Protect Your Micro Market Profits

March 14, 2018
The growing micro market segment brings challenges such as shrinkage, spoils and staff.

Micro markets continue to gain a presence in the convenience services industry. This means operators are taking a closer look at the segment and what could be improved. We asked some highly successful operators from various parts of the country what aspects of their micro market businesses were at the top of the to do list in 2018. Theft, reducing spoilage and employing the proper personnel topped the list.

The reality of theft

Theft has always been a dark cloud over micro markets. The concerns about theft kept some operators from trying the concept and with inventory hassles, real theft numbers can be hard to calculate. Jeff Snyder, CEO of Snyder Food Services, Inc. in Kendallville, IN, keeps a close eye on his micro market theft numbers. “Our shrink rate is somewhere in the 4 to 5 percent range,” said Snyder, who has over 100 micro markets in the field.

The shrink rate is calculated by taking a physical inventory of the micro market products. After a designated timeframe, the products are inventoried once again and compared to sales recorded by the kiosk. The difference in what is actually missing and what the kiosk says was sold is then divided by the initial total and multiplied by 100 to get a percentage of shrink.

“We are aggressively pursuing ways to get that shrink rate down,” continued Snyder. “We work closely with the decision makers and management at locations to help them understand that if employees are taking things from us without paying for them, they are probably taking things from your company too — goods and services or time and wages.”

Steve Murphy, division vending manager at Southern Foodservice Management, Inc. in Birmingham, AL, works with sub contractors on micro market service throughout the Southeast. “Normally, our subcontractors report a 2 percent theft rate,” said Murphy, but he has reservations about that number. “Some keep better track than others,” he admitted. While the basic inventory system of micro markets seems easy, he has found that because it is so different from the controlled environment of vending machines, it is more complicated and requires attention from the operator.

Jeff Leider, president of Tri-R Coffee & Vending, in San Marcos, CA, decided to start focusing more on shrinkage when he looked at his cost of goods. “We took the NAMA cost of goods average, which is 48.4819, and compared ours,” he said. “We were drastically over. That sent up a red flag.”

Leider knows that part of the high goods cost comes from pantry service, which Tri-R favors when providing service to companies due to the smaller staff sizes in his area. However, that doesn’t account for all of it. A large portion has to be micro market theft. Leider and two other employees are taking on the challenge of determining the shrink rate with weekly inventories and updated inventory technology. “We ordered some blue tooth scanners versus inventorying at the market using the kiosks,” said Leider. In the past, the company had drivers inventory the micro markets and enter numbers directly into the kiosk, but it was taking an extremely long time due to interference by customers. “Our drivers, or customer service representatives, were unable to finish the market inventory at the kiosk before a customer wanted to make a purchase,” explained Leider. “It was extending their time at the market and the kiosk dramatically.”

Employee type trumps location

Murphy makes the argument that when micro markets were introduced, they were meant for “controlled environments,” which was to minimize theft. However, he finds it is less about the environment and more about the employees using it that impacts the theft rate. “We deal with blue collar, industrial locations and white collar, office building type locations, but there is a difference in the type of people that you deal with at both, even though it’s still considered a controlled environment,” said Murphy. “We are finding a lot less theft where the population is a stable population versus one that has a lot of people coming and going.”

In Indiana, Snyder has a similar experience. “Where we get into trouble dealing with issues is the fulfillment centers where they have seasonal help,” he said. “Literally right at Thanksgiving, or shortly after, the enrollment of personnel can double or triple the population. When you get that with the broad amount of temporary help, it’s almost a constant sitting there and monitoring film. They are firing them for theft as fast as they are hiring them,” he added.

Leider finds that it isn’t just transient types of workers, but certain professional jobs too that can increase shrinkage, especially when the employees feel the location should be picking up the tab. “We had some doctors who felt entitled to the items,” he said. “We had to work with the location on picking up that lost revenue.” He reminds customers that the open environment is for their convenience, so they can shop and compare. It’s a benefit that shouldn’t be abused. When Leider wasn’t able to get the support to stop the theft, he closed accounts, a sentiment echoed by all the operators.

“We had to close three markets due to high theft,” said Gianpaolo “GP” Macerola, of Rome Refreshments, located in Houston, TX. “We were catching it, but the location wasn’t supporting us when it came time to identify individuals.” Not only would the location not help stop the perpetrators, but complained that the market was always empty. Macerola tried to explain that the theft was permanently going to throw off the restocking numbers, but it didn’t seem to make a difference. “It just didn’t work,” he said.

