CHAPTER 10. SHIPMENTS ANALYSIS

TABLE OF CONTENTS

10.1 INTRODUCTION

............................................................................................................ 10-1 10.2 MARKET SEGMENTS

.................................................................................................... 10-2 10.3 SHIPMENTS ANALYSIS MODEL EQUATIONS

........................................................ 10-4 10.3.1 Mathematical Formulation of the Shipments Model

......................................... 10-5 10.3.2 Stock Events

....................................................................................................... 10-6 10.4 DATA INPUTS

.............................................................................................................. .. 10-6 10.4.1 Historical Shipments

.......................................................................................... 10-6 10.4.2 Historical Shipped Units

.................................................................................... 10-7 10.4.3 Equipment Price

................................................................................................. 10-8 10.5 RESULTS

.................................................................................................................. ....... 10-8 REFERENCES

.................................................................................................................... .... 10-10

LIST OF TABLES

Table 10.2.1 Market Segments for the U.S. Beverage Vending Machine Market in 2002– 2005

.................................................................................................................... 10-2

Table 10.4.1 Estimated Historical Shipments (Units Shipped) and Stock (Units) of Beverage Vending Machine Equipment

............................................................ 10-7

Table 10.5.1 Forecasted Shipments for Bevera ge Vending Machine Equipment (Baseline Efficiency, Level 1) fo r Selected Years

............................................................. 10-9

LIST OF FIGURES

Figure 10.2.1 Flow Chart Showing Inputs to the Shipments Analysis Model

......................... 10-4

10-i BVM_FINAL_FR_TSD_Chapter10_08-14-09.docCHAPTER 10. SHIP MENTS ANALYSIS

10.1 INTRODUCTION

This chapter describes the U.S. Depart ment of Energy’s (DOE)’s methodology for projecting annual shipments of be verage vending machin e equipment and presents results of the analysis. Beverage vending machine equipment sh ipment estimates are a necessary input to the national energy savings (NES) and net present va lue (NPV) calculations and the manufacturer impacts analysis.

According to an analysis of the beverage vending machine market used at the advance notice of proposed rulemaking (ANOPR), ther e was a stock of about 3.67 million beverage vending machines in the United States in 2005. 1 According to industry comments at the ANOPR that indicated the original shipments estimat e contained significant double-counting, the total stock in 2007 was about 2.3–2.5 million units. Allowing for double counting, age of stock, retirement rates, refurbishment and remanufacture, and estimated extra retirements over the last 2 years, DOE estimated the year 2000 stock at about 3.3 million units, 2006 stock at 2.7 million units, 2007 stock at 2.5 million units, and 2008 stoc k at 2.3 million units. About 50 percent of these units were estimated to be Class A mach ines, while 50 percent were Class B machines.

Annual beverage vending m achine shipments have decreased from about 338,000 in 2000 to under 100,000 in 2007 (DOE estimates that the total of 2006 shipments was about 125,000 units). The industry estimates that in the most recent years, about 50 percent of units shipped were Class A machines, while 50 per cent of units shipped are Class B machines, discussed at the NOPR public meeting. In the NOPR analysis, DOE assumed based on interested party comments that Class A equipment would c onstitute 55 percent of new sales and Class B equipment would constitute 45 percent. PepsiCo (PepsiCo, Public Meeting Transcript, No. 56 at
p. 89) commented that Class A sales would be between 50 and 60 percent, and Coca Cola (CocaCola, Public Meeting Transcript, No. 56 at p. 90) commented that although it expected Class A equipment to be the majority of sales, Class B machines were more than 50 percent of sales. DOE decided to shift to a ratio of 60 percent Cl ass A machines to 40 percent Class B sales for the final rule. Dixie-Narco (Dixie-Narco, P ublic Meeting Transcri pt, No. 56 at p. 107) commented that the small-size unit sales were zero but the large equipment share might be higher by up to 40 percent. Dixie-Narco al so recommended that the National Automatic Merchandising Association (NAMA) could act as an intermediary to compile the data on sales and provide it to DOE. NAMA was able to provide an estimate of the distribution between Classes A and B units for a subset of the ma nufacturers, approximately 60 percent Class B machines and 40 percent Class A machines (NAMA, No. 65 at p. 2). DOE decided to shift to a ratio of 50 percent Class A machines to 50 pe rcent Class B sales for the final rule. DOE considered that there may be Class A machines intended for either indoor or outdoor use as well as some Class B machines that are intended for indoor use only; however , DOE was not able to locate any sales data for these two equipment app lication scenarios, so the sales are assumed to be zero. Although some Class A machines may be us ed outdoors, for the purposes of the final rule, DOE assumes that all Class A machines ar e used indoors. Industry sources estimate that about 75 percent of Class B machines are used indoors and 25 percent are used in outdoor locations.

