The Forecast calls for…
Apprehension May Hold The Upper Hand In 2006
By Cam Wood
Predicting the future is often a game best left to carnival palm
readers and gypsy fortune tellers. But, for those serious about the
future of their business, a little fortune can be saved if they pay
careful attention to the industry trends.
Predicting the future is often a game best left to carnival palm readers and gypsy fortune tellers. But, for those serious about the future of their business, a little fortune can be saved if they pay careful attention to the industry trends.
As difficult as it may be to accept, the overwhelming mood for what 2006 will bring to the vending, office coffee and coin-op industry is dire. Several key trends surfaced in the past year, and show signs of strengthening.
Most prevalent was the acknowledgement that the mood for vending, OCS and coin-op in 2005 was that of a consumer pullback.
Lio Prataviera, general manager of Real Refreshments in Toronto, said the perspective he noticed is that this year has been a lean year for operators.
“Margins are down, costs are up, fuel costs have increased … there’s a sense of apprehensiveness.”
Prataviera says that in his own accounts there has been a contradiction of the government’s claim of Canada being at its lowest point of joblessness.
“I don’t see it. In my accounts, I see layoffs and pullbacks,” he said.
Consumer confidence is sliding. According to market analysts, it has reached the lowest point since 2001. Prataviera, among many, fingers fuel and energy costs as key factors in the reduced spending.
Unfortunately this trend and others remain negative in nature, particularly for those peripheral businesses that serve Canada’s manufacturing sector.
“An ongoing trend – and I think it’s insidious – is the reduction in office sizes,” said Brian Martell, chief operating officer of Heritage Coffee. “Gone are the days of huge factory offices.”
Martell points to a number of economic influences in North America as the foundation of this change. The automotive market is in the midst of significant turmoil. South of the border, the three major automakers have witnessed a dramatic loss of market share to their offshore competitors – to the point where in the last quarter of 2005, they saw their collective hold on market penetration dip below 50 per cent.
“I’m very, very concerned about it,” Canadian Auto Workers president Buzz Hargrove told Canadian Press after General Motors, Chrysler and Ford sold a record low 49.96 per cent of the new vehicles delivered in Canada during October.
That was down from 51.3 per cent in September – and from over 75 per cent in 1995 when sales of sport utility vehicles and minivans were growing vigorously.
“It’s quite feasible that we’re in for a series of months where the Big Three are going to be beaten (in Canada) from a market-share perspective,” said Chris Johnsen, Canadian automotive practice leader at consulting firm Deloitte & Touche.
And the sales numbers understate the problems of the old Big Three.
“Out of that 50-50 market share, Honda, Toyota and Nissan in North America will have something like 20 or 21 plants, and General Motors, Ford and Chrysler will have something like 75,” Johnsen said.
“So who’s making the money?”
The Detroit-based carmakers have been losing market share year after year going back to 1996, observed CAW economist Jim Stanford.
On a North American basis they have lost over 15 percentage points in the past decade and “every one of those percentage points is an assembly plant,” Stanford said.
“But I do believe that the North American auto industry is reaching a tipping point. We have a situation where we import about one in four of the vehicles that are sold in North America, and we export almost nothing outside of North America. That one-way imbalance of close to five million vehicles … is threatening the whole North American industry.”
In mid-November, Ontario was smacked hard by the announcement of GM plant shutdowns in Oshawa and St. Catharines. Some 3,600 people will be directly affected through job loss, not accounting for the peripheral feeder plants and the potential for further layoffs in that sector. GM purchases 50 per cent of the automotive parts manufactured in Canada, and the impact is estimated to be another 11,000 jobs. By 2009, GM will have eliminated 30,000 jobs in North America.
Asian investment in Ontario notwithstanding, the automotive market is suffering. As a result, analysts predict nothing short of reduction in labour and plant closures for 2006. Martell notes this has already been a factor in the United States and sooner or later, Canada will have no alternative but to follow this plan of “contraction.”
And in this light, Martell said operators in the foodservice and OCS sector serving this manufacturing base will need to find ways to cope with this contraction. In turn, as vending and OCS has its own manufacturing base, they will also be affected.
