterfoods has stated it is moving away from “one-size-fits-all” rebate programs which it states “sub-otpimizes performance for us, our trade partners and the consumer.”

Some operators view Masterfoods’ move as nothing more than a price increase and have gone as far as minimizing their use of the company’s products.

Some operators resist change
“They keep raising the price when they keep lowering the price at the retail stores,” said Ryan Marsh, co-owner of First Class Vending Inc. in Los Angeles. He claims cocoa and sugar costs have not risen enough to justify these increases, and that other retail channels have not had to pay higher prices.

Other operators have simply opted to reduce candy bars to the top selling standbys in order to reduce costs.

This raises major questions about what to do with the remaining candy slots. Historically, operators bought a variety of candy SKUs (stock keeping units) whereby all the SKUs from a particular manufacturer fell under one rebate program.

Continental Vending Inc., based in Anaheim, Calif., is typical of many operations in having reduced its candy bar offerings to the main core sellers. As for what to do about the other candy facings, the company is relying on marketing data, according to Randy Howell, operations manager.

Some operators have decided not to raise prices on the top sellers, out of fear of being undersold by competitors, and to add more of the larger
size offerings.

The larger size confections (LSCs) have been gaining acceptance slowly in the last two years. Many of these offerings allow operators to make an acceptable profit margin at $1.00. Operators who have found success with these larger size products unanimously agree they use the larger size offering in place of and not in addition to the regular size version. This is the same strategy that has proven effective for large-size snacks.

The nationals (Aramark, Canteen and Sodexho) are all using LSCs.

Some are even using king-size bars, which cost more and usually require a selling price higher than $1.00 to allow an acceptable profit.

Nationals promote larger size candy
Aramark Refreshment Services has seen success with both the LSCs and Masterfoods’ king-size bars, noted Michael Oppenheim, executive vice president. Aramark has as many as five facings in every machine. Oppenheim said these larger versions sustain turns for all core candy bars.

The LSCs have sustained 100
percent of the velocity of the regular size versions, where the king-size bars have delivered at 85 percent, Oppenheim said.

“We truly believe we’re increasing our value not only to our customers, but to the consumers who are using the machines,” Oppenheim said. “It mirrors the c-stores. It increases the value, not just passing along price increases.”