10-1 BVM_FINAL_FR_TSD_Chapter10_08-14-09.doc10.2 MARKET SEGMENTS

Beverage vending machines come in a number of different sizes, but DOE was unable to locate any market data concerning shipments by size (unit vending capac ity); therefore, the shipments analysis focused on three sizes believed to be typical, each of which is assumed to be about one-third of the market for Class A units (large [34 ft 3 refrigerated volu me], medium [22 ft 3 refrigerated volume], and small [17ft 3 refrigerated volume]) and fo r Class B units (large [26 ft 3 refrigerated volume], medium [22 ft 3 refrigerated volume], and small [17ft 3 refrigerated volume]). Beverage vending machines are primar ily owned by beverage bottlers and are located in many different types of businesses, includi ng commercial/retail buildings, schools, military installations, and industry. Additi onally, beverage vending machine units are divided into several market segments. Table 10.2.1 gives the business lo cations as well as the approximate size of market segments of the beverage vending machines for 2002–2005.

Table 10.2.1 Market Segments for the U.S. Beverage Vending Machine Market in 2002– 2005 Business Location Units % Ownership Units % Manufacturing 36.2 Offices 19.5 Retail 8.0 Schools/Colleges 13.0 Health Care 6.2 Hotels/Motels 3.6

Restaurants/Bars/Clubs 0.7 Correctional Facilities 2.1 Military Bases 3.0 Other 7.8 Total 100.0 Bottlers and Vendors 95.0 Business-Owned 5.0

Manufacturing 1.5 Offices and Health Care 1.4 Retail/Restaurants/Bars/Clubs 0.8 Schools, Colleges, and Public Facilities

(including correctional) 0.8

Military Bases 0.4 Other (including hotels/motels) 0.1 Subtotal, Site Owned 5.0 Total 100.0

Sources: Business Locations–State of the Vending Industry (2007). 1 Ownership–Industry comment on ANOPR.
Sales of beverage vending machine equipment decreased at the rate of about 3.9 percent per year, 2000–2007. Consistent wi th industry comments on the ANOPR, DOE assumed that all shipments after 2001 were for replacement only. Even so, the stock of beverage vending machine units was estimated to have fallen from appr oximately 3.3 million units in 2000 to about 2.5 million units in 2007 (estimates in industry comments on the ANOPR). Market shrinkage is believed to be continuing, and DOE assumes that future sales units will continue to be for replacement only. Future replacement sales of sta ndard units at current rates (assumed to be about 90,000 units per year) are no t sufficient to maintain stoc k initially. At the NOPR public meeting, sustainability of the industry was a significant topic of di scussion. Commenters concluded that the long-term sustainable size of the industry was between 1.6 million and above 2 million units. For the NOPR analysis, DOE assume d that future sales would all be replacement sales and would be flat at the then-current level of sales of about 90,000 units per year for the entire period of analysis. This level of replacements would resu lt in a reduction in stock from today’s level of about 2.3 million units to about 1 million units by 2020. Comm enters agreed that the current economic situation would result in a dditional decline in the number of deployed units (Royal Vendors, Public Meeting Transcript, N o. 56 at p. 74; Dixie-Na rco, Public Meeting Transcript, No. 56 at p. 76; Coca- Cola, Public Meeting Transcript, No. 56 at pp. 77 and 91) but

