VENDING IN THE UK MARKET

January 2005 A STRATEGIC ANALYSIS OF BEVERAGE, SNACK AND FOOD VENDING IN THE UK MARKET 2000 2004 2010 AN UPDATE OF GIRA S 2002 PROGRAMME A completed multi-client report for: Food, snack and drink producers Vending machine suppliers Vending operators and contract caterers By: GIRA 13, chemin du Levant F 01210 Ferney-Voltaire, France Tel. : (33) 4 50 40 24 00 Fax : (33) 4 50 40 24 02 E-mail : contact@girafood.com Web site : www.girafood.com

1 1. BACKGROUND Gira is the key source of detailed market information on vending, with regular report updates provided on a repeat cycle to fit client needs (typically 2-3 years). Our last major programme on the U.K. Refreshment vending market was in 2002, with forecasts for 2005 and 2010. (The first was made in 1977 and there were five others in the intervening years). Despite the AVA annual census, the Gira programmes have been much appreciated by the key players in this market due both to the wealth of commercial intelligence which they incorporate and the forecasting framework which is developed. The 2002 programme has been updated and the data reanalysed on the vending park and locations, the suppliers and placements of vending machines, the sales of vended food and drink products and the operators and operational systems for vending machines. These new analyses, based essentially on in-depth interviews with all the key actors in the market have made it possible to establish new forecasts for 2010. Areas of Research Gira s research is focused on forecasting the key vending developments in the context of a robust description of current dynamics and some relevant historical background: the strategies of the vending machine manufacturers and importers, and the impact of advances in machine technology (including software and hardware) on machine price and performance, with penetration into the smaller sites the ever widening variety of locations in which vending machines are being placed: while the workplace is still by far the most important, the activity in hospitals, education, transport and retail is constantly expanding. There are some concerns, however, over vending in schools the vending strategies of third party operators and contract caterers and their increasing concentration

2 the commitment of the major food and drink suppliers in this market and their policy with regard to machine choice, product range, branding, operating and site choice. Key market drivers include COCA-COLA ENTERPRISES, BRITVIC SOFT DRINKS, NESTLÉ (MULTISNACK), MASTERFOODS, CADBURY, U.B. FOODSERVICE, GSK, KRAFT FOODS, WALKERS SNACKS, etc. consumer attitudes and take-up: the growing userfriendliness of vending machines is constantly widening the spread of customers, although there remain some problems in the hot food area the likely impact of new regulations, in particular EU Directives forecasts for product sales through the vending channel and the share of vended sales in total retail sales. Changing Nature of the Market Although the business and industry market for hot beverage machines is now nearing saturation, and has become primarily a replacement market, certain segments of this market will continue to be dynamic, as a result of site-owners demands for: improved drink quality is likely to lead to a buoyant market for: bean-to-cup machines capsule / pod vending machines for smaller sites the latest aesthetics and machine features, together with falling machine prices and longevity. This should ensure a continuing replacement market for fully-automatic hot beverage machines where there is frequent innovation machines offering a broader product selection.

3 The growth of high street coffee shop chains, from London and the South East into the provinces, is serving as a quality benchmark for vended coffee, and may help to reduce the price elasticity of demand, as the quality and presentation of vended coffee improves. Despite the current obesity concerns, it is considered that there remains scope for further placements of snack and confectionery machines, and that saturation will only be reached when there are two hot drinks machines to one can / bottle machine and one snack / confectionery machine at workplace sites. The advent of glass-fronted packaged drinks machines, and their higher throughputs and wider product selection, is likely to result in a buoyant replacement market, substituting closedfront machines at suitable sites, notably workplace and education sites. From the operators perspective, coffee machine placements are likely to remain the key driver. However, they acknowledge that, eventually, 40% of their total machine park will be comprised of snack, confectionery and can machines, compared with the present level of 30%. The park of non-food vending machines, however, is also expected to increase. * * * GIRA S 2004 programme has focussed on these major areas of refreshment vending. It provides new medium and long term perspectives on the market, incorporating confidential placement data, which is not made available to AVA.

