View From The Micro Market Trenches

May 16, 2016

With more product choices than vending, convenient payment options and 24/7 availability, it’s easy to see why customers love micro markets. The higher per transaction amounts and overall revenue dollar growth mean operators do too. The somewhat rapid integration of micro markets into workplace dining has been called a “land grab” and many believe we are not yet at the saturation point. However, with any successful new segment, challenges arise, as well as unexpected opportunities. We invited several operators actively growing this area of their business to a private roundtable sponsored by Mondelez International to share views from the trenches. These operators brought up a broad range of topics. Some of the positives were the perception of micro markets among locations and consumers, which helped push up the amount spent per transaction. On the other side, while locations are clamoring for this new and convenient workplace refreshment service, expanding a new segment of business comes with growing pains in waste, backend inefficiencies and trying to integrate different technology platforms.

Perception is everything

No matter what the micro market has in it, customers perceive it as healthy. That was echoed by many of the micro market operators including a Florida vendor with 30 micro markets. “No matter what you put in the micro market, consumers perceive the overall market as healthy,” said Lynne Plante from Florida Fresh Vending and Micro Markets in central Florida. It’s not that there aren’t healthy items, but there are also indulgent items in the micro markets. It’s just such a difference between how the customer thinks of micro markets and how they think of vending.

Plante has also now seen the transition from having to explain the micro market concept to potential locations to getting calls asking for it. “Before we would go out and try to sell a market and people didn’t know what it was, you’d have to convince them,” said Plante. “Now we are getting the calls asking for a market.” And they want them fast.

Scaling is paramount

Placing new micro markets means greater revenue potential, but only if a company can grow without increasing inefficiencies or is unable to meet its service demands. This is something Dick Hanson of Buffalo Rock in Birmingham, AL, has experienced firsthand. “Last year, we grew about 128 percent in markets,” said Hanson. “That was almost too fast. We had to slow down and just get our arms around the growth as well as make sure our SOPs (standard operating procedures) are in place.” One of the challenges for Buffalo Rock is how spread out its locations are. The long distances puts more pressure on servicing at just the right time to eliminate empty shelves and coolers while eliminating unnecessary delivery costs such as gas, vehicle wear and tear, and driver time.
“It makes it a bit more difficult,” said Hanson, but he isn’t willing to give up. “Vending has been around since the 1800s. It took us that long to get vending right,” he joked. “Now we’re 5 years into the micro markets. We shouldn’t know it all by now.”

Devin Smith of All Star Services in Port Huron, MI, has a similar issue. “We operate through pretty much 38 counties throughout the state of Michigan, including a lot of rocks, sticks, trees and squirrels,” Smith joked. “We have a big geographic area, so scaling the business is a huge concern for us, breeding those efficiencies.” And the place to start for Smith is an integrated backend.
Smith has begun looking at technology providers who can combine all the reporting and data entry into a single place to avoid having to both train employees on multiple systems and duplicate product entry.

“We want one control database to run our backend software. I don’t want to have to train all the staff to run reporting on this, then this and then this over here. Who knows if it all matches up?” stated Smith. Instead, he wants one backend database VMS where he can run all financial reporting, product accountability, and warehousing functions. “That’s what we need,” he finished.

Tom Konop, from the Konop Companies with several dozen micro markets in the Green Bay, WI, area, agreed. “I worry a lot about the backend. The warehouse, the routing — that they’re done properly, because we’ve always done everything properly in our company.”

In an effort to find the best efficiencies Konop is going against the common practice of separating micro market and vending routes. “We are splitting up our micro market routes onto our existing vending routes,” said Konop. He feels like he already has quality route personnel going out, and if the micro market is within a few mile radius, combining them makes more sense than to send another vehicle out 5 miles here, 10 miles to the next and so forth. There just needs to be some additional training.

“We almost HAVE to combine routes,” said Konop. “The idea of a separate micro market route is a great concept, but just economically and financially we cannot do that.”

Konop is also looking carefully at what type of staff this combined route system and increasing micro market segment need. How many people need to be on staff to do a micro market reset, marketing and inventory? Is it full time people or part time? Konop considers the answers part of the learning curve. “The sales are there, but the question is how do we fix the backend to make it efficient so we can make a living?” he added.

Perfect the product mix

Besides being used to scale operations, the data and reports that micro market systems offer are invaluable to customize the product mix to a location — something that is more important in micro markets than in vending.

Craig Cordaro with CRH Catering has a wide reaching customer base in both distance as well as tastes, which has made the micro market report indispensable. “It’s tough with the different demands in different regions,” he said. “We have run reports and can see that some of the bestselling items in our Allentown division will not produce a single sale in Norfolk. What’s moving in corporate locations in Pittsburgh will not move in our Altoona division, in central Pennsylvania,” he explained. Vending was different. The products were selling regardless of area. The challenge for Cordaro is both having a greater amount of product moving through his warehouses to meet individual location likes as well as maximizing his product rebates with large orders.

Ryan Harrington from Royal Vending in Portland, OR, finds the product mix can’t even be predicted by the type of account, but is very different everywhere. “It’s not only location specific. We’ll have a call center with 200 people here, across the street another call center and they’ll buy completely different items. Also 4 months later you have some turnover and it’s completely different again,” he added.

Konop sees the same in his area and even in vending. “We used to have the same people working at a plant or other location for a long time. Now, with the way our society is, new people are constantly being hired,” explained Konop. He usually realizes something has happened when a specific item, such as a beverage, was a great seller and suddenly stops moving. It’s all about utilizing the reports.

Reports show the facts

The micro market sales reports are also something Plante takes very seriously. “One of our drivers loves to come in and say, ‘Oh this product has really increased. I need to add another row.’ I say, ‘Okay let me run a report, so we have good information to substantiate that,’” explained Plante. “Whenever I do that, it never fails that it was just a little lift.”

Most of the operators don’t allow micro market drivers to dictate product choices, or even managers in the warehouse. Instead the authorization to change products in the micro market planogram is strictly controlled by a few individuals with access to the reporting. Reports were also viewed at least daily by most operators.

Smith was one operator who admitted he is viewing reports multiple times a day and again after his kids go to bed, and it’s not just product sales data. “I’m also looking at cancel reports, looking for possible theft. I’m looking at inventory balances, particularly for scheduling. Monday, Wednesday, Friday. Is that enough? Do we need to add a day, pull out a day?” said Smith. He doesn’t want to be over-servicing or under-servicing any micro market account, but hit that happy medium. With a VMS, Smith has been able to accomplish that in vending, but it has been harder with micro markets as it’s still so new, and the product sales mix changes.

“When we pull out vending, and put in the market, we’ve seen an average lift of 66 percent,” said Smith, “but we’re also seeing the purchased product categories change. In traditional vending, the food is doing 8-10 percent, now it’s doing 33 percent.” Beverages, snacks, candy, etc. they all seem to change in share of micro market sales revenue when compared to vending. “My percent margins are down, but my dollar margins are up,” added Smith explaining it further. “You’re trying to find the right mix of items.”

A good balance of products is important and a difficult thing to guess across locations. With a wide variety of micro markets in different demographics, Hanson has seen some trends. Depending on how the account is set up and the demographics of the employees, what sells will be different. “There are so many days that are different, you cannot throw a blanket over it and say ‘this is my plan.’ It doesn’t work that way because in 60 days you’re changing everything out,” he added. Hanson speaks from experience. He has had to remove product and reconfigure micro markets because the initial installation didn’t match the location needs.

Micro markets are poised for continued growth as operators continue to enhance them. Utilizing reports will make them even better merchandised retail destinations for employees.