10-2 BVM_FINAL_FR_TSD_Chapter10_08-14-09.docwith a possibility of a near-ter m recovery based on the need to replace older equipment as it reaches the end of its lifetime and to continue to serve the current custom er base (Dixie-Narco, Public Meeting Transcript, No. 56 p. 79-80; Pepsi, Public Meeti ng Transcript, No. 56 at p. 88; Coca-Cola, Public Meeting Tran script, No. 56 at p. 91). Severa l commenters (Dixie-Narco, Public Meeting Transcript, No. 56 at p. 76; Coca -Cola, Public Meeting Transcript, No. 56 at pp. 77 and 83; ASAP, Public Meeting Transcript, No. 56 at p. 87) stated that 1 million units was too small to sustain the current customer base and th at the shipments would have to be higher than the current level. During the public meeting, pa rticipants estimated the ultimate stock ranged from about 1.6 million (Dixie-Narco, Public Mee ting Transcript, No. 56 at p. 84) to above 2 million units (Coca-Cola, Public Meeting Transcri pt, No. 56 at p. 83). Given the existing rates of refurbishments and retirements, maintaining a long-term stock of 2 million units would require annual shipments of new equipment of appr oximately 190,000 units. DOE assumed that the industry would ramp up its idle capacity ove r 2 years to increase production from the 2007–2009 level of approximately 90,000 units to 150,000 units in 2010 and 190,000 units in 2011. Despite the increase in production, the es timated age distribution of th e existing stock in 2007 and 2008 means that retirements would exceed replacements before 2014, and the st ock would continue to shrink in the short run to about 1.6 million un its in 2014. Replacements would then exceed retirements, and the stock would steadily rec over to about 2 million units by 2022. This stock level is maintained until 2042.

The shipments analysis results are driven init ially by historical shipments data for the two equipment classes of beverage vending m achine equipment from the 1990s. Annual data on refrigerated beverage vending machines shipment s were available online from U.S. Bureau of the Census Current Industrial Reports for most years in the 1990s , though this series was discontinued after 2000. 2 The flow chart presented in Figure 10.2.1 outlines the complete structure of the shipments analysis model, with net new shipments (shipments to new locations, not currently relevant) driven by population grow th, and distributions across equipment classes, size categories, applications, and ownership matching recent history. Replacements were initially assumed to be driven by the need to repla ce retiring stock in a growing market. However, industry stakeholder comments at the ANOPR indicated that virtua lly all future shipments are expected to be replacements for (some of the) existing units, th at sales would be constant at approximately the 2007 level of sales (estimated at approximately 90,000 units per year, which results in a declining stock of equipment because not all retirements are replaced at this rate of sales), and that there will be no new sales in the foreseeable future. This assessment was later amended at the NOPR stage to allow for a long-run stock of about 2 million units and 190,000 annual shipments, as discussed above. The shipments model was operated according to this guidance. The parts of the overall model actually us ed in the current analysis are indicated by the double-lined boxes in Figure 10.2.1.

The analysis model assumes that in each year, the existing beverage vending machine equipment stock either ages by one year or br eaks. As broken equipment would be replaced, new equipment can be shipped into new commercial floor space, and old equipment can be removed (not shown in the flow chart).

10-3 BVM_FINAL_FR_TSD_Chapter10_08-14-09.docP opula tio n Fore ca st

Industry Estimate o f Shipments

Initial Replacement Shipments Initial Shipments to New Locations

Initial BVM Stoc k

Estimated Lifetime

of BVM Stock Shipments to New Locations

Replacement Shipments Total Shipments By

Equipmen t Class and Size % Shipments by

BVM Stock by Equipmen t Class and Size Initial Replacement Shipments Initial Shipments to New Locations

Initial BVM Stoc k

Estimated Lifetime

of BVM Stock Shipments to New Locations

Replacement Shipments Total Shipments By

Equipmen t Class and Size Equipment Class

BVM Stock by Equipmen t Class and Size

Figure 10.2.1 Flow Chart Showing Inputs to the Shipments Analysis Model

The balance of this chapter explains the ship ments analysis in more detail. Section 10.3 presents the mathematical formulation of the mode l, section 10.4 describes the data inputs to the model, and section 10.5 presents the results for different efficiency level scenarios.

Shipments forecasts were determined for all of the trial standard levels for which NES and NPV are required. DOE is considering up to eight candidate standard levels for each of the two classes and three size categories of each class.

