Unique salted snacks, such as those paired with a coupon, have done well in the larger size packages in vending.
The higher prices of large serving size (LSS) vend products were supposed to provide vending operators with higher profits. However, the recession, and perhaps the selection constraints and payment options of vending machines, caused an overall reluctance in consumers to buy LSS, delivering fewer turns for operators. LSS salted snacks are faring better than LSS candy, but lower priced, alternative items make more sense for operators.
Vending operators can escape the restraints of the vending machine, noted above, by introducing cashless payment options and/or using self checkout micro markets to gain product display real estate. Self checkout micro markets allow operators to show the comparative values of regular size servings (RSS) versus LSS products, similar to convenience stores, where the LSS product category is growing.
LSS falls in vending
Data shows LSS candy and snacks have been steadily declining after a brief surge. According to Management Science Associates (MSA), an information management company, from 2009 to 2011, the LSS candy offered in vending machines nationwide has dropped 8 percent, and LSS snacks have dropped 4 percent.
“(Product) prices continue to increase,” said Matt Groff, account director at MSA. “Now (RSS) prices commonly break a $1 and (LSS) prices are closer to $1.50. This has curtailed the growth of (LSS) in vend.”
Groff noted that in many instances large size products turn less frequently in vending, so they don’t warrant the machine space. “Vending operators prefer lower margin products that turn at higher rates,” explained Groff. “It leaves them less exposed to expensive inventory costs, such as stales.”
The downward trend in LSS vends runs contrary to the convenience store data from MSA, which shows an increase in LSS in both unit and dollar sales for the past several years. While the rate in 2011 slowed, it was still a gain. Groff believes value is playing a role in c-stores, where consumers can see the large size next to the standard size. They choose the larger size for its value.
Dollar no longer a hurdle in vending
It used to be that any vending product priced at a $1 wouldn’t sell. MSA vending data shows the threshold has risen to $1-plus, especially for candy products. Hence, more operators are charging $1 for even standard size candy, according to Groff. “(RSS chocolate) is more than a $1 in more than half of the vending machines we sampled,” he said.
Groff views these higher prices as necessary so operators can cover manufacturer price increases over the last few years. “It (the higher price point) isn’t translating to higher margins for operators,” he said.
Eliot Faber, owner of M&C Vending in the highly competitive market of Hackensack, N.J., has eliminated most of his LSS products because anything over a dollar doesn’t sell.
“Money is tight for everyone,” he said, “and vending is discretionary spending.”
He tried upselling, with premium protein bars, but the $1.75 price point never took off. He has had more success with premium items that sell for the same price as the other products in his machine.
The winning strategy for Faber in these economic times is flexibility. “We’re more open to suggestions than we’ve ever been before,” he said. He thinks a lot about the type of account, putting fiber bars in accounts with lots of females, but changing to something else in heavily Spanish accounts. “If a vendor’s using the same planogram, they’re missing out,” Faber said.
Faber doesn’t think he’ll ever go back to larger sized products. “If I raise my prices even a nickel, the locations are on the phone with other vendors,” he said.
LSS candy too expensive
“We just eliminated our LSS candy,” said Devin Smith, purchasing manager at All Star Services in Port Huron, Mich. “A lot of times the price was too high. Anything over a $1 has dropped off.” However, All Star Services still puts in candy, the RSS size, and charges a dollar for it. That has helped them capture new sales.
“Everybody’s looking for a deal these days,” said Smith.
The consumer wants to spend less at the machine, so they buy a smaller product. Smith sees manufacturers “weighing out” bags, dropping the product weight in the package but charging the same price. “It’s like a price increase,” he explained, although it doesn’t affect sales as much. “We’re doing the same with vend size (RSS) candy,” he said.
Smith doesn’t see the elimination of LSS snacks, however, because snacks are often cheaper for the operator to purchase. In many machines, Smith notes an LSS snack will cost the same as an RSS candy.
Candy still strong, but smaller
Donald Lear, senior marketing manager, vending/fundraising for Hershey Co., has seen steady candy sales in vending, however, there is some downsizing going on.
“When prices increase, some vending operators choose to switch from LSC (large size candy) to standard bars, offsetting the price increase by offering a standard (RSS) size bar at the LSC price,” explained Lear. “This can result in volume reductions.” At the same time, Lear sees other operators successfully increasing candy sizes, offering peg bags at B&I accounts that have cashless payment systems.
Cashless has many associated costs, best left to other articles, but there is evidence to support cashless drives sales. Many believe consumers are less concerned about the price point when using their credit or debit card.
