Candy Rebate Change Pushes the Envelope; Think Carefully

The vending industry is changing in a variety of ways today, too many to address in one column. One important change taking place is the need to respond to a new consumer audience. Baby boomers are aging, Gen Xers are joining the work force in bigger numbers, and new lifestyles are influencing eating habits for people of all ages.

Operators need to monitor sales accurately and respond with products that fit inreasingly diverse consumer needs.

Amidst all of this change, however, the candy bar remains one of the most important products the industry sells. It continues to account for the largest single source of revenue and profit in the snack/candy/confection category on a per-item basis.

Today, that category is under scrutiny like never before. Masterfoods USA, a major provider of candy to vending, recently revised its rebate program and sent the industry into a tailspin.

A knee-jerk reaction
Many operators, in a move to reduce costs, plan to limit their candy facings to a small handful of top-selling items. This is a shortsighted strategy.

Paring the candy facings will not only diminish the merchandising power of one of the most important categories — candy — but of the entire glassfront candy/snack machine. This will prove a costly mistake.

According to the most recent Vendscape Industry Snapshot from MSA Inc., national name-brand candy products account for six of the top 10 sellers in the candy/snack/confection segment. The key national brands have dominated candy facings for so long that many operators are now taking them for granted.

Consider brand equity
It takes years of committed marketing to develop a strong consumer brand. Even the largest vending operators do not have the marketing resources to create the type of brand equity that the leading consumer brands have developed over the years.

As for what to do about rising costs, admittedly, it is sometimes easier to know what not to do. This is one of those times.

While Masterfoods has not been particularly communicative about its intentions, its management recognizes the industry needs more efficient operating methods to be successful in the long term. The company has stated that the “one-size-fits-all” rebate program does not help the operator make the best use of his facings, nor deliver the highest possible returns.

Masterfoods appears to understand this and to be committed to helping operators in this area; whether it really is or not, only time will tell.

Some historical context
In the meantime, vending operators need to place their business in a historical context to understand where it is headed.

The vending machine, a byproduct of industrial innovation, emerged in the post-World War II era in the employee break room as a complete unknown.
The machine faced resistance from a consumer wary of its impersonal nature, but it seized upon its unique ability to market brands, and it rode the marketing boom created by the mass media in the post-war era. In a few short decades, the all pervasive vending machine was almost synonymous with the brands it sold.

Today is a new day. The industry is mature and success in the future will require the ability to make a profit on lower gross profit margins. It’s a good bet that some of the traditional operating benchmarks need to be reviewed.

A new era is unfolding; can you handle it?
The fast growth period has ended, and vending enters a new era, full of promise borne of new innovative technologies. The challenge of marrying the established industry with its new possibilities falls on a new generation of operators.

This challenge calls on the industry to review its historic operating model with a critical eye. Location commissions, shipshod management and cost-based purchasing and servicing all need to be questioned.

For companies entrenched in doing things the old way, the future will be difficult. It isn’t Dad’s vending business any more.