10.3 SHIPMENTS ANALYSIS MODEL EQUATIONS

The shipments analysis model is a descrip tion of beverage vending machine equipment stock flows as a function of year and age. While there are two equipment classes, no coupling is assumed between them, so the equations descri be each type of equipment independently. The shipments analysis is conducted using a Micros oft Excel (NES) spread sheet accessible on the Internet at http://www1.eere.energy.gov/buildings /appliance_standards/commercial / beverage_machines.html . In the TSD, chapter 11 and A ppendix G discuss how to access the spreadsheet and other related spreadsheets and provide basic instructions for using them.

Section 10.3.2 defines the different beve rage vending machine equipment stock categories. DOE formulated the equations as up dates of the distributi on of stock in year t as a function of age a to year t + 1 . DOE presented the different pu rchase decisions and provided a description of the data sources (section 10.3.2). DOE used this ca lculation of existing stock and the age distribution of the equipment as a basis for calculating replacement sales (section

10-4 BVM_FINAL_FR_TSD_Chapter10_08-14-09.doc10.3.2.1). In section 10.3.2.2, DOE subtracted replacem ent sales from historical total sales statistics to calculate the new sales of new beverage vending machine equipment. DOE forecasted new sales as a function of population, which is assumed to result in new business locations for beverage vending machines. Sales of new and replacement equipment are recorded by the year sold, and each annual vintage is depr eciated over the estimated life of the equipment (averaging approximately 10 years, with a 15-year maximum). Sales in each year are allocated to the two equipment classes in proportion to their relative historical sales.

10.3.1 Mathematical Formulation of the Shipments Model

DOE uses two beverage vending machine equipment stock categories. The category U

0 (t,a) is the stock of existing unit s. Available information sugge sts that all units have had normal repairs and refurbishments that do not a ffect the overall lifetim e of the equipment.

Beverage vending machine equipment lifetimes range from 1 year to as many as 15. Based on discussions with industr y, the average value is 10 years, and the industry practice is that beverage vending machine equipment is w ithdrawn from service and renovated at about 5 years with one renovation cycle. Most equipment is not renovated a seco nd time (see chapter 8 for further details). Also, data obtained from multiple industry and government sources suggest that the initial (1998) existing st ock of equipment had an average rate of decline of about 9.1 percent per year, based on the 10-year lifetime of a unit of equipment a nd a Weibull statistical distribution of stock survival as well as the historical data on ship ments between 1991 and 1998. Shipments from 1998–2000 as well as estimated tota l shipments after 2000 were allocated as necessary replacements for stock breakage and re tirements and the remainder to new stock. All additions were tracked by vintage and in turn follow the Weibull distribution. The total stock of
age a in a given year t is represented by

U(t, a) = U 0 (t,a) - ∑ a P a (a)  U 0 (t,a) Eq. 10.1

The total stock of equipment is

∑ a ( U ( t,a)) Eq. 10.2

and the average age of the stock in year y is defined as

StockAge ( t ) = ∑ a U (t, a)  a / ∑ a ( U ( t,a)) Eq. 10.3

Where:

U ( t,a ) = total stock of age a in a given year t , U

0 ( t,a ) = initial stock of existing units of age a , StockAge ( t ) = average age of stock in year t , P(a) = probability that stock of initial units will break or retire in year a , a = age of stock in years, and

t = year.
The shipments of new stock in a given year t are Uship(t) . By definition, the age of the equipment is zero in the year that it is shipped, so that Uship(t) = U 0 (t,0)

.

10-5 BVM_FINAL_FR_TSD_Chapter10_08-14-09.doc10.3.2 Stock Events

In the transition from year t to year t + 1 , two things could happen to the stock of beverage vending machines:

 existing equipment could break or be removed and be replaced, or

 the stock could simply age by 1 year.

In the model, early replacements (i.e., exis ting equipment replaced before the end of its useful life) are not considered, and not all broken and removed equipment is replaced. The following sections present the equations used to represent each possible event.

10.3.2.1 Replacing Equipment

DOE determined the probability that be verage vending machine equipment of age a from stock U 0 will break or will be replaced before th e end of its useful lifetime using a known function P(a) (based on the age of beverage vending machine equipment a and Weibull statistical distribution with location = 1.0, shape = 9.62, and scale = 7.0). These probabilities do not depend on the model year t . All broken units are assume d to leave the inventory. Replacements are set independently based on the cu rrent level of sales and current distributions across equipment classes and sizes. Replacements may not be sufficient to replace all broken and retired units.

