Food: Time to Get Back in the Game

Slumping profits have forced vending operators to focus on reducing costs, but some changes in consumer buying habits indicate that a cost-based approach will prevent operators from maximizing sales, especially as it relates to the food segment.

Vending operators have always regarded food as an unprofitable business, and many welcome the current wave of location downsizing as justification for eliminating the unprofitable food machine. While operators need to take all necessary measures to remain profitable, exiting the food business will not help the vending industry to improve consumer perception of vending.

Today’s consumer is looking to minimize purchases, a trend that vending operators are well aware of. At the same time, this “trading down” has created an opportunity for value meals, and some convenience retailers — notably McDonald’s — are capitalizing on it.

While vending operators face a unique set of challenges in the food segment, the fact that they offer some of the best values available gives them a new opportunity to meet consumer needs.

While account downsizing has hurt food sales more than other product segments, the vending industry needs to keep in mind that operators in general have always focused on managing costs as opposed to selling food. This has been particularly detrimental in a segment where variety, quality and marketing are especially important.

Some observers point out that if more consumers patronized the food machines to begin with, downsizing would have less impact on sales.

Automatic Merchandiser surveyed worksite consumers nationwide this past summer and found that only 6.5 percent of vending consumers bought from vending machines as a meal and 10.2 percent bought from machines for part of a meal. Vending machines are mostly used for snacking.

CONVENIENCE STORES SURGE

Convenience stores, which, like vending, address convenience, have responded to changing consumer needs and have found new relevance. The c-store industry, the vending industry’s closest competitor, has experienced rapid growth in the food segment while retail foodservice sales overall have suffered.

On-site prepared food jumped from 5.7 percent to 6.8 percent of in-store c-store sales from 2006 to 2007, according to The National Association of Convenience Stores.

Food manufacturers that sell through c-stores agree that consumers are buying more meals in this channel, even as the retail foodservice sales have fallen. C-stores have invested aggressively in foodservice programs in recent years and are finding an audience among bargain conscious consumers.

White Castle Food Products, LLC provides sandwiches to vending, c-stores and restaurants. Kelly Collins, marketing supervisor, confirmed that sales through c-stores have outpaced vending and foodservice, which have been flat.

“Foodservice has become more important to them (c-stores),” noted Mike Elliott, vice president of sales and marketing at Don Miguel Foods Inc., which sells to c-stores as well as vending. He said c-stores that prepare foods to go have been especially successful; To-go meals do 20 to 100 times more sales than prepackaged food sales in c-stores, he said.

RETAIL FOODSERVICE SALES FALL

The fact that c-stores have been able to grow these sales is especially noteworthy in light of the fact that retail foodservice sales overall have declined in the past year. According to foodservice consultancy Technomic Inc., three out of five consumers who reported purchasing more supermarket prepared meals than a year ago are doing so at the expense of fast-food restaurants.

While c-stores have several advantages over vending machines, food manufacturers are quick to point out that c-stores have invested a lot of resources in improving quality, variety, freshness and merchandising. Most product manufacturers believe that vending operators could improve food sales by investing in these areas.

“In the comparison with convenience stores, one needs to recognize the significant gains made by that industry toward effective merchandising and the projection of a freshness image,” said Alan Hamer, marketing director at Stefano Foods. “As every channel is unique, the vending industry will need to find appropriate ways to communicate this message to consumers. The answer will probably lie in some combination of equipment, packaging, venue and merchandising.”

Steve Carvel, national sales manager at Buddy’s Kitchen Inc., noted that c-stores are somewhat of a hybrid between a supermarket and a restaurant. As such, they allow consumers to buy meals to take home, which more consumers are doing.

Nonetheless, many think vending has a chance to meet the need for better value. “It (vend food) is not advertised enough by operators,” said Jodi Baron, national account manager for the East region for convenience stores and vending at Schwan’s Food Service.

