How Going All-In With Micro Markets Rejuvenated An Illinois Independent

Oct. 5, 2015

When John Ward, president of Rockford, IL-based Serenity Market Vending, saw the micro market concept for the first time in 2012, he knew he wanted to go all-in. For Ward, micro markets enveloped everything that he loved about providing office refreshment services: variety, convenience and ease. So in 2014, one year after launching his first micro market, Ward took a leap of faith and sold the remainder of his company’s vending accounts and converted Serenity Market Vending to a micro market-only operation.

More than one year after the conversion, Serenity Market Vending has seen vast improvements in its operation. Through its focus on serving small accounts, offering top of the line products and evolving with consumer preferences, the company has seen a return on investment (ROI) in three to five months at all locations and has increased revenues 20 percent over traditional vending.

From paving to vending

Ward began his journey into vending 13 years ago in 2002. At the time, he was working in the paving industry as part of the family business. Ward knew early on that the paving industry would be facing tough times, so when he heard about an opportunity to start his own vending business part time, he became interested. “I went to a seminar and I saw a real opportunity in the Rockford area to provide a great vending experience to people,” he said. “The next thing I had to do was convince my wife,” he joked.

Ward and his wife, Annamarie, created and ran Serenity Vending from their home garage between 2002 and 2009. As the years progressed, the company continued to grow — making five acquisitions in four years — and in 2009 Ward moved the operation from his home to a warehouse. By 2010 Serenity Vending had sixty vending accounts and two routes.

Although Ward enjoyed providing refreshments in the workplace, he could hardly keep up with the amount of service calls he was getting on machines. “We service a large area of northern Illinois and southern Wisconsin,” said Ward. “I was getting three to four calls a week on different machines that were spread out in different areas. With our small staff, it was getting difficult to keep up the great level of service that we promised our customers.”

In Nov. 2012, Ward’s perspective on the industry changed when he was introduced to the micro market concept. One of his largest locations, a manufacturing plant, had asked another operator to bring in a micro market concept, in addition to Ward’s vending service. “I saw the micro market and knew I was looking at the future of the industry,” he said. “I began researching the micro market providers who were available at the time and I really connected with Three Square Market (32M) and so we began partnering with them.

”In June 2013, Ward made his first vending to micro market conversion. One year after that in the summer of 2014, Serenity Vending sold off what remained of its vending accounts, began offering only 32M micro markets and changed its name to Serenity Market Vending. (See “From competitors to partners”)

“I could not go back and duplicate the journey,” said Ward. “We have been fortunate to be in the right place at the right time making decisions that have worked for us.” Today the company services 32 micro market accounts, which make up one route.

Focus on small accounts

Although some micro market operations shy away from small accounts, Serenity Market Vending has found that those work best for its business. “We’ve been able to grow and compete with other micro market operators by focusing on small accounts with 70 to 200 people,” said Ward. The company will even take on  smaller clients, but requires the location bring in $700 per week or more to sustain micro market service.

Ultimately, blue collar accounts work better for Ward. “I closed a 100 employee white collar account because sales were $200 per week,” he said. “After placing a micro market, we started losing money.” Ward has found that employees in blue collar locations spend between $5 and $8 per person per week in the micro market, whereas white collar employees typically spend only $1.50 per week per person.

Ward appreciates that he can focus on the smaller workplace size, something that his competitors overlook. He also believes that it has been a driving factor in the company’s micro market success thus far.

Serenity Market Vending has seen a return on investment in three to five months in all locations, which is something Ward never saw in vending. “The margins were so tight in vending that it was difficult to grow and make a profit,” said Ward. Since moving to 100 percent micro markets the company’s revenues have been up 20 percent.

While that has been welcome news to the operation, Ward says that the conversions did not come without some challenges.

Unforeseen obstacles

Although Ward knew that micro markets would work great in some of his accounts, it was a challenge in the beginning to get locations to consider the switch. “Education is the hardest thing about implementing micro markets,” said Ward. “Today it is easier because they are becoming more widely known and we can take a client to an existing market, but in the early stages, not many people bought into it.”

It wasn’t just customers Ward was educating about micro markets. “I learned a lot of things that worked, but more things that didn’t work,” he joked. In some of his first markets, Ward placed double-door coolers and multiple racks. But then he started getting complaints that the market looked empty. Although the micro markets offered double the amount of SKUs available in vending, empty space in the cooler gave the impression that Ward and his team weren’t visiting the location as often. To combat this, Ward switched to single-door coolers and took away extra baskets to make the space look more concentrated.

The Serenity Market Vending team was also faced with an issue it never expected to have: growing too quickly. “From 2013 to 2014 our growth was 250 percent,” said Ward. “There was a month where we opened seven markets and our sales doubled. That was an unforeseen challenge that made us evaluate how we want to grow in the future.” Ward believes that growing at a steady rate is a good thing and hopes that Serenity Market Vending can expand 20 percent each year, organically.

Despite the challenges, Ward sees micro markets as an opportunity to offer consumers an up-to-date, retail-like experience.

