Our industry has seen another year of modest growth. Vending operators were able to use hardware and software, like micro markets and vending management systems (VMS), to improve profits. In many areas the economy was improving at the same time, which contributed to the lift in revenues operators reported for 2013. The aggregate industry revenue rose to $19.7 billion in 2013, a 2 percent increase from last year’s Automatic Merchandiser State of the Vending Industry Report number of $19.31 billion.
Micro markets were the fastest growing addition made by operators in 2013, but investments made in other technology offerings — most notably cashless payment devices — were also significant. More operators also reported using software to adjust product mixes to increase profits and increase the time between service visits more than in previous years.
Consumer sensitivity to price point remains a struggle for many operators, especially as product costs are increasing, most notably in the candy category. Many reported reducing SKUs of more expensive candy in favor of bagged snacks in order to keep prices the same at the point of sale. In some areas of the country, the economy remains lethargic and the operators are still struggling with layoffs and declining same store sales. Revenues in the Northeast and Midwest are the most sluggish compared to the previous year.
Growth in overall retail sales slowed in 2013, while vending increased, shrinking the gap that has existed for the last several years. Technomic, a food research firm, reported the total growth for restaurants and bars for 2013 to be 3.0 percent. The vending industry revenue growth of 2.0 percent still trails that of overall retail, but only by 1 percent, rather than the more than 2.5 percent of the 2012 report. Technomic also reports convenience stores showed a 2.5 percent growth, similar to that seen in vending.
More Medium, Extra Large Vendors
The number of small vending operators in 2013, based on revenue, shrunk over the past year as many small companies closed or were acquired by other companies. The number of operators in the medium range, with an average of 5 to 19 routes, increased the most in 2013 as did the number of extra-large operators, in large part due to the acquisitions.
In chart 2, the projected sales for 2013 for each size operator is significantly different than in previous years. Automatic Merchandiser used a different system for calculating projected sales in this year’s report – taking into account multiple factors including number of routes, employees, reported revenue and revenue percentages from the prior year. This latest data shows that more than a third of the overall industry revenue is brought in by small and medium sized operations.
Drivers wanted
More than half of vending operators reported making no personnel changes in 2013. However, for those that did, the most additions or reductions were seen in delivery personnel, see chart 4.
There were also an increasing number acquisitions in 2013 as operators decided to sell their businesses, see chart 5. Many smaller operators decided to retire or couldn’t compete with the larger companies in their areas.
Location make-up unchanged
The types of locations the vending industry services has remained fairly steady for the last decade. In 2013, operators reported manufacturing and office to account for a little over 40 percent of the locations served. Instead, operators are turning to other types of locations. Many are adding public venues or small business frequented by the consumers, shown in chart 3 in the other category. Operators cite dance schools, day cares, auto dealerships, casinos, parks and government buildings in the other category.
Interestingly, elementary and middle school locations, as a percentage of sales, showed only a slight decrease in 2013. With the new U.S. Department of Agriculture Smart Snacks In School restrictions to take effect this summer, we expect to see movement in this category next year.
The extremely cold winter had mixed effects on operators. Some reported increased sales of coffee and snacks as employees chose not to leave the workplace. However, in areas where vending operations were forced to close due to weather, it had negative effects. Spoilage rates increased and operators saw less traffic and fewer transactions resulting in lower sales.
Price point balancing act
Cost of goods continues to be a significant challenge for many operators. Increasing prices continues to be the strategy used most often to handle increased costs. However, in some areas, competition is reported to undercut price increases. Also, in some product categories, costs rose faster than vendors could change machine prices. Both of these lead more than half of operators to absorb the extra costs in 2013, see chart 6.
From operator comments, a combination strategy of reducing service frequency, rearranging routes and eliminating unprofitable accounts was the most effective strategy. Many added that they were using sales data to extend the time between service trips, increasing best sellers and eliminating slow moving products.
More data used to increase profits
Vending operators reported using technology to an unprecedented degree in 2013. Many of the additions were back-end systems to increase efficiencies in merchandising, there were also additions in warehouse equipment such as picking systems and prekitting. Also systems that address delivery schedules, such as remote machine monitoring showed a heavy increase, see chart 10.
A number of operators said that because economy and competitive pressures remained the same in 2013, technology innovations in logistics and merchandising is what kept them profitable. Technology was cited above all else as a way operators can make educated decisions based on multiple factors that lead to rethinking everything from route scheduling to accountability. It has caused many to feel positive about 2014 and beyond.
In addition, operators also recognized the need for cashless payment systems to a greater degree in 2013. There are now more than half of the estimated 5 million vending machines that accept credit or debit cards. Closed systems are shrinking as most work-age consumers have traditional credit or debit cards available.
