In 2014, it is no longer just the forward-thinking operators launching micro markets. It is vendors in every market, of every size and every level of vending technology, and it’s growing fast. What’s driving this innovation? In a word, consumers.
Consumers want variety. They want value, more payment options and fresh food ingredients. Micro markets meet all of these demands and in a way that give operators more insight, control and merchandising opportunities than they ever had before. Micro market suppliers have reported an increase in calls from vending operators looking to launch a micro market because one of their top locations said a competitor just pitched them a market and they want it. While perhaps not the best way to enter a new segment of the industry, it clearly shows we have gone beyond industry-spurred change and are now answering the consumers’ demands for this new, unattended retail foodservice. It’s a great business opportunity now, but will its growth be sustained for the next 10 years?
Promotions and payments
U.S. micro market installations are increasing by more than 1 percent each year, spurred by consumer promotions and evolving payment options. “Consumer promotions as a means of driving sales probably has the most momentum right now,” said Elyssa Allahyar-Steiner, vice president of sales and marketing for Avanti Markets. In many micro market systems, the software allows operators ways to offer purchasing incentives to end users that they didn’t have with vending machines. “We’re starting to see these consumer promotions developed not just by operators, but suppliers and affiliate groups like USG,” added Allahyar-Steiner. Operators benefit from these programs, which often involve the end user buying X number of products and getting the next free. “Operators who are taking advantage of these promotions from suppliers or affiliate groups don’t have to eat the cost or revenue loss of the free item,” said Allahyar-Steiner. “In most cases the full price of the promotion item is reimbursed to the operator by the supplier/affiliate, usually in the form of a rebate.”
Alternative payments have also evolved. Micro markets have taken credit cards since their inception and a few take cash, but something new on the horizon is payroll deduction. “Operators using it are reporting a lift in sales of as much as 30 percent,” said Allahyar-Steiner. It’s seen as another employee perk by the location. The customer has to sign up first and then that additional payment option appears on screen when the market card is scanned. The operator presents these charges through a flat file to the company, who handles the deductions from the employee’s paycheck. “Beside the increase in sales, the operator also benefits from not having to pay credit card fees on those payroll deductions,” said Allahyar-Steiner.
Mobile payments are another dimension to this changing micro market payment trend. “Last year, smartphone purchases accounted for about 4 percent of total purchases in our stores,” said Patrick McMullan, vice-president of Three Square Market. “Year-to-date that is now over 16 percent.” It’s not just consumers going mobile, however. McMullan says that in that same year, 20 percent of their operators started using the company’s back-end mobile app to manage their micro market businesses with varying degrees.
Software and new technologies are only part of today’s micro market landscape. Operators are also learning how the micro market business differs from vending and OCS. They are educating themselves on ways to earn the best profits and initiating best practices that will ensure their future success; and for most, that means overcoming challenges, too.
Operational challenges
One of the difficulties for operators adding micro markets is deciding how much time and what resources to dedicate to the segment. “A lot of operators have internal goals to convert a percent of their business to be micro markets,” said Joe Hessling of 365 Retail Markets. “That can be difficult for a brick and mortar company with existing personnel.” One of the busiest people at 365 is the installation assistant, according to Hessling. Operators are trying to keep up with demand by working through challenges of incorporating or adapting their business structure to include micro markets from warehouse space to inventory management and delivery. Hessling would estimate that operators are able to install a combined 4,000 micro markets a year, across the country and across equipment suppliers. However, as operators hire personnel and gain experience that number will grow. “I can see it soon being 6,000 a year,” said Hessling.
What’s after low hanging fruit
With the expansion of micro markets happening rapidly, many micro market suppliers anticipate that the market will mature in the next 5 to 10 years. Current estimates of the number of potential micro market locations vary between 40,000 locations to 75,000 locations in the U.S. “The 40,000 placement number is very conservative,” said Joe Loparco, REVIVE’s vice president of sales and marketing. “That projection was based on the mistaken belief that only locations with at least 250 employees would be profitable. With higher per capita spends and much better margins, even 100 to 150 person accounts can be profitable. This is especially true if the micro market supplier doesn’t charge commissions on product sales or upcharge credit card processing fees.”
But what comes next? Will micro markets ever be able to service the locations with 100 people or less? “That is the challenging part for the micro market industry,” said Steve Bryant, national sales manager for Microtronic US, LLC. Once all the best locations are taken, the industry will have to evolve again to meet demands of the smaller locations. Micro market suppliers are already introducing new kiosks for the smaller workplace and developing leaner micro market turnkey solutions. “The concern is Can the micro market systems be priced so the smaller accounts can still be profitable?” said Bryant. “One of the unique things about micro markets is that there are advantages to operators, locations and customers. It’s an exciting industry to be in right now.”
Technology will unlock more locations
Many suppliers are looking to technology to solve the problem of meeting the future demand for profitably serving accounts with fewer employees. Innovations in technology can and will be adapted to enhance the micro market systems. Suppliers are also betting on wider applications for micro markets as theft prevention tools develop. This will open the business of micro markets up to hotels, hospitals, clubs, schools, transportation and more. With a few tweaks, micro markets could allow vendors to break into the automated inventory control and distribution segment as well.
Despite what the future holds for the micro market operator, getting there will mean utilizing the greatest opportunities of today. Right now operators can work with micro market software to better utilize the systems and engage the end user.
As more consumers and locations learn about micro markets, the requests for these systems will rise. In many ways, the business is similar to vending, but in more ways it is different, requiring operators to plan and execute longer-term business solutions. In the not so distant future, the industry will be faced with a saturated market, but that is nothing new to the seasoned vending veteran. They may even be better positioned with micro markets because the software and system are a great deal more flexible than vending machines. The next generation of automatic merchandising is here and thriving.