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5 2. OBJECTIVES OF THE STUDY The basic objective of the study is to provide to clients a clear strategic vision of the refreshment vending chain and market in the UK; the factors working on the different segments of the market and to forecast its development in the short (2005) and long (2010) term. In order to achieve this, GIRA has analysed and evaluated: the changing configuration of the park of vending machines, both by type of machine and by location sub-sector, with consideration of the dynamics relevant to each sub-sector the placements of vending machines by type and by machine manufacturers and importers (making use of confidential placement data) the supply and marketing strategies of the major producers, their image and performance the changing structure of the operating industry, professional operation compared to d-i-y operation and the relations of operators with food/drink companies, machine suppliers and end-users the profitability of operating or of using the different types of vending machines determined by machine costs, throughputs, margins, prices the sales of ingredients and packaged food and drink products achieved by the different vending channels and how these compare to other retail sales the probable future dynamics of the various players in the vending chain: food and drink suppliers machine producers/importers operators end users in the context of the final consumer s reaction to vending machines in the various market sub-sectors.

6 3. SCOPE OF THE STUDY The report follows the same structure and scope as the 2002 programme. 3.1 REFRESHMENT VENDING MACHINES The study focused on: hot beverage machines: small: in cup, capsule/pod machines, dispensers, fresh brew table top full size: fully automatic, in-cup can, bottle and carton vendors: closed-front glass-fronted confectionery and snack machines: closed-front glass-fronted merchandisers chilled food: large refrigerated merchandisers other chilled food vending machines integral hot food machines chip vending machines ice cream vending machines impulse / bulk vending though confectionery globes. Profiles are included of major UK and overseas suppliers.

7 3.2 SECTORS OF VENDING MACHINE LOCATION The park analysis by type of vending machine incorporated the following breakdowns: business and industry (office / factory): by different size bands by location education: secondary schools tertiary education hospitals (NHS and independent) leisure sites local authority operated (sports centres, swimming pools ) privately operated (theme parks, health and fitness clubs, etc.) retail sites: major food retailers (for staff usage and also shopfloor) shopping malls off licences and petrol forecourts transport: railway stations London underground airports coach stations motorway service areas pubs hotels and holiday centres.

8 The report considers the forecast development of each of these sectors and their attitudes to vending, and provides estimates of the number of machines in each sector. 3.3 MACHINE PLACEMENTS AND OPERATING SYSTEMS Relationships: machine suppliers and professional operators Placement of machines by operators: purchase / leasing arrangements rental agreements free-on loan Variations between branded and unbranded machines Role and strategy of professional operators: role of major operators profiles of major operators Operated machine park, by: type of machine major operators type of location Costs and margins of operators: income from machine sale / lease, rental, ingredient / product throughputs operating charges variations in margins by type of vended product.

9 3.4 SALES OF FOOD AND DRINK PRODUCTS THROUGH VENDING MACHINES The report quantifies sales and sales patterns for: hot beverages: coffee fresh brew speciality soluble tea chocolate soup cold drinks can, bottle, carton drinks snacks and confectionery: confectionery savoury snacks sandwiches ice cream hot food. A discussion of the pattern of vend prices by type of location and in relation to retail prices is also included and the sourcing systems and main suppliers for the different products are also presented. 3.5 TIME SCALE 2004 situation with relevant historical perspective and adjustment to previous 2005 forecasts 2010 forecasts for the park, machine placements and sales of vended products

10 4. REPORTS STRUCTURE AND METHODOLOGY 4.1 REPORT STRUCTURE This follows the same lay out as the 2002 report, with changes concerning the players in the different sectors of the market to reflect the mergers, gains, losses, disappearances etc which have taken place. The list of tables and figures is included at the end of this proposal. 4.2 METHOD DESK RESEARCH Over the 25 years during which GIRA has researched Vending in the UK market, it has become very familiar with the usual published / available sources in the trade press and particularly the annual A.V.A. census. These sources are fully used as background material and developed further. FIELD RESEARCH The most Important source of information, however, is the yield from some 40 key interviews among the main market players: machine suppliers, food, drink and snack suppliers, vending operators, large end-users and relevant financial sources. These interviews provide a wealth of commercial information, cross-checks on estimates of park, machine placements and vending product throughputs and guidelines for forecasting. A small scale survey with site-owners / end-users was also undertaken to gauge consumer attitudes and add qualitative input.

