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 foodservice 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 foodservice, 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.
More than half of vending operators reported making no personnel changes in 2013. However, for those operators that did, the most additions or reductions were seen in delivery personnel (chart 4).
There were also an increasing number of acquisitions in 2013 as operators decided to sell their businesses (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 offices to account for a little over 40 percent of the locations served. To make up the difference, operators are turning to other types of locations. Operators are still servicing public venues or small businesses frequented by the public, 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 led more than half of operators to absorb the extra costs in 2013 (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. While much of it was adding 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 some increase, see chart 10A.
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 led 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. According to our survey, there are an estimated 10 percent of 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 markets see 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 contributed to the reduction of the total number of vending machines placed at locations. Operators also reported removing unprofitable machines at various locations after reviewing sales data.
The use of other point-of-sale technology grew in 2013 as well. More operators reported trying some type of video screens than in the past, 11 percent compared to 1 percent, although the number of installed devices still remains under 1 percent (chart 10). When asked why operators made a video screen addition, most responded that it met multiple needs. Operators were focused on calorie disclosure, cashless acceptance and giving 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 foodservice beverage market. Preliminary data from the Beverage Marketing Corp. indicates the U.S. liquid refreshment beverage market stayed essentially unchanged in size in 2013. Its flatness followed three years of growth. Niche categories continued to outperform traditional mass–market categories. BMC report continues premium beverages such as energy drinks and 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 show growth.
In the vending cold beverage category, operators struggled with increasing product costs and meeting rebate program requirements. This caused them to raise prices, (chart 7), and reduce product variety in (chart 8B).
Many operators reporting replacing bottles with cans to maintain their current price points without further eroding margins, (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 14B. 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 (chart 7).
OCS in, vended 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. The growth of OCS comes even as vended hot beverage struggles to gain, instead shrinking somewhat in 2013 as a percentage of sales. Regular coffee continues to be the strongest vended hot beverage type, but specialty and flavored coffees are gaining sales (chart 15B). Cappuccino is regulatory written in as the most successful vended hot beverage item under “other” by operators, which also gained in 2013.
Interestingly, vended 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
Vended 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 (chart 16B). Operators did this to help with margins and lower spoilage rates.
Ice cream and milk continue to struggle, representing less than 3 percent of vending share of sales each in 2013, according to operators.
Healthy vending products
While the AM State of the Vending Industry report 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. Operators 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 sales data for new products. They are using reports to find the best new products to replace items 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 micro 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.
State of the Vending Industry Report Methodology
This is the second year Automatic Merchandiser has used an intensive, online survey of operators from our subscriber list with nearly 500 operators taking the survey. The results are an aggregate based on their responses, other foodservice reports and additional industry comments. Data was also provided by MSA which uses machine level data from several software providers to analyze activity at the vending machine.