CL Swanson Corp., based in Madison, Wis., joined the National Association of Convenience Stores in order to learn more about how c-stores operate. Randy Munn, vice president, said CL Swanson is doing more point-of-sale merchandising. The company has developed table tents and display cards that advertise superior value over fast food restaurants.

One lesson CL Swanson learned from c-stores is the need for variety. Food items range in price from $1.50 to $3.00. To better communicate this, the company has different colored labels on its food packages to add drama to the food machine. Food accounts for 15 percent of CL Swanson’s vending sales, Munn said. This far exceeds the industry average. He noted that food purchases typically generate more snack and beverage sales.

PepsiAmericas Inc., based in Minneapolis, Minn., has also paid a lot of attention to point of sales merchandising in the food segment recently, noted Bernie Steeves, director of full line vending and foodservice. The company is tagging its machines with signs that compare food prices to c-stores. His highest price is $3.50, but the c-stores are much higher. “All we’re trying to do is get the customer to think,” he said.

When food products are three days from expiration date, they move into the dollar row. This has boosted sales and reduced waste. “That has just really changed my food business,” Steeves said. “Most people (vendors) don’t price their food right. We (PepsiAmericas) make money on food. I have no problem putting a food machine in.” About 14 percent of the company’s vending sales are from food.

Steeves said food management software has been a big help. His company uses Crane Streamware’s food module to know what to merchandise and in what amount. “I don’t put 30 hamburgers where I’m only going to sell three,” he said.

Scott Meskin, co-owner of Black Tie Services Inc. in Baltimore, Md., agreed that software is important in managing food costs. He uses MEI.

Meskin also believes in the importance of point-of-sale merchandising and branding. He uses name brand products in his commissary, and whenever possible, he labels the products with the name brands.

BRANDS HELP SALES

Operators have long debated the merits of using name brand prepackaged food versus non-branded items that are produced by commissaries. But some operators, such as Black Tie Services, get the best of both worlds by using name brand ingredients in their own commissary operation. Several food manufacturers give operators permission to use their logos on commissary produced food.

Meskin also follows the long established practice of hosting taste tests at locations. With good products, this wins the loyalty of both the account decision maker and the end user. “By doing that, we get sales immediately, on day one,” Meskin said. “If we can get in to do that food demo, it’s like a lock.”

One of the biggest obstacles vending operators face is the ongoing perception that vend food is not good. Darl Harkleroad, owner of Classic Delight Inc., said in some locations he has witnessed a manual feeding line outsell a sandwich that is available in the food machine. “They (customers) don’t think that food is the same value as if they bought the same exact thing somewhere else,” he said.

What exactly is value? Some observers think it means lower priced products, but most agree that price is only one component of it.

McDonald’s pulled its double cheeseburger off its Dollar Menu and replaced it with a “McDouble burger,” which has one slice of cheese instead of two. It kept the double cheeseburger on its regular menu and raised the suggested price to $1.19.

In an environment where controlling cost has become more critical, some operators believe that commissaries give them more control. Valley Vending and Hasty Tasty Food Service in Davenport, Ia., has been using more pastas and rice in its platters, noted Galen Starkweather, company owner.

MORE POINT OF SALE SUPPORT WOULD HELP

Several manufacturers said that vendors are doing a poor job of using available merchandising materials.

“We should do more,” said Todd Purnell, president of F.B. Purnell Sausage Co. “If you (the operator) are leaving it up to the driver, it’s hit or miss. A lot of it never gets out of the warehouse. We could get more creative on the type of signage they’re using if we felt they were being utilized.”

This has become a “chicken and egg” scenario; vending operators say there isn’t enough merchandising support from manufacturers, but manufacturers say the operators need to use what’s available.

J. Eddie Hicks, president of Prestige Services Inc. in Clifton Park, N.Y., said manufacturers in other product segments provide more merchandising materials than do food players. “If we could get some help from food suppliers, it might help,” he said.

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