11 5. SUBSCRIPTION, TIMING, REPORT, LIAISON SUBSCRIPTION The unit subscription for the complete report is 5,500. TIMING Research began in May 2004 and was completed in December 2004. REPORT Two copies of the report are provided under the client s subscription. LIAISON Clients are entitled to a half day s discussion with the Gira s head of project (Nancy Mayo) within the subscription. Travel costs only will be invoiced.

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13 Table of Contents SYNTHESIS I. SUMMARY OF MAIN FINDINGS... 9 I.1 MACHINE PARK... 9 I.2 VENDING MACHINE SUPPLIERS... 9 I.3 MACHINE PLACEMENTS... 10 I.4 MARKET FOR VENDED PRODUCTS... 11 I.5 OPERATION OF VENDING MACHINES... 12 II. MARKET DRIVERS... 14 II.1 END-USERS...14 II.2 DEGREE OF MARKET SATURATION... 27 II.21 Locations...27 II.22 Machine Types...29 II.23 Machine Depreciation and Operating Contracts...30 II.24 Consumption Occasions...30 II.3 RÔLE OF KEY INDUSTRY PLAYERS... 31 II.31 Product Manufacturers...31 II.32 Operating Industry...32 II.33 Contract Caterers...34 II.34 Machine Suppliers...36 II.4 ADVANCES IN VENDING... 36 II.41 Machine Developments...36 II.42 Ingredient / Product Development...38 II.43 Software and Hardware...39 II.44 Cashless Systems...40 II.5 WASTE ELECTRICAL AND ELECTRONIC EQUIPMENT DIRECTIVE... 41 III. FORECASTS: 2005 AND 2010 AND RECOMMENDATIONS... 44 III.1 PARK OF VENDING MACHINES... 44 III.2 MACHINE PLACEMENTS... 47 III.3 SALES OF VENDED PRODUCTS... 48 III.31 Hot Beverage Machines...48 III.32 Snack and Confectionery Machines...50 III.33 Packaged Drinks Machines...51 III.34 Food Machines...53

14 III.4 RECOMMENDATIONS...54 III.41 Machine Manufacturers...54 III.42 Third Party Operators and Contract Caterers...56 III.43 Food and Drink Manufacturers...57

15 Table of Contents Body of the Report 1. PARK OF REFRESHMENT VENDING MACHINES... 1 1.1 PARK BY TYPE OF MACHINE... 1 1.11 TOTAL MACHINES...2 1.12 HOT BEVERAGE MACHINES...2 1.13 SNACK AND CONFECTIONERY MACHINES...7 1.14 CHILLED FOOD...9 1.15 INTEGRAL HOT FOOD MACHINES...10 1.16 ICE CREAM...11 1.17 OTHER FROZEN FOOD... 12 1.2 BRANDED MACHINES... 12 1.3 PARK BY LOCATION SECTOR... 17 1.31 WORKPLACE...17 1.311 EMPLOYMENT PATTERNS...17 1.312 IMPLICATIONS FOR REFRESHMENT VENDING DEMAND...23 1.32 EDUCATION...27 1.33 HOSPITALS...33 1.34 LEISURE SITES...36 1.35 RAIL AND TRANSIT...40 1.36 PUBS...46 1.37 HOTELS...49 1.38 BETTING AND GAMING SHOPS...50 1.39 PUBLIC SITES...52 2. SUPPLIERS OF VENDING EQUIPMENT... 55 2.1 UK-MANUFACTURERS... 56 2.11 WESTOMATIC VENDING SERVICES LTD...56 2.12 CRANE MERCHANDISING SYSTEMS LTD...59 2.13 FOUR SQUARE DRINKS...62 2.14 AUTONUMIS...64 2.15 DARENTHMJS LTD...66 2.16 DESIGN AND BUILD LTD...68 2.17 GRANGE TOTAL SOLUTIONS LTD...69 2.18 SEAGA UK LTD...69 2.2 HORECA TABLE-TOP DISPENSING EQUIPMENT... 70 2.3 KEY IMPORTERS OF AUTOMATIC VENDING EQUIPMENT... 70