Perfect personnel a plus

Eliminating theft also requires having the right drivers. Macerola has gone through a number of drivers looking for the right personality. “We settled on two and ingrained in them that every market needs to be spot checked,” he said. He expects the drivers to check at least 50 percent of all the items in the market once a week. “I don’t think it’s necessary to do 100 percent of the items,” said Macerola. “Some of my markets have between 400 and 500 items. I can’t ask them to do that in a week.” All Macerola’s drivers use mobile iPads or touchscreen laptops along with mobile hot spots so they don’t tie up the kiosks.

While Macerola has tried to use vending drivers for micro markets, he finds it doesn’t often work. “There’s a certain type of person that does it well,” he said. “If you come from a vending background, you come from speed. That is what we teach them. Get in and get out.” In a market on the other hand, Macerola wants more attention to the customers and appearance of the market itself. “You have to be nice, you have to be neat, you have to notice there’s only one of these items, but the system didn’t ask me to bring it, etc.”

His average theft rate is between 4 and 6 percent for micro markets. At 5 percent, Macerola starts working with his drivers, asking them to visit the location more often to hone in on a time. “I tell them, I need you to go a few days in a row and you tell me when there is an item change,” said Macerola. Once that happens, he can narrow down the theft to a particular day and usually a 6 to 8- hour timeframe. Macerola will watch the video, cross referencing it with the transactions report that he gets from the micro market software. “I literally see who is first, who is next, and what not,” said Macerola. “Once I identify individuals, I download that video clip and the report and email that to HR.”

His biggest issue with the whole process was actually the cameras. He had been told about the DVR cameras, but didn’t want to be required to go to the site to pick up the DVR and then use multiple connections and monitors to view it. “You can’t watch the high definition (HD) records on the DVR, and have to plug it into its own monitor and search for days. I just thought it was so complicated,” said Macerola. “I have switched to all cloud based and it’s saved my sanity.”

Getting drivers to care

“We work really hard with our route drivers,” said Snyder. “We tell them that when you walk into a market, and even at a vending machine, if your inventories and the prekits are off — if you don’t have the right product — there’s a good chance someone is stealing from you.” It helps that Snyder pays his drivers on commission. “If it’s being stolen, it’s not being bought. So you are losing money when someone steals from you,” Snyder tells his drivers. This gives them more ownership over the micro market and more incentive to notice when product numbers don’t match up or to report when a client is constantly complaining about the market being out of product. This is important for Snyder, because his drivers are the first step in the company’s loss prevention process.

“We will get a call from a route driver that we are out of product, the numbers don’t match or the client is complaining. That starts the whole process,” said Snyder. He has the driver fill the affected product or products to the par level to establish a baseline. Then, within a day or two, he goes in and audits, or takes a physical count of the product as well as dollars put into the kiosk compared to the money that should be there for the products. Using this data, he tries to narrow the theft down to a shift or time period before reviewing the camera footage. “The loss prevention person then watches the hours of footage to discover what is happening. He then cuts and pastes evidence from the video and kiosk reports until there is enough evidence to take to the location,” said Snyder.

He has heard operators talk about not having the money for loss prevention, but for him it made financial sense. “If they are stealing 10 percent of your market, depending on how many you have, and you pay a loss prevention person $50,000 a year to drop that rate down to 5 percent, you’ve paid for them and put money back in your pocket,” he finished.

Drivers can really customize a route

Leider gives special credit to micro market drivers. They can give the micro market the organization and attention it needs, which is a different skill set than the vending’s “clean, filled, and working,” motto. Leider would like to have dedicated micro market drivers with dedicated vehicles and is working towards that goal. “We are aiming for one route, one vehicle, due to spoilage and customization of the market,” he said.

The ideal micro market driver fronts product with the label front out, fluffs snack bags and overall puts a good face on the micro market. It is still about speed, but also about attention to everything. “It needs to be a little of a more detail orientated person,” said Leider.

A quality driver can not only handle the merchandising, but also the micro market issues. The right driver notices when product is short and delves deeper into whether it was prepicked incorrectly or is due to shrinkage, reports Leider. The driver is at the front line of looking over expiration dates and transferring food items before they are expired.

Eliminating micro market food spoilage is something Snyder feels very strongly about. “We are on the hunt to reduce spoilage and/or throw-aways,” he said. “That is our target for 2018.” He estimates his stales are in the triple digits and wants that number reduced. He is working with a technology company on fresh food tracking and automatic par adjustments. Along with loss prevention, it’s an important aspect of improving his micro market business.

Macerola tracks spoilage as well, having his drivers pull fresh food when it is close to coding out and moving it to a higher selling location. “For example,” he said, “the driver pulls two salads at micro market X. Subtracts two from inventory, and then goes to micro market Y and adds two to the inventory there.”

Operators continue to evolve their processes to create more profitable operations. Micro markets are no different, and with additional investment into loss prevention, better inventory management and retaining detail-orientated drivers, operators are profiting even more.