2004: Industry Sows Seeds of Recovery as Customer Downsizing Subsides
Operators lifted revenues by raising prices in 2004, following three years of losses caused by recession. Rising costs and competitive pressure make it hard for most to invest in technology.
To view article in it's entirety, including charts and graphs, click here for pdf version.
The vending industry took advantage of a slowly recovering economy in 2004 to post its first sales gain since the current recession began in 2001, according to the 2005 Automatic Merchandiser State of the Vending Industry Report. Aggregate industry sales rose a full percentage point to $21.26 billion in 2004.
The solitary percentage point gain hardly made up for the 14 points lost in the previous three years, as operators pulled machines by the thousands out of locations suffering declining head counts. And while most work sites stopped shedding jobs in 2004, most of the revenue gain was driven by higher prices, which hardly compensated for rising operating expenses.
The worst part of the 2001 recession appears to be over, but vending operators continue to face a challenging economic environment. The industry's traditional industrial customers continue to minimize payroll through better management, automation and outsourcing.
The survey reported operators secured low single-digit price increases in most product segments in 2004. These gains did not match the 5 percentage point rise in commodity prices, as reported by the Washington, D.C.-based National Restaurant Association (NRA). This marked the second straight year the vending industry did not raise prices enough to match commodity price hikes.
The NRA further noted that wholesale food prices rose more in 2003 and 2004 than in any two-year period since 1980 and 1981.
Vending operators also faced higher costs for fuel, employee health benefits, petroleum-based products and paper goods.
Operators seek diversification
To offset losses in their traditional industrial accounts, operators continued to seek alternative accounts. The manufacturing/warehouse/fabrication facilities that have traditionally been the vending industry's largest customer base fell below 30 percent of the total customers in 2004, although these locations remained the largest single customer group, as indicated in chart 4.
Shifts in the vending industry customer base reflected changes in the nation's work force.
The number of manufacturing jobs in the U.S. fell by 16.9 percentage points from 1995 to 2004 to just over 14.3 million, according to the federal government's Bureau of Labor Statistics.
Operators regained some of their office accounts in 2004, as the technology sector gradually recovered from its setbacks of 2000 and 2001 and both business services and financial service industries continued to expand.
Business services, which include accounting, bookkeeping, architectural, engineering, research, consulting and other professional services, climbed back in 2004 toward its peak employment level in 2000, the BLS reported.
Financial services, comprising finance, insurance and real estate, jumped 19 percentage points from 1995 to 2004. Low interest rates fueled construction, mortgage lending and real estate buying and selling activity.
News was not all positive on the white collar front in 2004, however. While some telecommunications firms expanded, a "Do Not Call" law took effect in 2004 and eliminated close to a third of the call industry's 6.3 million employees. Call centers were a key growth segment for many vending operators in the late '90s.
The vending industry's expansion into the retail segment continued in 2004, even though this customer base is less profitable than the industry's more traditional locations, due to higher commissions.
The nation's retail employment rose 8.2 percentage points from 1995 to 2004, according to the BLS.
Operators retreat from schools, jails
In 2004, vending operators recovered some of the losses in the office sector and retreated from schools and correctional facilities. Government accounts such as schools and jails offered some protection from the downsizing that afflicted the private sector, but they carried their own liabilities. Operators found that government accounts tend to be based on commissions and must be periodically rebid.