16 2.31 N & W GLOBAL VENDING LTD...71 2.32 THE VENDING CORPORATION LTD...76 2.33 AUTOMATIC PRODUCTS INTERNATIONAL (UK) LTD...78 2.34 AZKOYEN UK LTD...80 2.35 FAS UK INTERNATIONAL LTD...82 2.36 SIELAFF...84 2.37 SPENGLER GMBH...84 2.38 RHEA VENDORS...85 2.39 BIANCHI VENDING...85 2.40 ETNA VENDING TECHNOLOGIES BV...86 2.41 MANEA VENDING...86 2.5 DISTRIBUTORS OF MECHANICAL TWIST-KNOB BULK CONFECTIONERY MACHINES...87 2.51 THE NOVELTY CAPSULE CO. UK LTD...88 2.52 IPH GROUP...88 3. MACHINE PLACEMENTS...90 3.1 PLACEMENTS...90 3.11 UK AND IMPORTED EQUIPMENT...90 3.12 PLACEMENTS BY MACHINE TYPE...92 3.121 ESTIMATES FOR 2004...92 3.122 HOT BEVERAGE MACHINES...92 3.123 CAN / CARTON / BOTTLE VENDORS...95 3.124 SNACK AND CONFECTIONERY MACHINES...98 3.125 REFRIGERATED FOOD MERCHANDISERS...100 3.126 INTEGRAL HOT FOOD MACHINES...101 3.127 FROZEN FOOD MACHINES...102 3.2 RANGE OF EQUIPMENT MARKETED...104 3.3 RÔLE OF PRODUCT MANUFACTURERS...109 3.31 PLACEMENTS OF BRANDED MACHINES...109 3.32 HOT BEVERAGE MANUFACTURERS...111 3.33 PACKAGED SOFT DRINKS...112 3.34 SNACKS AND CONFECTIONERY...114 3.35 CHILLED FOOD...116 3.36 HOT FOOD...117 3.37 ICE CREAM...117 3.4 PLACEMENT METHODS...118 3.41 HOT BEVERAGE MACHINES...118 3.42 CAN / BOTTLE MACHINES...120

17 3.43 SNACK / CONFECTIONERY MACHINES...121 3.44 FOOD MACHINES...123 3.5 LEASE PERIODS AND MACHINE LIFESPANS... 124 4. THE MARKET FOR VENDED FOOD AND DRINK PRODUCTS... 126 4.1 BY MACHINE TYPE... 126 4.11 HOT BEVERAGE MACHINES...126 4.111 MACHINE THROUGHPUTS...126 4.112 AVERAGE VEND PRICES...129 4.113 INGREDIENTS CONSUMPTION...134 4.12 PACKAGED DRINKS MACHINES...137 4.121 MACHINE THROUGHPUTS...137 4.122 AVERAGE VEND PRICES...142 4.123 SOFT DRINKS CONSUMPTION...143 4.13 SNACKS AND CONFECTIONERY...145 4.131 AVERAGE THROUGHPUTS...145 4.132 AVERAGE VEND PRICES...147 4.133 SAVOURY SNACKS AND CONFECTIONERY CONSUMPTION...148 4.14 OTHER SECTORS...150 4.2 MERCHANDISING AND SOURCING... 153 5. OPERATION OF VENDING MACHINES... 155 5.1 COMMERCIAL ARRANGEMENTS FOR THE PLACEMENT OF MACHINES... 155 5.11 BY PRODUCT MANUFACTURERS...155 5.111 HOT BEVERAGE MACHINES...155 5.112 CAN AND BOTTLE VENDORS...156 5.113 CONFECTIONERY AND SNACK MACHINES...158 5.114 REFRIGERATED FOOD MERCHANDISERS...160 5.115 INTEGRAL HOT FOOD MACHINES...160 5.116 ICE CREAM MACHINES...161 5.117 BULK CONFECTIONERY...161 5.12 BY IN-CUP SUPPLIERS...161 5.13 BY THIRD PARTY VENDING OPERATORS...162 5.131 FINANCIAL ARRANGEMENTS FOR PLACEMENT AND OPERATION OF MACHINES...162 5.14 BY CONTRACT CATERERS...164 5.2 STRATEGIES OF NATIONAL, REGIONAL AND LOCAL OPERATORS... 168 5.21 FALLING HOT BEVERAGE THROUGHPUTS...170 5.22 DIVERSIFICATION INTO OTHER REFRESHMENT VENDING SECTORS...171 5.23 FOCUS ON END-USERS...172 5.24 USE OF TELEMETRY...173