Lear has also noticed larger candy doing well in convenience stores. While c-stores don’t sell Hershey LSC (it is exclusive to vending), they do sell the king size, which is larger than the Hershey LSC and carries a higher price point. Lear said, “According to Nielsen (52 weeks ending 1/28/12), king size bars have gained 8.0 share points from standard bars.” And both bars are experiencing growth. “King is growing 12.9 percent and standard is growing 3.8 percent,” he said.
Larger candy is doing better in c-stores because it is a better value to consumers and because of how the channel operates, according to Lear. Vending machines are limited on space, and therefore, which and how many products are offered. “Vending operators should consider offering both LSC and standard (RSS) bar products in machines,” he said. Also, he noted most operators can’t offer special deals or display promotions that might include higher priced items, which other retail channels are able to do.
Some LSS snacks thrive
LSS snacks have declined much more slowly than candy, with many varieties still experiencing some success. Craig Harkins, sales director of vend/foodservice and specialty markets at Inventure Foods, Inc., has seen growth in LSS of the TGIFriday’s potato skins cheddar and bacon snack. The company offers it in both an RSS and LSS.
The success of a product has a lot to do with how unique it is, according to Harkins. The TGIFriday’s potato skins, for instance, includes a coupon right on the bag for $10 off a meal at the restaurant.
In addition to upselling with higher priced items, Harkins suggested operators try a new price point for smaller products. This would spur interest and sales volume. “It is not as easy as it sounds to raise the price to the same audience on the same products in a highly competitive industry,” he said. “Changing the mix, changing the offering, attracts new consumers, and you’re more likely — in a bit more subtle way — to upsell.”
Single versus multi-form LSS
Mark Kelley, an industry veteran and regional sales manager for vending at General Mills Inc., considers LSS and larger products still emerging. General Mills started marketing LSS products for vending 12 years ago and has seen increases ever since. “It’s trending well, but still much of our volume is focused on traditional sizes, and in fact, we also see a role for smaller portion sizes that offers dietary benefits as well. It’s simply a matter of operators being nimble enough, operationally, to offer a broader range of items to meet specific consumers’ needs,” said Kelley.
One challenge in vending is consumer perception of the salted snack sizes, and therefore their value. There are single form products where the entire bag is made up of a single snack component. These tend to appear larger or fuller. Multi-form products, where varied components are in one package, are typically denser. According to Kelley, this creates a pricing dilemma because the same weight multi-form package looks smaller to consumers than a single form product. When they are the same price in the machine, and the consumer is buying on value, the single form product will do better. “Size to value ratio is often questioned,” said Kelley.
Additionally, breaking the pricing paradigm is difficult in certain regions. “In the Midwest, the $1 (price point) is a big hurdle,” said Kelley, “On the West Coast, the $1 price point isn’t as concerning to operators and, in fact, is often embraced.”
Kelley also thinks operators sometimes miss out on products that would deliver higher profits because they have preconceived product standards. “We’re told, the product has to be this price, this size, branded X way, etc.” he said. “So in today’s environment we aren’t always able to bring the best products available to market.”
To stimulate sales and higher prices, Kelley recommends finding products popular in retail, even if they are priced above the vending realm. “Consumers have already accepted the price point and will purchase the item,” he said. Other higher priced products can then follow that breakthrough product.
The most encouraging trend Kelley sees in upselling is the self checkout micro markets. “It’s encouraging because a product can be priced based on its own merit,” he said.
Upselling with self checkout
Self checkout micro markets are a new alternative to vending banks that have some real potential for upselling.
“The trend now is people asking for bigger bags for micro markets,” said Joe Kuehner, vice president of distributors and brokers for Herr’s.
Kuehner’s experience at trade show sessions and talks with vending operators leads him to believe this is the future, due to cheaper upfront equipment and routine maintenance costs, compared to vending banks.
To meet this future demand, Herr’s is coming out with a new size product, a large value line, which is bigger than the LSS.
“The bigger product will have a higher price point,” said Kuehner, “resulting in a higher penny profit.” Kuehner used an example of selling a bag of chips for $.50 versus $1.29. At a 10 percent profit margin for both, the penny profit is $.05 for the former, and $.13 for the latter. That’s the benefit of self checkout micro markets, higher prices and no pricing blocks.
While the self checkout micro market business grows, Kuehner is still seeing an increase in LSS business, although the RSS size is more common in the vending channel. “There’s more variety in RSS,” Kuehner said, “but the new items coming out are planned for LSS sizes.”
The recession has again made consumers conscious of the $1 price point. They want value more than ever, which has led to the decline of LSS snacks, in the vending channel at least. Instead of LSS products, operators could use higher quality products to gain higher price points or alternative, lower priced products to drive turns.
Changing equipment in the right environments, such as installing cashless readers or self checkout micro markets, can also drive sales and profits.