Enhanced Services Will Lead To 2017 Growth

Dec. 11, 2016
From more locations interested in micro markets to increasing the reliability of services courtesy of technology, the next 12 months promise to be strong.

Vending, micro market and office coffee service operators are expecting a good year in 2017. Unemployment is at the low point from 8 years ago, according to the Bureau of Labor Statistics, and holding relatively steady. U.S. businesses are planning to maintain or slightly increase spending next year, says financial resource Kiplinger. Part of that budget will be on employee benefits, such as those that enhance the workplace allure with better eating and drinking options. It has already started, and most industry leaders believe it will continue in the coming 12 months.

Pantry service

Operators on the coasts and those in areas with a progressive business culture have already been seeing the evolution with enhanced services that make employees feel valued, loyal, collaborative and energized. One example is the popularity of companies offering product in the breakroom free for employees, often called pantry service or a micro kitchen. Pat Hagerty, CEO of Vistar and chairman of NAMA’s board of directors sees the popularity of this concept firsthand by what products are ordered. “Clif and Kind bars will be in the top 20 by fiscal year end,” he shared as an example. These brands are part of the fast growing better-for-you category that includes protein bars, meal replacements, augmented waters, etc. While Hagerty does see regional differences in sales due to demographics of employees, the increase is happening everywhere. “We see a higher penetration of better-for-you in the entire vending segment, than in retail stores. It’s growing faster than overall products, close to 50 percent,” he said.

This directly opposes the view that better-for-you items won’t sell in vending machines, even with a price point over a dollar. This will mean operators need to focus on offering more pantry service and a greater variety of healthy, better quality products.

Sandy Thornton of Roswell, GA-based Vendedge has already adapted to this demand. “Customers who have had micro markets in excess of a couple of years are demanding more and more items,” she said. “They want higher quality, non vending machine products, especially fresh food.”

In Phoenix, AZ, Jodi Glimpse of Camelback Vending believes the growth she has experienced by offering alternative products will not end. “I expect continued growth of micro markets and continued focus of non-traditional/higher end/healthier items,” said Glimpse.

NAMA CEO and President Carla Balakgie believes health, nutrition and wellness will be among the fastest growing higher end product trends. “It’s not new, but we are arguably at the beginning of seeing the societal change,” she said. “Operators need to pay attention to this even if it doesn’t feel immediate.”

Micro markets

Absent of many package size and shape restrictions, micro markets are a clear winner when it comes to vending the variety of products that consumers want, especially better-for-you and higher-end items. It’s unsurprising that micro markets were mentioned by nearly everyone as a segment likely to see growth in 2017.

Jim Carbone of Chicago, IL-based Workwell Food & Beverage/Truebrew Coffee & Tea Outfitters finds that in his area, micro markets have become more accepted. “We have clients that did not want a micro market 3 years ago when we offered it to them, but now they are asking for a market option,” he explained. “We expect this sector to grow substantially in our business for 2017.”

This greater demand by locations was echoed by many. In analyzing the responses to surveys about how many micro markets operators plan to add per month in 2017, we estimate over 39,000 installations will be added.
However, Joe Hessling of 365 Retail Markets thinks micro markets are in for a shake up. Profitability and running markets correctly will be more of the focus for operators, rather than simply installing them. He predicts consolidation. “I know of two to three micro market operators who are going to either pack it up or be bought,” he said.

OCS, especially specialty

While micro markets are a clear leader in pleasing the diverse consumer in today’s work environment, they are not the only solution. Coffee and coffee-based drinks have become such an important part of how Millennials interact and work, that they are a key employee benefit consideration.

Carbone has seen locations change their view of company-provided coffee. “Coffee is becoming a more important workplace benefit and amenity,” he said. “Our company has started a division focused on the workplace café offering expanded options such as barista operated coffee bars that will serve employees hand crafted espresso-based beverage, craft sodas, and more. Along with this, beverages dispensed from kegerators like cold brewed coffee, kombucha and sparkling teas are becoming very popular.” Carbone says companies are willing to foot the bill because it gets employees to work early, instead of stopping for coffee first, and entices them to stay for breaks, creating a more collaborative environment.

Jeff Deitchler of PrairieFire Coffee in Wichita, KS sees the demand for more specialty coffee drinks as a way to set his company apart. “Cold brew is still relatively new as a deliverable coffee product for the office coffee breakroom,” he said. Should it be delivered via keg, ready-to-drink, in different varieties, nitro-charged? “The answer is yes. To all of the above.” Single-cup is another area Deitchler is seeing demand, especially for freshly ground whole bean systems associated with the coffee shop experience.

“The message is that whether you’re a generation Y or baby boomer, you need to be more flexible in what you’re offering and how much you can charge for it than you were years ago,” said Hagerty. “We used to think coffee had to be 3 cents a cup. But we see consumers are willing to spend 50 cents, for the right product.”

Cashless and connectivity

Using technology to enhance the vending, micro market or even OCS user’s experience is at the top of many to-do lists. Anant Agrawal of Cantaloupe Systems sees a great move in cashless payment and connectivity. “Operators will continue to push for close to 100 percent deployment of cashless and connectivity in general,” he observed. “Major national operators plan to be there in the next 2 years, which will force the rest of the industry. This is because of the lower costs for cashless from providers, and the added value of connectivity for logistics and fulfillment that companies have finally figured out how to scale.”

According to Glenn Butler of CTO Services, lower cost modems and networks are being rolled out by AT&T and Verizon. “What this means is telemetry hardware pricing is going to come down more, and the fees telemetry companies pay to the cellular carriers will be getting cheaper,” he said.

Chuck Reed of CPI sees the issue not one of cashless, but more secure cashless. “The question on cashless is when does the need to move towards chip enabled  EMV® security occur?” he said. While large retailers have switched, the pressure isn’t on operators, especially now that Visa has eliminated the $25 penalty charge for low value purchases, explained Reed.

While connectivity does increase customer service by allowing an operator to know when a machine is malfunctioning before the customer, its real benefits lay in logistics automation. Agrawal comments that in 2017 he see dynamic scheduling, real time prekitting and smarter merchandising going mainstream. “Just in time delivery is better for the consumer, more cost effective for the operator, and greener for the environment. Canteen just committed to doing this...franchisees are quickly following as well,” he said.

Better sales and logistics data may help operators increase lucrative services beyond the traditional. Carl Moser of Cardinal Canteen Food Service anticipates a 2017 jump in direct delivery. “I think there will be an increase in the amount of bulk shipping within our industry,” he said. “This is a very low labor cost and quick for our delivery drivers.”

“People are trying many different things to see what sticks in the form of service,” Balakgie shared. Perhaps it is the idea of a small drop distribution network, such as dry cleaning or uniform rentals. Maybe it is expanding the idea of pantry service beyond business and industry accounts. “It just has to be about convenience,” she said. Operators are experimenting with expanding services, then considering what has a sustainable business model and then fine tuning it,” she finished. All this makes the coming year full of opportunity.