Canadian Vending

Features Consumer Behaviour Trends
Dispensing Strategies: A House Of Cards

A House of Cards


March 24, 2008
By Michelle Brisebois

Topics

What goes up – must come down. (Hum along to the rest of the tune
amongst yourselves.) While Blood Sweat and Tears may have been speaking
to the cyclical nature of life in this song, it’s certainly also true
of the economy. Our economy has been strong these last few years.
People for the most part have jobs and historically low interest rates
have allowed consumers to party hearty as they purchased everything
from houses to electronics.

What goes up – must come down. (Hum along to the rest of the tune amongst yourselves.) While Blood Sweat and Tears may have been speaking to the cyclical nature of life in this song, it’s certainly also true of the economy. Our economy has been strong these last few years. People for the most part have jobs and historically low interest rates have allowed consumers to party hearty as they purchased everything from houses to electronics.

Everything has been in perfect, yet delicate, balance.

You see, the thing about balance is that if it’s disrupted – all bets are off and there are early rumblings that consumer confidence isn’t quite as strong as it should be to sustain this growth. If consumers get skittish – what does that mean for us?

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This summer saw Canadian financial markets go on Mr. Toad’s Wild Ride. Turmoil in financial markets was part of a global trend playing out in the wake of credit problems, prompted mainly by a crisis in sub-prime mortgage lending in the United States. The massive selloff began following an increase in the rate of defaults on sub-prime mortgages, which are loans given to borrowers with poor credit histories.

The New York Times reports that as of June 30, almost one in four sub-prime loans of one U.S. lender was delinquent, up from 15 per cent in the same period last year. Almost 10 per cent were delinquent by 90 days or more, compared with last year’s rate of 5.35 per cent.

At one point in mid-August, the Toronto Stock Exchange fell by as much as 585 points, or about 4.5 per cent – a single day drop not seen since the high-tech stock bubble burst in 2000.

Canadian lending policies are much stricter and so our economy will likely not see many people losing their homes because they can’t make their payments. Many financial experts have cautioned that these market swings may not affect the average in-vestor but unfortunately these quotes are typically buried on the sixth page of the financial section while the headline “Stock Market Takes Nose Dive!” trumpets impending doom from the front page.

Some U.S. economists have implied that growing problems in the American housing market coupled with the credit crunch could lead to a recession. Given that the U.S. is Canada’s biggest export customer – a recession to the south would possibly cool consumer confidence here in Canada.

Nobody can say for sure what the economic future holds but it’s always good to get one’s financial house in order when potential storm clouds gather. In fact, many products sold through vending channels may actually see improved sales during a cooling economy.
 
A recent article by Standard and Poor Inc. from the U.S is encouraging investors to “look at the consumer staples sector – companies involved with manufacturing and selling of food, beverages, tobacco, household products and personal care items” because they’ve typically held up well in economic downturns.

Look for items that are considered small indulgences because consumers will still want that little piece of luxury. The difference in a tighter economy will be that the indulgence will come as a square of decadent dark chocolate rather than a pair of designer shoes. Sales of snack foods have often increased in tougher economic conditions and little luxuries and diversions such as cosmetics and gaming can be somewhat recession-proof.

Whether we argue for a soft landing or hard thud, most agree that the heated growth of the last few years will not
continue. The Canadian Restaurant Association reports that “other foodservice,” which includes vending, grew 3.8 per cent in 2006 (over 2005) and their predictions for 2007 included another 3.1 per cent growth over 2006*.  If we look at the difficult conditions of 2003, growth for other foodservice was 1.4 per cent, which outpaced the fullservice, contract/caterers and pub sectors.

These numbers would suggest that when other foodservice sectors are down, vending holds its own.
 
Recent statistics also confirm that snacking has come into its own as a day-part. According to a recent NPD report, for the 12 months ending February 2007, morning, afternoon and evening snacks together represented 28 per cent of restaurant visits, compared to 24 per cent in 2000.
 
The fastest growing snack day part is morning representing 12 per cent of all restaurant meal occasions compared to 8 per cent in 2000.

Hot coffee is the number one snack item, included in 53 per cent of all snacking occasions. Coffee is included in 74 per cent of all morning snacks compared to 42 per cent of afternoon snacks and 28 per cent of evening snacks. The most popular snack foods in the morning are doughnuts and muffins, included in seven per cent of all morning snack occasions.

Ice cream, frozen yogurt and soft drinks are more popular snack items in the evening. It’s believed that time-starved consumers are replacing regular meals with snacking on the run. Good for vending (maybe not so good for their health depending on their choices).

Where will our economy be one year from now? Who knows. No matter what the conditions, the vending industry by nature of its convenience and “small indulgence” product base is well positioned to continue to grow.

Consumers may be tightening their financial belts a bit and they may be a bit more worried about money. They’ll still be busy. It’s also probable that they’ll still want a little escape – be it a video game or a chocolate bar mid-afternoon.

*Includes vending, sports and private clubs, movie theatres, stadiums and other seasonal or entertainment operations.