Should micro markets and vending be managed separately?

Oct. 13, 2014
The micro market organizational structure varies from that of vending. After a few installations, the differences necessitate separation in many areas in order to grow both businesses.

From the moment vend operators begins shelf installation at their first micro market, it becomes clear -- micro markets and vending are very different businesses. If Dorothy from the Wizard of Oz was at the installation, her famous quote would probably be changed to “Toto, I've a feeling we're not in vending anymore”.

Now that we as an industry have begun to get our arms around micro markets and what is necessary to properly support their operation, the central differences from vending are broad and relatively clear. Micro markets are very different in that they involve much greater product variety and size flexibility, increased purchasing and merchandising support requirements, different warehouse operations, different route functions, changes in route vehicles, cashless (for the most part) consumer self-payment systems, alternative field service skills and technical capabilities, broad consumer promotional opportunities, extensive consumer transaction data and reporting capabilities, and on and on.

Although this list of variances from vending may sound overwhelming to a new micro market operator, they are essentially the same functions we provide in vending adjusted for the specifics and expanded product and sales opportunities provided by micro markets.

So the central question becomes: with all of these differences between micro markets and vending, can we effectively operate the two within a combined operation and without significant organizational changes to our vending business or must we assign separate resources due to the core differences in the businesses?

Organization evolution

 Before we can answer this question, let’s discuss how organizations evolve in general. Normally, one or two individuals decide to start a business. Initially the founders do everything necessary in an attempt to develop a positive profit line and understand the needs of the business as it grows. Personnel are added and an “organization” develops when the business grows to a point where different functional tasks become sizeable enough in terms of time requirements such that they would be more efficient through specific resource allocation and focus.

This “size and efficiency” approach was the rationale the first time a vend operator divided operational assignments between field service, warehouse and route personnel. Each function was time consuming enough to justify focus of committed personnel or other specific company resources. By focusing time and skills on a consistent set of tasks, the assigned personnel became much more effective in task performance and efficient in their time utilization.

When new businesses are added to an existing company as is normally the case with micro markets being added to an existing vending operation, a similar approach is often taken where existing personal and resources are used to initially support the new business while the breadth of the opportunity and scope of micro market-specific functions are better understood. As an operator’s micro market business expands, however, the assignment to each business of specialized resources needs to occur to develop a “focused and efficient” organization for both.

Basic micro market variations

As functional variations lead to organizational changes, looking at where micro market operations vary from traditional vending is an effective approach to understanding necessary resource and organizational adjustments.

There are three driving operational factors associated with micro markets that will add new functions to a traditional vending operation: 

  • Managing the expanded micro market product set.  
  • Handling the data input and maintenance necessary to support the micro market software systems. 
  • Capitalizing on the ability of micro markets to effectively market directly to the consumer.

Handling the increased micro market product variety is the most immediate and apparent functional change from vending. To frame the size of variety change at micro markets, in recent vending and micro market tests we ran within our firm, item-level data indicated that the number of different snack items sold each week at micro market locations was more than twice the number of items sold through snack machines. Further, individual micro markets sold an average of 59 different beverage products, compared with most vending installations where a single stack vendor offers 8 to 10 beverage varieties.

The wider variety of micro market products necessitates immediate changes to both route and warehouse systems to physically handle the broader product line. From the very first micro market installation, product orders need to be pre-picked at the warehouse and loaded, ready to deliver, into the route vehicle. The broad micro market variety dictates that pre-kitting of product orders in the warehouse has to replace the traditional route system of building a location delivery from truck inventories. Fortunately, micro market software has been designed to ease the process as it creates the individual location order on an item-by-item basis for picking at the warehouse.

Micro market product sourcing also changes dramatically as we can now literally sell anything while vending is restricted to only what physically fits in our machines. Micro market focus shifts to offering consumers whatever they want in terms of food and beverage, which becomes more challenging as many products that have high consumer demand and that we want to sell through micro markets have never been available through normal vending product channels. New, non-vending products require research and potentially new supply sources, especially within the food category.

And there are physical support system changes that are necessary to handle the increased micro market variety. Integrating micro market product among vending items in the warehouse increases inefficiency for both businesses, normally leading to allocating warehouse space to each different type of operation. Route vehicles need to change to handle larger deliveries of perishable products, especially refrigerated and frozen food.

Administrative support for micro markets are also significantly greater than for vending especially in the data entry and management areas. The ability for micro market software to track every item sold, its price and any applicable taxes is of great benefit to reporting and product management, but requires accurate and updated product and location data and increases the resource requirement for both micro market setup and ongoing operations.

Perhaps the area that is the most fundamentally different from the vending organization is the ability of micro markets to merchandise and promote to consumers. Very few consumer promotions are run within vending due to the difficulty of execution, the inability to easily and quickly change machine prices, etc. Micro markets are essentially small retail stores with very robust software that supports a full range of promotional programs – discount pricing over a specific time period, bundling of different products or “two-for” pricing, loyalty programs, etc. In vending, we have simply never had the need (or opportunity) for merchandising and promotional management resources. Importantly, every retail channel has proven that consumer promotions drive incremental sales and profits. As such, every micro market operator needs to embrace the opportunity to promote products in a manner simply not available in vending. Broad variety merchandising and managing consumer promotions are completely new functionalities associated with micro market operations, which require organizational resources to be effectively managed.

Simply put, micro markets and vending are very different businesses with distinctly different support, operational and management functions. As our businesses change to include both vending and micro markets, our organizations need to evolve as well, assigning specific resources to best handle the unique and very different functions of each.

When, Where To Add

With a need to provide different functional support in the areas of merchandising, operations and data administration, how should we structure our organizations to most effectively support both vending and micro market operations? Where can we leverage vending operations into micro markets and where do the businesses benefit from separation?

To answer this question, we must assume a couple of key perspectives –

  • We want to be professional and effectively perform all services and activities necessary for at every vending and micro market installation. 
  • The organizational changes for individual operators will vary based upon their company size, their geographical operating area (urban or rural), the number of micro market installations and other key individual company factors.

In general, a vending organization normally includes six functional areas: 1) accounting and administration, 2) new account sales, 3) purchasing, 4) warehouse operations, 5) route delivery and 6) field service, all focused exclusively on vending.

With the differences in micro market operations and the needs to manage the significant increase in product variety, a vending/micro market organization with perhaps 30 active micro markets will require a number of changes:

  • Additional data entry and management resources added to administration 
  • Separated vending and micro market warehouse areas with dedicated micro market order picking areas and personnel 
  • Dedicated and separated vending and micro market routes 
  • Committed merchandising resources focused on new product identification and acquisition and promotional program selection and implementation 
  • Independent departmental management for both vending and micro markets focused on the nuances of each very different business.

The evolution for a vend operator from a traditional vending organization to one with both vending and micro market operations will be gradual but has to occur with increasing micro market installations. For operators with less than five micro markets and just beginning their micro market operations, existing vending personnel can usually be leveraged and used to support the first micro market operations.

Above ten installations, however, benefits begin to become significant from establishing a separation of the businesses and the focusing of different resources on micro market operations. Most importantly, the division of vending and micro markets into side-by-side business units benefits significantly from independent management and supervision. Each business needs focus and attention on their specific operational and management needs, and only through separation can both grow, thrive and be as successful as possible.

About the Author

Brad Bachtelle

Brad Bachtelle is president of Bachtelle and Associates, a national consulting and research firm dedicated to driving increased product sales volumes and market share positions for its clients within the at-work and other specialty segments of the larger foodservice industry. Contact Bachtelle at [email protected] or 714-731-5830.