Micro market sees huge growth
Micro markets sustained their growth in 2013, with 24 percent of operators adding them, up from 15.8 percent the year before. Many operators report not only increased sales, but as more locations learn about this new unattended retail opportunity, they are asking for it. In requests for proposals, some locations demand to see the operator’s current micro market locations. Operators need to add this to their service in order to remain competitive. A few operators even claimed that in the coming year, they plan to divest their vending and strictly do micro markets.
Micro markets weren’t the only point-of-sale technology that saw large growth in 2013. Video screens and two-in-one screens both saw double digit growth, see chart 10. More than 11 percent of operators reported adding video screens in 2013. AM believes this number includes devices from full-door touchscreens to smaller retrofit devices that allow advertising, cashless payment, multiple sale transactions, etc. When asked why operators made these additions, most responded that it was to meet multiple needs. They were focused on calorie disclosure requirements, cashless acceptance and the ability to give the end user a more rewarding experience, encouraging repeat business.
Product segment review
Projected sales for the vending cold beverage category contracted in 2013, seen in chart 12, more so than in the overall beverage market. The U.S. liquid refreshment beverage market stayed essentially unchanged in size in 2013, according to newly released preliminary data from Beverage Marketing Corp. Its flatness followed three years of growth. Niche categories continued to outperform traditional mass–market categories. Premium beverages such as energy drinks and, especially, ready–to–drink (RTD) coffee advanced particularly forcefully during 2013. Aggressive pricing contributed to the sizeable increase in bottled water volume. Larger, more established segments such as carbonated soft drinks and fruit beverages failed to grow once again.
In vending, operators struggled with increasing product costs and meeting rebate program requirements. This caused them to raise prices, see chart 7, and reduce product variety, as seen on chart 8B.
Many operators reporting replacing bottles with cans to maintain their current price points without further eroding margins, see chart 13.
In 2013, vending operators reported fewer candy sales due to price increases and reducing candy selections in machines. What drove the percent of revenue increase in the candy, snack and confection was snacks and baked goods, which showed healthy growth in multiple subcategories, see chart 14. Operators reported replacing many candy selections with less expensive snack options as a way to deal with higher costs of goods. It was also where operators were most likely to raise prices, see chart 7.
OCS in, hot beverage flat
OCS experienced sales growth in 2013 as operators used it to help offset flat or declining vending sales. More than 21 percent of operators added OCS service in 2013, see chart 9B. It accounts for 14.66 percent of share of sales, see chart 11. The growth of OCS comes even as hot beverage struggles to gain, instead shrinking somewhat in 2013 as a percentage of sales. Regular coffee continues to be the strongest hot beverage type, but specialty and flavored coffees are gaining sales, see chart 15B. Besides fresh-brewed specialty/flavored hot drinks, cappuccino is regulatory written in as the most successful hot beverage choice under “other” by operators.
Interestingly, hot beverage prices have dropped. Presumably, this has happened as more locations prefer OCS. The competition has forced lower prices at machines.
Vended food is flat
Vending food, which increased somewhat in 2012 has stalled in 2013. Operators report that its percentage of sales is around 7 percent, mostly made up of frozen, pre-packaged items – a long standing trend. However, shelf stable products increased to more than 20 percent in 2013, as a percentage of sales, see chart 16.
Ice cream and milk continue to struggle, representing less than 3 percent of share of sales each.
Healthy vending products
While the AM State of the Vending Industry does not specifically break out healthy vending products, there is an increasing demand for these among both consumers and operators. Vendors reported that healthy food attributed as much as a 25 percent upswing in sales. At the same time, operators report struggling to find product within the desired price point, taste profile and stale date. Vendors are only starting to understand the opportunity and the path for executing against the opportunity of healthy vending products. It will require developing new low cost distribution platforms which support delivery of fresh healthy products as well as a robust data aggregation system to understand consumer behavior.
Vending is changing
It's clear that operators in areas where the economy is recovering are able to advance. They have added vending management systems, remote machine monitoring and micro markets. They are using the data to find the best balance between service and product variety per location. Operators are analyzing sales data and determining best sellers and eliminating slow sellers as well as the number of turns or sales for new products. They are using reports to find the best new products to replace old sellers that have increased in price so much consumers no longer buy them. These processes, which help vendors adjust to the changing tastes of the consumer and fluctuating commodity costs, are only possible with the addition of technology.
Micro markets remain the shining star for operators as we look to 2014. Many stated markets were to be their growth focus in the coming year. Some are even considering getting out of vending completely to focus solely on micro markets. It's an area expected to grow exponentially in the next few years.
Operators have yet to find ways to attract consumers to the vending machine and change the consumers’ perception. Many opportunities for this are being tested, such as social media, mobile payment/coupons and digital signage including video screens that increase consumer engagement. Until the vending industry can truly get consumers to think of the machine as a destination, vendors will continue to face resistance to charging higher product prices. This is on the horizon for the next decade of vending, but until then, technology is allowing operators to regain profitability and adjust to the ever changing end user. We are over the hurdle and well on our way to a future in the black.