This was one of the major influences for Heritage Coffee’s investment 18 months ago into sourcing retail sales avenues.
To cope, Martell explains, operators will need to explore non-traditional business practices.
“We’re in a very mature business … and it will always be there … but a for a semi-mature organization in this business, they will need to look at non-traditional avenues to serve their clients and that might mean non-traditional equipment,” he said.
In his own experience, Martell has noted other’s success with smaller, cost-effective pieces of equipment that dispense solubles. However, that process must accompany a definitive look at the return on equity the operator will receive.
An area that expected a revolution worthy of Swiss bank accounts, but has evolved more into a game of chance, is that of the frequently discussed pods.
Two years ago, this new technology was brought before the OCS industry like a newborn baby. Except it never matured. Some major operators in the United States have found success with the pods, but overall, response in Canada has been remarkably cold.
“If they are going to come, it will still be down the road,” Martell said. “There’s a lot of people with millions of dollars tied up in equipment and the sales just aren’t moving.”
Part of the problem, as Martell sees it, was in the manner in which they arrived on the OCS market. It was a case of develop a strategy (infuse the market with pods) and employ the tactic (talk to customers and convert them). The formula didn’t include trying to understand the customers’ true needs and solving those problems, the key to any successful sales transaction.
But they’re not a lost cause, according to Sandy McAlpine, president of the Coffee Association of Canada. McAlpine recognizes there are benefits to the highly personalized pod presentation, just that confusion remains on the appropriate standards for delivery method, taste and equipment.
Coffee remains solidly at the top of Canadians’ preference for consumption, and statistics show it is increasing in popularity.
The 2005 Canadian Coffee Drinking Study has concluded that 65 per cent of adults in Canada drink coffee daily. This represents a two per cent increase over the previous 2003 study. The harsh reality, according to McAlpine, is that almost half of coffee consumers in foodservice get their fix from drive-thru service, not OCS.
Add to this, carbonated soft drink consumption is declining. On the up side, in the last decade Canadian demand grew over 300 per cent for bottled water. In 2003, Canada produced 1,490 million litres of bottled water. Today, bottled water is a $35 billion worldwide industry.
The vending industry is in a “down” said Prataviera.
“It will go through a transformation,” he said. But what that is remains as a prediction.
For Prataviera, author of Canadian Vending’s Operator’s Perspective, the transitional key is to continue to plug away at business and continue to communicate the positive aspects to the customer.
“We were tattooed by negative press (over obesity-related issues). I think that is starting to wane,” he said.
At a recent conference in Vancouver, the North American Association for the Study of Obesity presented a number of position papers on the true science behind North America’s expanding waistline.
The first paper, Frequency of School Vending Machine Purchases, Body Mass Index and Diet Quality, looked at the frequent claim that school vending machines are responsible for making kids fat and should be banned. The study looked at the differences between how frequently kids used school vending machines and their BMI and diet quality. The subjects were 552 high school students who were surveyed about their diet quality, including total calories, total fat, saturated fat, total carbohydrates and sugar, and their vending machine purchases.
The subjects were divided into four groups based on how frequently they used their school’s vending machine in a one month period – with one group of those who did not use it at all or purchased only water, another group that purchased one to three items, a third group whose members bought four to six items and a final group whose young people bought more than six items. The most frequently purchased item from a vending machine, according to the authors, was not pop but water, purchased by 36.3 per cent of the young people, followed by sweetened beverages other than pop purchased by 31 per cent.
But what was really interesting was that there were no differences in BMI percentile or in calories between the four groups. In other words, contrary to the claims of those who blame school vending machines for childhood obesity, vending machine purchases did not make a difference to the students’ calorie intake or their BMI.
Sadly, the only report from the conference to make the headlines was the position of how losing weight can enhance one’s sex life. Apparently debunking media-manufactured myths is not something mainstream media wants to pursue.
The argument over what goes into a vending machine remains solid, as most operators stand by their position that healthy products simply do not sell.