18 5.25 ECONOMICS OF OPERATING...175 5.251 OVERALL PROFITABILITY...175 5.252 BY MACHINE TYPE...176 5.3 OPERATED MACHINE PARK...178 5.31 BY OPERATOR...180 5.4 PROFILES OF LEADING VENDING OPERATORS...182 5.41 BUNZL VENDING SERVICES LTD...182 5.42 SELECTA UK LTD...184 5.43 COFFEE POINT PLC...186 5.44 24SEVEN VENDING LTD...188 5.45 SPRINGBANK INDUSTRIES...189

19 List of GIRA Multi-client Studies in Food & Retail 2005 Subject Completed Geographic coverage Retailing F UK D B.NL E It Irl Dk Other Discount in Multiple Retail: RB+HD+EDLP USA indictator Vending - UK 02 & Nov'04 Future of Multiple Food Retailing 2005, 2010 nov-01 + Scand., CEEC Strategic Impact of Secondary Retail Circuits Jun-01 & 95 Hungarian Retailing & Wholesaling 00 & '96 H Vending - Refreshment & Convenience Foods 94 & 97 Retail Brands & Hard Discounters - Europe 95 Meat Further Processed Poultry Mark ets 01 & '96 Long Term Trends in World Meat Mark ets 99 global Meat in Retail: EU25 - Winners & Losers EU25 GIRA Meat Club - Short Term Forecasts Dec '04annual global European Meat Company Factbook Dec '04 Top 100 Profiles Russia - Meat Market & Investment Autumn 2004 Russia Opportunities Future of European Red Meat Processors Dec '03 Top 25 Profiles EU Further Processed Meat Markets April 03 ('97&'93) USA Differentiation in Meat - Global opportunities! Sept'02 USA, global case studies The EU BSE2000/01 Crisis - Impact Analysis Jun'01, &'96 Global impact Further Processed Poultry Markets 01 & '96 96 Italian Beef Import Requirements 2005, 2010 00 EU Pigmeat Crisis - Winners & Losers 00 EU15, USA, Ja, CEEC Poultrymeat as an Ingredient 99 Long Term Trends in World Meat Markets 99 global Dairy Cheese Market - Europe 2007 '03 annual Ingredient Market for Butter- France '03 Cheese as an Ingredient - Europe '02 & '00 USA Dairy Market Outlook & Packaging 98 Mozzarella Market & Industry Outlook 97 USA Premium Ice Cream Markets - Europe 94 USA.S Bakery Major EU Sandwich Mark ets '04 & '97 Outlets for bakery ingredients - France '03 Fresh Bakery - Western Europe déc-02 EU15, CH, N European Market Frozen Bread & Viennoiserie juil-02 N.S.Fi Bread and Morning Goods (BVP 2005) - F 01 & 96 Fresh Pastry & Desserts - France 99 Modern Sandwich Markets 98 Packaging & Other Grocery Studies Home Meal Solutions '05 Snack Mark et Universe - France '04 & '97 ISFA Consumer Markets for Farmed Salmon 00 The Use of Packaging to Drive Sales in Dairy 98 Packaging Systems in Processed Meat 97 The Shelf-Life/Freshness Tandem 95 Fresh Pasta 94 'Specials' Farmer Coops - Winning Strategies 93 The New Organic / Bio Food Markets 00 The New Marketing of Quality 96 Global case studies NB: use of red italics, indicates studies under promotion - not yet fully funded or initiated 07-déc