The micro market industry is poised for unprecedented growth, according to 365 Retail Markets founder and chief executive Joe Hessling. And so is his Troy, MI-based unattended retail technology group. The 13-year-old company recently completed a merger with a longtime rival, Seattle-based Avanti Markets, another pioneer in micro market hardware and systems for vending operators. At the same time, 365 acquired LightSpeed Automation, the leading product-picking tool used in operators’ warehouses.
Hessling and Avanti Markets' founder and chief executive Jim Brinton announced the merger in September in a YouTube post recorded at Avanti’s headquarters; but discussions and planning leading up to it were ongoing for several years. Brinton said the merger was a “long time coming.” The transaction combining the two micro market leaders cleared the Federal Trade Commission’s merger review process earlier this year.
“We did a lot of legwork,” Hessling said. “Since this transaction needed to go through the FTC, we had lengthy discussions about it with operators – and rightfully so, because when two big players come together in the same space it has to be good for the consumer. That’s mainly why the FTC investigates mergers like this.”
During a merger review process, FTC lawyers and economists investigate market dynamics to determine if a proposed merger will harm consumers. In the case of a 365 and Avanti merger, the combined entity would need to ensure a vibrant marketplace for both operators and their customers. “We had to get things really vetted…to make sure we were making the right moves for our customers,” Hessling said. “If we didn’t, the FTC would have said no.”
There was plenty of feedback from operators, Hessling said. One of the biggest concerns about a merged 365-Avanti entity was the potential loss of brand variety as operators often identify as a “365 operator” or an “Avanti operator.”
“Today, 365 and Avanti are separate product lines,” Hessling noted. “And in the future, you can expect the same choices of products and the ability to work on both platforms.”
Including the Avanti and LightSpeed mergers, 365 Retail Markets has so far made seven M&A transactions. The others are Stockwell (Aug. 2020), an AI platform; Company Kitchen (Sep. 2019), another micro market provider; ReadyTouch (Apr. 2017), a foodservice software company; and AirVend (Feb. 2013), which made an interactive touchscreen that retrofits to vending machines. 365 reportedly has also closed on an eighth technology asset not yet announced.
“We’re going to be buying at minimum two or three companies a year,” Hessling revealed. “We’re an inquisitive company and that’s not going to stop. The need for self-service is going to grow and our size allows us to apply different technologies to a bigger set of customers.”
Timing drives 365-Avanti merger
For several years, Avanti and 365 had been “dancing gently around” what a merger of the two would look like. It made perfect sense when looking at their overlapping efforts. For instance, the companies’ combined R&D spend was basically doubled to accomplish the same results. “We looked at this and always thought it made sense, but the timing was never correct, whether it was for business or personal reasons,” Hessling told VMW.
“365 was always ready, but we needed things to line up on Jim’s end,” he added. “People might jump to conclusions that the COVID-19 crisis brought about the merger, but it had nothing to do with it as both businesses remained relatively strong throughout the pandemic.”
That statement may sound flawed when you think about the devasting blow COVID delivered to most operators throughout 2020. “In the context of COVID, ask anybody about a business that provides services primarily to offices and their reaction is going to be, ‘My God that must’ve been horrible.’ But the reality was that people still needed food, snack and beverage services and we were able to manage that demand.”
The 365 chief executive underscored that good timing carried the merger over the finish line. “When the timing was right, we knew it would be a great combination,” Hessling said. “We kept on pestering Jim, and 365’s investors and private-equity groups got to know him. We realized that over time, as separate entities, we were not going to be damaging to each other, but coming together was a better fit.”
The micro market company’s principal investors are Providence Equity Partners, a Rhode Island-based private equity firm, and Omaha, NE-based McCarthy Capital. Providence made a majority investment in 365 Retail Markets at the beginning of the year.
A veteran vending operator, Brinton and two partners founded Avanti Markets in 2009, one year after 365 Retail Markets opened for business. Two years later, Brinton purchased a majority interest from partners Kevin Bailey and Aaron Speagle, who started up another self-checkout product geared toward foodservice management companies. Brinton’s vending, markets and office coffee operation, renamed Evergreen Refreshments in 2020, was founded in 1976. It has offices in Seattle and OIympia, WA, and Portland, OR.
For Hessling, taking the merger path was an easy decision. The challenge will be the integration of 365 and Avanti.
Scale and market share
Both 365 Retail Markets and Avanti Markets are privately held and, thus, the value of their merger transaction was not disclosed. The merger result, however, has created an enterprise with a market share of more than 50% in self-checkout technology in the vending space, which mostly serves business and industry venues. The combined companies employ 400 people and are expected to generate $200 million in sales this year.
Hessling pointed out that unattended retail in the vending space accounts for a small fraction of self-service applications when it’s added to the same pie with all other markets. “We tend to think of micro markets as being in the vending space, but once we dig deeper, we find all kinds of what could be considered ‘micro markets.’ There are micro markets in hospitality, like hotels, and in airports and transportation depots … there are micro markets all over. And there are mobile and point-of-sale checkout systems, along with unattended shopping powered by computer vision technology. So, the vending industry probably represents a small share of the self-checkout market universe.”
The vending industry coined the term “micro market” and positioned it around the workplace convenience services, 365’s founder explained.
