The industry has been riding a steady wave of growth for the last few years. Looking at what is driving this upward trajectory reveals a combination of micro markets, office coffee service placements, an evolving consumer, a more benefit-focused human resource department, and a changing of the guard when it comes to technology used in the vending industry. With the movement we already see happening, 2018 is shaping up to be another strong year for the industry, making it important that operators plan for micro market growth, create a selection of single-cup solutions for area businesses and invest in the technology that will make their vending segment more efficient and profitable.
Micro markets to be a star
Micro markets will continue to expand in the coming year. Many of the initial 10-year projections for the segment will be surpassed in 2018. Most notably, the 2013 projection from Brad Bachtelle, president of Bachtelle and Associates, of micro markets reaching $1.6 billion in revenues with 35,500 locations by 2022 needs to be revised. The latest Bachtelle and Associates report shows that revenues in 2017 have already reached nearly $1 billion with 17,800 micro markets placed. There is evidence that micro markets are in the growth phase, with plenty of additional opportunities, especially as operators seek to make smaller micro market solutions work in locations. Initially, locations with population sizes of between 150 to 500 employees were thought to be the only opportunities for micro markets. As the segment evolves, however, that assumption has been proven false. Operators can make locations between 100 to 125 employees work with micro markets and less expensive options exist to lower that number even further. Micro markets are also being placed at much larger locations, the 500+, to fulfill the need for 24-hour grab and go food, when a solution such as a cafeteria or deli is closed. Having access to food, especially snacks and quality drinks, is especially important to Millennial employees, and therefore important to the Human Resource managers that try to create a workplace culture that appeals to them. In addition to the benefits they offer locations, micro markets appeal to consumers as well. They address many of the complaints that consumers had with vending machines, such as not being able to pick up and examine the items before making a purchase. The open concept allows for not only examination, but a wider variety of products that aren’t limited to vending size or vending packaging. Food and perishable items such as fresh fruit and dairy products are some of the most popular micro market items and this trend will continue.
Another key area for micro markets, as well as the vending and pantry service or OCS segments, is cold beverages. This category continues to make up the bulk of revenues for operators, but the channel has been experiencing a consumer driven shift towards healthier items, which will continue into 2018. Bottled water is gaining traction, according to the most recent report by Beverage Marketing Corp. It has surpassed carbonated soft drinks to become the top beverage by volume. It appeals to consumers as a healthy, natural option that is also convenient. Pricing is aggressive, contributing to its volume growth, which enlarged by 8.6 percent. Value-added water and ready-to-drink coffee also advanced, according to the Beverage Marketing Corp.’s report. Carbonated drinks and fruit beverages, while still large segments, failed to grow.
Coffee co-stars in 2018
The OCS segment can’t be overlooked for its growth potential either. These services are most often paid for by companies and offered to employees free as a benefit. With unemployment rates projected to stay low as the economy strengthens, leading to more jobs, the OCS opportunities won’t fade in the near future either.
The Conference Board Economic Forecast for the U.S. Economy projects robust growth. Not only is the economy projected to grow by 2.4 percent, but consumption is as well, which is positive as growth in 2018 relies heavily on domestic spending and investment. According to the forecast, wage increases are likely as the economy produces thousands of new jobs, keeping the unemployment rate low.
The supply and demand issue of more jobs than good employees to fill them will also drive up onsite benefits, such as refreshments. Already the industry is seeing this trend. Companies want to attract, retain and reward employees. There will be a focus on well-designed breakrooms that are Millennial, and even iGEN friendly, with social refreshment spaces that include at-work specialty beverages paired with healthy grab-and-go snack items. Pantry service or micro kitchen, where the employer pays for there to be free food and beverages in the break room for employees, has been a steady area of revenue growth for the majority of full-line and OCS operators. Companies find themselves in need of solutions that will be considered a benefit to employees, and create a more appealing corporate atmosphere for the younger professionals.
In its most recent census of the industry revealed during the 2017 Coffee, Tea &Water show, NAMA found that pantry service was offered by just over 2.5 percent of operators and made up 1 percent of the revenue, roughly $315 million of the $25 billion dollars NAMA attributes to the industry as a whole. While this was the first year the association measured the segment, it showed impressive revenue potential with 35,000 locations showing an average sales per location amount of $840,000 per year. The presenter pointed out the comparison to micro markets, which the NAMA census showed had average per location sales of roughly $780,000 and currently at 18,000 locations.
There is also the opportunity for a greater number of retail/restaurant locations as bean-to-cup and various additional single-cup options become more well known. Operators are noting that locations such as restaurants are opting to offer specialty or premium hot beverages in order to recoup sales lost to health-conscious diners opting out of dessert. Coffee and even coffee-liquor drinks are becoming the go-to source for a solution and OCS operators have the staff, knowledge and distribution expertise to support this emerging trend.
In vending it's all about technology
With micro markets and OCS in the spotlight, what about the rest of the industry, specifically, vending machines? Vending continues to provide a backbone to the industry, with many operators focusing on offering machines, great service and a variety of products. Vending revenues continue to go up, according to the State of the Vending Industry report, while the number of machines is actually decreasing. This is directly attributed to technology investments, such as vending management systems, which reveal lower margin accounts that need to be reconsidered as well as allowing operators to better maximize profits from existing account.
Another technology impacting the vending industry is cashless, which helps operators capture more sales within a location and compete with a technologically-advanced world. According to the State of the Vending Industry, only about a third of the vending machines currently accept a form of electronic payment, commonly called cashless payments (I.e. credit or debit cards and mobile wallet apps). This upgrading of vending machines has gained significant momentum in the past 5 years, and is projected to continue gaining as it is the preferred payment method of most consumers.
Contributing to the growth of cashless is the ability to recoup cashless transaction fees using two tier pricing where a 5 to 25 cent discount is given for using cash (or only charged to cashless users). Operators have found many locations, especially those with a high percentage of Millennials, prefer the convenience of the cashless and are willing to pay a bit more for it. It is estimated that cashless is currently the preferred payment method for those under age 30, especially for transactions under $5. CreditCards.com, the site that conducted the survey in 2014, found that a majority, 51 percent, of consumers 18-29 prefer plastic to cash. These are the Millennial employees and currently make up the majority of the workforce.
With cashless also comes a more inviting opportunity to connect to machines remotely as well. More operators will opt to utilize remote monitoring where sales data can be collected from the machine and used to pre-pick products in the warehouse before the driver leaves to restock a route. This will open up avenues where operators can be more efficient, using dynamic scheduling and electronic picking systems in the warehouse, as well. The additional product level sales data will also make operators better at tailoring the vending machine products to a specific location, driving up sales. Many operators are already utilizing these technologies and sharing their positive experiences. Others are following. The addition of these technologies helps to elevate vending, which will continue into 2018.
