The Elephant In The Room – Consolidation

March 9, 2017

In the February/March issue of Automatic Merchandiser, due to hit your mailboxes in the coming weeks, there is a distinct news trend. Reports of acquisitions and mergers hit an all time high since I have been putting together the top news for the magazine. We always talked about the vending industry being saturated, so consolidation is not that surprising. Large and very large vending companies that grow organically and by acquisition report better numbers since vending is predominantly a low margin, high volume business. However, what is driving such a large number of sales right now?  

Consolidation drivers 

Some of the reasons that I have read lead to rampant times of consolidation are relevant to this industry. Some operations are using acquisitions to purchase market share, expand their geographic area and anticipate the economics of scale from fewer operations. However, consolidation is also simply part of businesses.  The Harvard Business Review writes that there is a four stage consolidation curve that has historically taken 25 years to move through. For our industry that would be the companies started in 1992, but there are many, much older companies therefore vending is clearly in Stage 4 : Balance and Alliance. Companies form alliances (and acquisitions) because growth is more challenging. Operations spin off into new segments in order to grow as the core of their business is mature. The latest spin off in our industry is no doubt technology, specifically micro markets.  

Impact of technology 

I would argue that micro markets have probably had the largest impact on consolidation, but not because of the kiosks themselves, but because of what they revealed about data and merchandising. It has opened the eyes of many operators. There is now a bigger push towards prekitting, vending management systems, warehouse efficiencies and telemetry because vending operators see how it benefits the micro market revenues. They see too how this would be beneficial in vending. However, that understand then creates a divide.  

On the one side, you have operators who are ready to investigate and invest in bringing these technologies on board. They are ready to grow and become more efficient. They merge with other operations to gain buying power when dealing with suppliers and manufacturers. These companies likely want to gain scale, more customers and access to more investment capital that can be used for hardware and software.  

On the flip side are the operators who see the road ahead and feel...tired. They don't want to invest in the technology, new segments, increasing product SKUs and specialty coffee machines that will drive the future of our industry. These people are just hanging on, and many prefer to sell. These are likely the operators who don't have a family member ready to take over the business either, which generally brings energy and enthusiasm into an organization, as well as the latest technology.   

From what I see about industry cycles, consolidation happens in nearly every stage. I would argue that vending is certainly a mature industry, but with the new technology and service abilities of office coffee service and micro markets, there's some launching into a developing industry that is making its way through the curve. I don't think mergers and acquisitions will be ending anytime soon.

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