10.3.2.2 New Equipment

As discussed in section 10.1, beverage vendi ng machine equipment will be purchased to replace beverage vending machine equipment as described above and to serve any increased numbers of customers at existing as well as ne w geographical locations, which result in new unit locations. Available information suggests that the purchase of new beverage vending machine equipment serving new customers in new locatio ns is driven by net growth in locations.

DOE has no information on the variation in the market saturation of beverage vending machine equipment by building type or over time . However, based on industry comments at the ANOPR stage and affirmed at the NOPR stage of the rulemaking, there are currently no net increases in geographical locations for beverage vending machines (any new locations are offset by losses in existing locations). Th erefore, in the model, the ne t purchase of equipment for new locations is assumed to be zero, and any e quipment purchases are for replacement only. The replacement units are allocated to building type according to the current percentage shares, and each vintage of the retiring equipment is rem oved by vintage according to the Weibull stock survival function.

10.4 DATA INPUTS

10.4.1 Historical Shipments

Historical shipments are critical to the de velopment of the shipments model because DOE used historical data to calibrate the model. DOE’s primary source of historical data for shipments of refrigeration equipment was data in an e-mail from NAMA and the State of the Vending

10-6 BVM_FINAL_FR_TSD_Chapter10_08-14-09.docMachine Industry (2006). NAMA provided DOE with ship ments data, indicating that from 1998–2006, there was a reduction in shipments of 86.4 percent. 1 Later industry comments on the ANOPR and NOPR stages on the size of the stock were not consistent with these data, and DOE estimated that shipments declined about 66 pe rcent during 2000–2006 (and continued to decline to 2007). As discussed in sect ion 10.2, Class A machines are about 50 percent of shipments.

10.4.2 Historical Shipped Units

Historical shipped units depict the annual amount of beverage vending machine equipment capacity introduced into the marketpl ace. DOE converted shipped units to percent of shipped units for use in the shipments analysis model to establish the be verage vending machine market share attributed to each equipment class. The market share calculation and its use in forecasting shipments are explained in sect ion 10.3.2.2. Table 10.4.1 presents the historical shipments of beverage vending machine equipment by capacity ranges and the year of shipment. DOE assumed that shipments after 2006 are be gin at 90,000 per year for 2007–2009, increase to 150,000 in 2010, and then 190,000 per year thereafter. A ll future shipments are assigned to the replacement market, as di scussed in section 10.2.

Table 10.4.1 Estimated Historical Shipments (Units Shipped) and Stock (Units) of Beverage Vending Machine Equipment

Equipment

Status * 1998 1999 2000 2001 2002 2003 2004 2005 2006

Estimated Shipments
Assumed Replacements
New Shipments
Estimated Stock 372,000 477,000 338,000 300,000 250,000 200,000 200,000 200,000 125,000

250,000 250,000 250,000 250,000 250,000 200,000 200,000 200,000 125,000

122,000 227,000 88,000 50,000 -

- - - - - - - - -

2,789,669 3,046,650 3,164,244 3,242,477 3,267,244 3,229,882 3,170,242 3,070,605 2,690,850

* Allocation of units to refurbished and new units is based on industry estimates of total stock. Sources: U.S. Census Bureau Current Industrial Reports, State of the Vending Industry (2006) and DOE assumptions based on industry comments at the ANOPR and NOPR stages.

10.4.2.1 Market Shipments

DOE used the above shipments data to estimate the market shipments in year t of each beverage vending machine equipment class y ( MKTSHIP(t,y)) defined in terms of units shipped for both new and replacement markets. Because the percent of shipments in each equipment class is relatively constant ove r time and the lifetime of each e quipment class is the same (10 years typical, 15 years maximum), the ratio of sh ipments to equipment class is indicative of the market share for that class ( MKT(y)) . DOE estimated the MKT(y) for a particular equipment class to be a constant value equal to the average of the yearly percent historical shipments for that equipment class. Based on industry comments, th e market for beverage vending machines has undergone significant changes in the last 5 y ears. Recently, these shipments have been 50 percent for Class A machines and 50 percent for Class B machines. The shipments analysis relies on the three sizes each of the two equipment cl asses to represent the beverage vending machine equipment market. However, industry comments at the NOPR stage indicat ed that there were

10-7 BVM_FINAL_FR_TSD_Chapter10_08-14-09.docvery few shipments of equipment in the small size range, so DOE assumed shipments of small equipment to be zero. All shipments are curren tly for replacement only and are assumed to remain that way. Any shipments to new locations are assumed to be offset by losses at current locations.