Preserving micro market brands for operators
The Avanti and 365 product lines are expected to remain whole. “We’re not going to change too much on future products. An Avanti operator is an ‘Avanti operator.’ They have an Avanti backend system, kiosk and add-on products that revolve around those. Operators build their processes around those technologies, and they don’t like change. These rules apply to 365’s products, too.”
How do 365 and Avanti differ and what is the strength of each? 365 is more of an enterprise solution used by large operations in need of a self-checkout technology that focuses on the entire organization. A 365 solution is ideally suited for organizations with thousands of devices. In contrast, Avanti is designed for small and midsize businesses (SMBs).
“The combination will now allow all operators to have the professionalism, security, compliance and assurance levels of an enterprise relationship, coupled with the thought process of an operator-led business, which Avanti was. By rolling up the two we hope to bring the best of both worlds to an operator,” Hessling said. “At the same time, the products will definitely be on the forward path from a technology perspective for an operation of any size.”
Hessling pointed out that operators want less complexity, but many are still administering different equipment assets and locations with a vending management system (VMS). Sometimes a particular product may not be a good fit for a VMS brand, which makes it difficult for the operator to manage. To reduce these complications, the merged company’s plan is to develop technology that will enable 365, Avanti or Company Kitchen kiosks to feed to LightSpeed and a combined VMS. According to Hessling, most operators are looking for this cleaner solution.
“VMS is really a holdover from when vending machines ruled the roost,” Hessling said. “Operators relied on those systems to manage a bunch of different systems to run their business. As micro markets are now taking over the vending space, in terms of revenue, operators rely on the Avanti, 365 and Company Kitchen backends to manage the larger parts of their businesses; but they still require another system to manage their vending machines. Over time, I think VMS will become less important because more people are moving toward micro markets than they are vending. It’s no secret that that’s what’s taking place in the marketplace.”
Large enterprise-level operators, however, usually build proprietary systems rather than use a VMS. “They might use pieces of a VMS, route management software or some little pieces of modules,” Hessling noted, “but they moved beyond VMS.”
Moreover, supersized route operations have created enterprise resource planning (ERP) systems that can integrate directly with 365’s backend. ERP applications are designed to automate business processes, and provide insights and internal controls, drawing on a central database that collects inputs from accounting, supply chain, sales, marketing and human resources, among other company departments.
Hessling also noted that 365 devices are web-enabled, compared with most VMS designs that use Vending Data Interchange (VDI) protocols to read DEX. “The 365 management system gets a lot more information and it enables the execution of modern needs, in contrast to moving DEX files back and forth,” he said.
Automation will save industry
Founded by former vending operator Randy Smith, LightSpeed Automation has become the gold standard in the vending operator’s warehouse. When it arrived on the scene 13 years ago, Lightspeed proved that it could automate the processes that used to be done by an Excel worksheet or with pencil and paper.
LightSpeed is a system for picking merchandise in a warehouse, using either of two options to guide the stock-pickers to the precise shelf location of each item in a route order. The original implementation used a light at each shelf location to speed the stock picker to the next item on the list, thus, at “LightSpeed,” metaphorically. The other option is to equip the stock pickers with wireless tablets that display the items required and shows their shelf locations. Employing either option, the system leads a picker to the product and indicates how many are needed.
Today, LightSpeed has 48 integrations with technology partners, operates in nine countries and picks over two billion items a year.
“In the past, LightSpeed was simply a layer that received information from different data sources,” Hessling said. “To make it better, we intend to remove some of the friction between the LightSpeed system and the Avanti, 365 and Company Kitchen systems – to make a single product, something even more than integration. And we’ll still be able to improve support for third-party POS systems and other data sources. But when it’s all under one roof, you can take out unnecessary steps.”
Amid a major labor shortage that’s expected to last another two years, LightSpeed Automation will play an increasingly important role for vending operators. LightSpeed was designed to improve warehouse employee output and drive efficiency. Hessling believes there are currently not enough workers to support the needs of the industry, which he predicts is going to grow significantly beyond its pre-pandemic performance peak reached in 2019.
“There’s more opportunity for this industry on the horizon,” he said. “If I’m an operator I look at this and say, ‘I got more opportunity in the future than I can service. Now what?’”
The answer is automation. “You must automate nearly everything you do,” Hessling advised, “and you have to focus your resources on product, customer service, IT and delivery. There’s just no other way operators will be able to manage it all. And this is what excites me about the combination of LightSpeed and our self-service micro market systems. We are going to add time to the operator’s day by removing time from their processes.”
"The biggest change COVID brought out was not in the convenience services industry. It was in every other industry that realized unattended and self-service is what they need to help recover and grow their businesses" – Joe Hessling
For its part, 365’s merger with Avanti is not going to result in staff reductions. In fact, the combined company will leverage its newly enlarged technical team to bring new products to the marketplace faster. And the company is looking to add people, quickly. It now has 50 open positions listed and that number is likely to grow to 100 in the months to come. “We could take all the help we can get,” Hessling said.
So, what can operators expect from this merger? Hessling offered:
- Improvement in engineering and customer service;
- Incremental improvements to technology and automation;
- More product variety and investment;
- Avanti, 365 and Company Kitchen market brands to remain intact;
- Avanti to focus on SMB operations – allowing more opportunities for pilot projects;
- 365 to focus on enterprise-level businesses – “Will this work for a thousand units?”;
- Fewer individual products doing the thing – a 365 Pico device, for instance, will at some point also be branded for Avanti and Company Kitchen; and
- Continued emphasis on meeting the operator’s needs.