Operator Confidence Index (OCI) Reaches Record High…For Now

Nov. 3, 2014

Optimism among vending, micro market and office coffee service providers has never been higher. For July, August and September operators experienced positive revenues. It drove the operator confidence index (OCI) up to a record 132.99 for the quarter and each individual month’s number was over 130.

The strength of the marketplace was due to investment made by the companies that vendors service. Many operators reported same store sales increasing as locations added employees and additional refreshment services. OCS was again noted as the most optimistic looking segment, although micro markets were a close second. Vending trailed, although still showing a stronger outlook than in the previous quarter.

Improving economy drives OCS

OCS reigns in the industry. With an OCI number of 3.68 out of 5 for the quarter, the strength of coffee service increased 2 percent over last quarter. In September alone, it rose to 3.8, the highest confidence level it has been all year. The rise in coffee sales comes as locations are expanding their workforces and increasing the perks, especially coffee, they offer employees. Consumers want the coffee house experience in their breakrooms and locations are giving it to them as a way to lure and retain talent.

Interestingly, the micro markets and OCS segments seem to benefit from each other. “We are finding a greater need for micro markets and OCS bundling,” said a Connecticut operator.

The two segments were cited together by many operators as the two strongest areas contributing to overall revenue growth.

“Micro markets and OCS are growing at over double digits, while vending sales are down or flat on same store sales. Our outlook is very bright going forward,” commented a Georgia operator.

Interest in micro market continues to rise

Many operators are looking to their micro markets to increase revenues in the next six to 12 months. A Washington state operator expects “90 percent of new growth to be from micro markets.”

It’s a segment that has been strong for the past year and this quarter is no different with an average of 3.62. However, confidence in the micro market segment did decline a little each month to end at 3.56 in September.

The reason for the decline is unclear; however, there are many operators who strongly believe in the segment. They report that the versatility of the markets creates the opportunity for new business and improving the profits of locations that have been converted from vending. “Micro markets are a viable segment of our industry and if you are on-board with this concept, sales will be strong for the future,” said a North Carolina operator.

However, not all operators are seeing benefits. An operator in Minnesota reported, “We have been seeing more and more micro markets closing down.”

Other operators are struggling with the payment structure of the current model. “Micro markets continue to be in high demand,” said a New York operator. “However, there needs to be some sort of tiered residual fee structure.” He argues that as the number of micro markets he installs increases, the fees are becoming quite large. He would like to see an approach like vending software. “With vending software, we pay a tiered rate, normally buying a certain number of machine licenses,” he said.

Managing theft and stales is another concern among operators looking at micro markets, and likely keeping the confidence in the segment modest.

Vending outlook good

Operators still report strong vending sales in many areas where businesses are flourishing. In the third quarter, the OCI number for the vending segment settled in at 3.53 which is higher than last quarter’s confidence index. In September, the OCI for vending rose to 3.66, a record high and a significant jump compared to the 3.26 reported in January of this year. However, inflation, saturation and cost increases of vending products have squeezed margins.

“Despite the economy getting a little stronger, inflation is a major concern,” said a national operator. Inflation leaves the consumer with less money to spend at the vending machine and some operators are already seeing its effects.

 “We continue to have an element of uncertainty with the customers/employees using vending services in the Southeast,” said a North Carolina operator. “Food and beverages being carried into the workplace continues to increase which affects the sales in a negative manner.”

Another challenge is the abundance of vending operators serving the market. Competition is driving prices lower while product costs are increasing. “The refreshment vending market is over saturated. Soda cost from the major suppliers keep going up forcing price increases and driving down profits,” expressed a Pennsylvania operator.

Yet, vending remains a strong and steady business segment. “Sometimes even flat sales are good,” said another operator in Pennsylvania. “If you are able to maintain current sales, and pay down overhead, tighten up on loose ends, watch product cost, and collect your thoughts, than it's really not a bad thing.”

School vending future still uncertain

School vending remains a real unknown. One Georgia operator has already noted that his school sales are off in the first few weeks by 35 percent. Operators are having some luck working with distributors to get more products that meet U.S. Department of Agricultures’ standards for snacks in schools however. “Distributors have made a real effort to make additional items available that can be offered in our public school segment of our business that meet the USDA requirements. We are forecasting strong sales in this channel,” said a vending operator in New York.

Cloudy outlook

While the industry was pleased with results during the three months of the third quarter, early reports of October aren’t as positive. Confidence seems to have dipped, locations and consumers seem to be pulling back on what they are willing to spend. It’s too early to say the year will finish with a negative turn, but the optimism so apparent in the third quarter has evaporated leaving uncertainty as we head into the holiday season.