Just as they were recovering from COVID-19, supply chain issues have socked convenience services operators with product shortages, price hikes and customer service issues.
No sooner did convenience services start to recover from the COVID-19 setbacks than product shortages began. A plight afflicting the entire food industry and hammering operators on several fronts: menu planning, product costs and customer service.
The shortages, caused by the coronavirus pandemic induced disruptions to the food supply chain, have sparked price increases in nearly every product category. As a result, operators have had to improvise their menus and absorb continuous cost increases that are outpacing their ability to pass them on to customers.
Wholesale food prices in September posted the highest 12-month increase since 1980, according to the National Restaurant Association.
"It's just amazing; I've never seen anything like this," said veteran operator Tom Konop, president of Konop Companies in Allouez, Wisconsin, in a phone interview with Vending Times.
The company, with 15 vending/micro market routes, three bottled water routes and two coffee service routes, has mostly recovered from the pandemic, but product sourcing issues are making it hard to continue the recovery.
"It's sporadic; you'll get it (a product) one time, you won't get it the next time, and that makes it very difficult when you have a pre-pick system and you've got to have that product," said Konop.
"If you know something's going to be out for six months, you'll just take it out, but when you get it one week and you won't get it the following week, that makes it difficult to have a consistent supply to the consumer," he said. "We've just been changing around products within what we know we can get from the suppliers."
The company has also had to cut back on assembling its fresh food products due to the packaging material shortage.
In addition, Konop has noticed that suppliers, facing similar constraints, are cutting some of the best margin SKUs. For example, he said Hershey Co. is discontinuing the LSC (large single candy) bar, one of the best margin products for operators.
The only positive development is customers are accepting higher prices. Konop has raised his 10% with more to come.
But trying to expand further will be difficult because it's hard to find trucks.
Operators interviewed randomly nationwide shared similar stories.
"We are finding ourselves substituting products probably five times more than we ever have been, and we're still running into out-of-stocks," said Jared Detwiler, vice president of operations at One Source Office Refreshments, Pottstown, Pennsylvania, who pegged price increases between 10% and 15% this year.
The operation has 17 vending/micro market routes and one OCS route, and has recovered most (90-95%) of the business lost to COVID.
"We are ordering as much as we possibly can and crossing our damn fingers," Detwiler said. "We're working with multiple suppliers more than we ever have."
Vending machine planograms, a standard tool for providing a successful machine product menu, have been difficult to follow given the frequency of out-of-stocks, Detwiler said, so he is focusing more attention on supervising his planograms.
"On top of that, it creates a rebate problem when you're expected to order certain products and they're not available, or they don't get delivered," Detwiler said. "We've also had that as a secondary problem."
The company has been sourcing more product at a membership warehouse club. One Source Office Refreshments fortunately has a large warehouse that can store a lot of inventory.
"We are actively raising prices as fast as we possibly can, but I can tell you it's not fast enough," Detwiler said. The company is looking for an extra 15 to 20 cents per item for vend products.
He concurred that customers are accepting the higher prices.
"Inflation is happening across all retail channels," Detwiler said. "They (customers) see what the market bears right now. At least in that regard we're not getting much push back."
Combined with the shortages and the labor challenges, the price increases have presented what might be the most difficult convenience services market ever, Detwiler said.
"We're just trying to stop the bleeding in every direction," he said.
"It's the worst I've ever seen it," agreed Jeff Hemp, on-premise manager at DC Vending, a division of Coca Cola Bottling of Yakima & Tri-Cities in Yakima, Washington. "Every single day I get a price increase."
DC Vending, which has recovered most of its COVID related losses, has passed the increases on to as many customers as it can find time for.
"We've got one account where we raised prices three times this year," Hemp said.
All product categories are impacted, agreed Steve Hall, operations director at Firelands Vending in Sandusky, Ohio. Cold drinks have been especially difficult to get from beverage bottlers, including energy drinks, sports drinks, teas and juices.
The company has 25 routes, most of which are combined vending, micro market and coffee service, and has managed to recover from the pandemic.
Fresh food, which accounts for most of the company's food, has been less impacted than other product categories.
"That's probably the segment of our business that's had the least amount of interruption," Hall said, although refrigerated food has been difficult.
The company has been sourcing from warehouse clubs and Amazon in addition to the vending wholesale distributors and manufacturers that sell direct.
Unfortunately, the company has not been able to pass on price increases on account of the labor shortage, as it takes employees to change prices in the machines.
On the equipment side, bottler loaned machines take longer to get.
The company hasn't had any problem getting parts for machines, Hall said, but, "To get a cooler (for a micro market) might take 25% longer."
Blue Sky Supply, a Tulsa, Oklahoma-base convenience services company, has also had difficulty getting beverage bottler loaned equipment in addition to consumable products, said Matt Bingham, general manager.
Equipment parts are available, he said, but they take longer to arrive.
On the product side, frozen-prepared food has been the company's biggest supply problem.
The company, with 15 vending/micro market and coffee routes, is still down 25% from pre-pandemic.
B&P Vending Inc., in Bellingham, Washington, also cited difficulty getting bottler loaned equipment, said Tracy Hruby, operations manager.
On the product end, the company has been reaching out to membership warehouse clubs and Amazon.
Sending employees to a warehouse club for product adds another cost, impacting profitability, she said. The company is contemplating changes to its pricing strategy in response to this issue.
As for why some vending operators are having trouble getting beverage machines from bottlers, Hemp at DC Vending, a bottler owned convenience services company, said the problem may have nothing to do with supply chain issues. He thinks one reason is that bottlers need to convert card readers to upgrade to the 4G networks and are reluctant to provide machines that still need the upgrade. Cellular carriers are sunsetting 2G and 3G networks.
The product shortage is no less severe for coffee service businesses, a segment that has struggled harder than vending and micro markets to recover from COVID-19.
"We are getting pummeled on the supply end," said Jerry Lisle, owner of Master's Coffee and Water in Redlands, California, an eight-route coffee and water delivery company. "Some of our favorite products are no longer available," such as 7-ounce bottled water.
In addition to the double digit price increases, Lisle noted that diesel fuel prices have also doubled in the past year.
Like Hall at Firelands Vending, Lisle has been too busy trying to find help and deal with his existing labor issues to raise his prices. He plans to do so in January.
The water delivery business has come back fairly well since the start of the pandemic, Lisle said, but coffee service remains 50% behind its pre-pandemic level.
Take A Break Service in Escondido, California, has similarly been struggling getting coffee, cappuccino, plastic cups, paper cups, according to Ray Mejia, company president. The company's revenue has improved since the start of the pandemic, but is still down 20%.
Mejia has been passing on all the cost increases, which are in the 10-12% range, to customers, and has not faced much resistance.
Relief from supply chain woes is not expected any time soon.
Economists and supply chain industry leaders expect shipping bottlenecks to continue through at least the first quarter of 2022, according to The Wall Street Journal.
Supply chain service companies, for their part, are suffering their fair share of shortages for truck drivers and warehouse employees.
For an update on how the coronavirus pandemic has affected convenience services, click here.
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