Trial and Error

Aug. 5, 2016
Some OCS-only operators are dabbling in micro markets and discovering that although it can be an exciting segment, it also comes with many challenges.

When Steve Brehm, president of Minnesota-based Berry Coffee Company, first heard about micro markets, he was intrigued. It was a segment that would allow him to provide a food option to the locations he was already serving with OCS, but without having to get into vending. Brehm decided it was a business venture he wanted to pursue, purchased two micro market kiosks and set up two test markets in the Minneapolis/St. Paul area.

Brehm isn't the only OCS-only operator to delve into the world of micro markets. According to Automatic Merchandiser magazine circulation, a handful of OCS-only operators in the U.S. claim to operate micro markets and others have expressed that micro markets are an area they are looking to get into in the future. It’s not hard to see why; in 2015, the percentage of revenue associated with micro markets rose to 10.2 percent, making it the highest revenue-providing service segment after vending machines, according to Automatic Merchandiser’s State of the Vending Industry report.

But micro markets are a lot tougher to pull off from an OCS-only standpoint, Brehm discovered. The new challenge of managing more product, coupled with low margins and fees, led Berry Coffee Co. to pull its test micro markets after just six months.

Adding food into the mix

Coming from an OCS-only background, Brehm was at a disadvantage when it came to purchasing, storing and pushing the massive number of SKUs required for a micro market. He found that he couldn’t sell product fast enough with just two micro markets before it went stale — and he wasn’t able to order smaller quantities, either. “You have to have a lot of product already in order to keep the shelf life up to par,” Brehm said. For a full-line vending operator, that’s not difficult to do, as they are already placing a lot of that product in vending machines, he noted. With just two micro markets, Berry Coffee didn’t have the mass to keep product fresh. “We were throwing away so much product and it was just money down the drain,” he said.

Brehm also noted that jumping into micro markets wasn’t as easy as it had seemed.

“If you’re going to go into micro markets as an OCS operator, you have to be all-in,” he reflected. Berry Coffee Co. initially invested around $150,000 in micro markets, in addition to transitioning an employee full-time to the segment. Meanwhile, the company’s OCS and foodservice segment was booming. “We were being pulled in many directions and we recognized that micro markets were taking some resources away from the main focus of our business: coffee.”

Pulling resources

Berry Coffee Co. prides itself on serving specialty coffees and teas to the Twin Cities area, with janitorial supplies and pantry services, too, when clients request it. So when the micro market segment began pulling an increasing number of resources away from the company’s main focus, Brehm knew that was a problem.

In addition to monetary resources, micro markets took up more space than anticipated in the company’s warehouse, which included refrigeration. Time was an issue, too. “There were rules and legal issues surrounding fresh food, so we were spending a lot of time on micro markets that otherwise would have been focused on our OCS business,” he said. Unlike other operators, he wasn’t seeing a return on investment; stales were high, margins were thin and on top of it all he was paying a micro market provider fee, which made the segment even less profitable.

“We made the decision to remove the markets because we wanted to get back to our core,” he said. The company has done just that. Berry Coffee Co. recently opened an offsite coffee roasting plant, adding a fresh, local option for its customers.

Look before the leap

Today Brehm partners with vending companies in the area; if his OCS location requests a micro market, Brehm works with local vending operators to bring it in and he continues servicing the OCS aspect. “This has worked really well for us,” he said. He isn’t ruling out micro markets in the future completely, though. Brehm likes the micro market concept and says he would consider getting back into it. “But we would have to do a lot more research,” he said.

“Micro markets are a great concept, but they aren’t for everyone or every operator,” he continued, cautioning OCS operators to take a deep look before they make the leap. “Think about your overall business and where you want to take it,” he said.

OCS operators should anticipate building size quickly, he continued, in order to make a return on investment and make the product go further. “This means sitting down and making sure you have the resources to build that segment.”

“It’s more painful [to start in micro markets] if you’re not in vending,” he said, “but if you do your research and walk before running in, micro markets can be a viable segment for OCS operators, I believe.”

About the Author

Adrienne Klein | Contributing Editor

Adrienne Zimmer Klein is a freelance writer with a background in the vending, micro market and office coffee service industry. She worked at Automatic Merchandiser and VendingMarketWatch.com from 2013 until February of 2017.