South of the border, recent findings reported by Vending Market Watch on the 12th Annual Consumer Attitudes about Nutrition Study suggest that, while nine out of 10 consumers remain concerned about the nutritional content of food, they are much less willing to pay for healthier versions of food.
This figure dropped a significant eight points over the last two years (from 72 to 64 percent) after a consistently flat period averaging 72 percent over the previous five years.
However, vending machines are viable targets for politicians and special interest groups aiming at supposed action. Removing a vending machine is a concrete action – a visible accomplishment come election time. What isn’t realized is the economic impact of such moves.
In Newfoundland, a coalition of health and education groups recently appealed to the provincial government to implement a three-year strategy to remove junk food from schools. But some of the province’s larger schools complained they could lose up to $15,000 a year from deals with vending machine operators.
“We shouldn’t be forced to choose between supplies for the school and whether or not we have a healthy lifestyle,” Denise Pike, president of the Newfoundland and Labrador Federation of School Councils, said in a recent interview.
“You have to properly fund the education system.”
New Brunswick is the latest province to ban junk food in schools and offer more nutritious choices, including salads, fruits and vegetables.
In Nova Scotia, the provincial government is working on a draft policy, although some schools have already begun to remove junk food.
The B.C. government has announced it will ban junk food in schools by 2009.
The Ontario government has urged school boards to ban junk food, but recently said it had no plans to do so in high schools where students are free to leave school property to buy lunches.
In Manitoba, a legislative committee that looked into ways to make children more fit decided earlier this year that banning junk food wasn’t a good idea. Instead, the committee concluded that gentle persuasion should be used to get kids to improve their diets.
Kevin Lamoureux, a Liberal member of the Manitoba legislature, said governments must ensure junk food in schools isn’t more enticing than healthy items.
“If you go to a (school) cafeteria, you’ll pay $1.25 for french fries, but you’ll pay $3 for a salad,” he said in a recent interview.
In New Brunswick, Education Minister Madeleine Dube admits it will take time to educate students about the benefits of healthy eating.
“We know there’s french fries and other kinds of food that they can eat elsewhere, but at the same time, at school we have a role to play, to support the role of parents and to educate them,” she says.
High schools in the province have two years to fully implement a healthy eating program.
But it’s clear that getting rid of junk food will be a challenge.
Earlier this year, two students at Bernice MacNaughton High School in Moncton, N.B., decided to capitalize on their
classmates’ cravings by selling soda pop and chips from their lockers. The principal shut down the operation after someone complained about warm pop.
But not all can be labelled as an unhealthy economy for the overall vending industry.
Glen Jackson, general manager of Ryan Vending, said he thinks that there is always a silver lining and an opportunity for success when things change.
“The good companies will adapt and change,” Jackson told Canadian Vending. “The vending industry has plenty of room for development … and vending is still a cost-effective method of delivery.”
Ryan Vending, based in Victoria, B.C., found its own silver lining when faced with the nationwide pressure of school service. While many have wrung their hands in frustration over legislative forces in school vending, Ryan Vending developed the highly successful Making It Happen: Healthy Eating at School program by partnering with the school system and a dietician to develop a method of providing healthy food choices while preserving the funds vending machines put into the school coffers.
Jackson said a big factor in what has made the program successful was the connectivity between the school, the vending operator and the end user. The students were surveyed for their input on what kind of food items went into the machines and that input was used to develop the product mix.
“That was a key driver, and we’re trying to listen to that,” he said.
The connectivity between consumer and supplier is paramount. Jackson advised that operators must prepare themselves to endure the challenges that may come from the concept of consumer input, but sourcing the kind of products not traditionally supplied by the wholesalers may be part of that silver lining.
The biggest result for Ryan Vending was the success in selling bottled water at discounted prices under the school program, which will take its next step in evolution shortly: a program to supply fresh fruit, vegetables and dairy products in the vending machines to the students.
But what Jackson and his peers do see for 2006, is that change is inevitable, and for the vending operator to keep pace, they will have to change their outlook and habits, or be left dismally behind.
With files from CP