MKTSHIP(t,y) = MKT(y) x (UN(t) + UB(t)) Eq. 10.4

Where:

MKTSHIP(t,y) = total market shipments of equipment class y in year t , MKT(y) = percentage of total market shipments of equipment class y , UN(t) = total shipments to new locations in year t (assumed to be zero), and UB(t) = total replacement shipments in year t

. DOE estimated total sales by adding replacem ent sales to new sales in each year. DOE estimated the total number of units for each type that were replacement units. DOE assumed that new units last an average of 10 years and that their lifetimes follow a Weibull distribution (commonly assumed for equipment failure studies). The initial si ze of the existing stock was back-calculated. DOE set up an inventory acco unting scheme to keep track of required replacements and the aging of new units as they are added to the inventory each year.

10.4.3 Equipment Price

Equipment price is the price paid by the customer for beverage vending machines. It includes both the purchase price of the equipment and installation costs. As discussed in the engineering analysis (TSD chapter 5) and the li fe-cycle cost and payback period analysis (TSD chapter 8), equipment prices in this analysis are functions of efficiency (or reduced energy consumption). DOE based equipment price projectio ns on potential equipment efficiency options but did not develop estimates of market trends in efficiency. DOE devel oped an efficiency mix for the base case (i.e., the case without new energy conservation standards) and for each standard efficiency level, which are discu ssed in detail in TSD chapter 11.

10.5 RESULTS

Table 10.5.1 shows the forecasted shipments for beverage vending machine equipment classes and size categories for the baseline efficiency level (Level 1) for select years from 2012– 2042. As equipment purchase price increases with efficiency, a drop in shipments would be expected. Although there is a provision in the sh ipments analysis spreadsheet for a change in shipments as the efficiency level increases, DOE had no information with which to calibrate such a relationship. Therefore, for the final rule, DOE presumed that shipments do not change with efficiency level. Table 10.5.1 also shows the cumulative shipments for beverage vending machine equipment for the entire 31-year period (2012–2042).

10-8 BVM_FINAL_FR_TSD_Chapter10_08-14-09.docTable 10.5.1 Forecasted Shipments for Beverage Vending Machine Equipment (Baseline Efficiency, Level 1) for Selected Years Equipment Units Shipped Category * thousands 2012 2015 2020 2025 2030 2035 2040 2042 Cumulative Shipments (2012–2042) A-L-IN 31.4 31.4 31.4 31.4 31.4 31.4 31.4 31.4 971.9 A-M-IN 63.7 63.7 63.7 63.7 63.7 63.7 63.7 63.7 1,973.2 A-S-IN **

- - - - - - - - - - - - - - - - - - B-L-IO 31.4 31.4 31.4 31.4 31.4 31.4 31.4 31.4 971.9 B-M-IO 63.7 63.7 63.7 63.7 63.7 63.7 63.7 63.7 1,973.2 B-S-IO **

- - - - - - - - - - - - - - - - - - * A=Class A equipment, B=Class B equipment, L=large size, M=medium size, S=small size, IN=indoor, IO=indoor

outdoor.

** There are no shipments of small (S) equipment.

10-9 BVM_FINAL_FR_TSD_Chapter10_08-14-09.docREFERENCES

1. Automatic Merchandiser. State of the Vending Industry Report . 2006. (Last accessed May 2007.) < http://www.amonline.com >

2. For example, see “Vending Machines (Coin-Operated).” Current Industrial Reports MA333U(00)-1. July 2001. (Las t accessed August 5, 2009.)

< http://74.125.155.132/search?q=cache:cP8gTgY2RxMJ:www.cen sus.gov/cir/www/333/ma33 3u.html+http://www.census.gov/cir/www/333/ma333u.html&cd=1&hl=en&ct=clnk&gl=us >

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