Expanded offerings

Micro markets have allowed Serenity Market Vending to expand its inventory and offer hundreds of SKUs, an opportunity Ward enjoys. In fact, Ward oftentimes travels to convenience stores to see new products that he might be able to offer to his customers. To Ward’s surprise, large convenience-store size snacks don’t sell as well in his micro markets as single serve snacks do. “Everyone I spoke with early on thought that the consumer would buy big bags of items in micro markets, but in my experience, single serve sells better,” he said, “which is alright with us because we make a higher profit on smaller bags.”

Serenity Market Vending’s diverse food offering has been a way in which it stays competitive. “Our food offering is very different from our competitor’s,” said Ward. “We try things out that they won’t, because perhaps they are restricted in what they can offer.” Serenity Market Vending offers 80+ cold beverage SKUs, 150+ snack SKUs and 150 to 300 food SKUs and includes popular brand name items like Deli Express and Johnsonville along with private label products such as wraps and salads.

The company is constantly revolving food and introduces a new product every week or two. “If it’s the same food, people will be sick of it,” Ward said. The 32M micro market kiosk also has the capability of accepting customer suggestions that are shared with Ward. “We had a customer request for ginger ale at a location and so we began offering it. Believe it or not, it sells really well and that’s just something you’d never think of putting in the vending arena.” Expanded SKUs mean that Ward can offer a larger variety of cold beverages, including things he could not offer in vending. “Caffeine-Free Diet Mountain Dew is also a great seller that I would not have sold in vending.” Cold beverages make up 25 percent of Serenity Market Vending sales.

Ward also likes that he can offer different varieties of fresh food, which in total makes up about 20 percent of sales.

Liquid coffee sells best

Serenity Market Vending’s overall micro market bestseller, however, is coffee. The company offers liquid coffee that is sold in all locations for a dollar per 16 ounce. “We contract with Pepsi and give customers two different Bunn machine options,” Ward said. “In a two head liquid coffee machine we offer regular and decaf coffee. With a three or five head machine we add hot chocolate and French vanilla cappuccino options,” he continued. Liquid coffee allows Ward to offer multiple beverage options without the mess of single serve pods. In addition, one liquid coffee bib can make around 350 8-ounce cups, meaning a high volume of employees can get their coffee beverage faster, he says.

Ward dismisses the claim that liquid coffee is undesirable. “I do wish there were more options for liquid coffee, but the quality has improved greatly in the last five years and our customers like it so much that it’s the best-selling product in all of our micro markets,” he said.

Ward appreciates that if there is a machine malfunction, he can contact Pepsi and a representative will fix the problem. “We have significantly less service calls on our equipment than we did with vending,” he said. “If we have an issue with our coolers or coffee equipment, we can contact Pepsi. If we have an issue with our kiosk, we can reboot it remotely or get in touch with 32M quickly. It’s seamless and efficient.”

Below the theft threshold

Security is a top concern for many locations, but Ward says it is not as big of an issue for him as it is for other operators. The average shrinkage has been less than 3 percent, he said.

The company purchases its own surveillance cameras online through Amazon and spends around $150 per market on the equipment. Generally, the employees who do steal make pretend purchases by scanning their items and abandoning the shopping cart to make it look like they checked out. Digital screens above the kiosk don’t stop thieves, either, Ward says. “Bad eggs make the market look bad, but they are far and few between,” he said. “Most employees won’t risk their job for a bag of chips though so theft has not been a large problem for us.”

The company does an audit on each location every 12 weeks and the drivers are able to conduct spot checks on their smart phones to ensure that their inventory levels are where they should be.

Customization

Serenity Market Vending is a company with a rejuvenated purpose since it transitioned to become a micro market-only operation, said Ward. The company customizes individual breakrooms, from new paint to new flooring and furniture including flat screen TVs, to bring each location into the 21st century. That also includes the 32M mobile app. “A lot of our customers simply manage their transactions without ever going near the kiosk,” said Ward. “We provide them with an experience they can get in retail and I think that drives consumer interest and engagement.”

The company has also begun implementing promotions where a customer can receive a credit for loading $80 into their market account. Ward has plans to offer more loyalty and promotions programs in 2016.

What works for one may not work for all

Ward knows that a 100 percent micro market operation may not work for everyone, but he advises other operators to think seriously about adding micro markets to their existing offerings. “Technology innovations are so important right now,” he said. “We are all in a learning curve and we are figuring it out as we go along, but I think it’s important to embrace the innovations or you’ll be left behind.”

Right now Ward considers Serenity Market Vending a mom and pop company, but he has big plans to change that. “I would love to grow and compete with the big guys. There is a point in every business where you reach a critical time in which you have the right sales volume, the right employees and you’ve made key decisions that can lead to growth,” he said.


“We have had challenges transitioning to 100 percent micro markets, but our growth has been outstanding,” Ward continued. “This model works for us, and we are grateful to be able to focus on what we believe to be the future of office foodservice.”

Sidebar: From competitors to partners
Although Ward no longer services vending, he decided to keep his company name Serenity Market Vending to attract potential clients. “Micro markets are so new that not a lot of people know what they are yet,” said Ward. “We still regularly get calls about locations looking for vending service, so I set up a partnership with two other vending operations that reside in the same warehouse space we use.” Ward sells the vending leads to one of these vending partners if the location isn’t a good fit for a micro market. “We used to be competitors, but now we are partners,” he said.