Smart stores signal the next big shift in convenience services

As an operator, I used to do this before at Accent. We’re starting to do this now at capital. If you walk in with market basket pricing and you start to price yourself against that Uber transaction, 65% of Millennials who, by the way, are now the buyer sitting across from the table from you, and they’re also the consumer consuming, 65% of them order out from Uber Eats or some kind of delivery service at least once a week. That’s a stat you can look up from McKinsey. They’re paying that $7 delivery fee. They understand the cost of what it means to bring a meal on site.

But most of us as operators are not the new age. Most of us generationally sit in that higher bucket, that boomer bucket. We think differently. We have to change our mindset.

So, the ROI is often there. We pigeonhole ourselves against price. We have to change our mindset and think about, “What’s the segment we’re selling against, and price and program?” against the problem we’re solving, and we can overcome price sensitivity.

So, there’s a lot of different ways to position yourselves. And that’s what new-age operators are benefiting from. So yes, it may cost more on the front end, but if you think about the opportunity differently, the transaction with the client, segmented by a different type of client, you think about how to merchandise and sell products differently, and you think about the problem you’re solving, it’s not that expensive.

But it still comes down to right product, right equipment, right price, right location. It’s not a one-size-fits-all.

Bob Tullio: Well, a boomer bucket, man, that’s tough to step out of that boomer bucket. You’re absolutely right. We have to because there are 120 million people in the workplace and only 20 million of them are less than or still Boomers.

Ben, how do you address the cost issue? Give me your take on why operators can’t afford to be without the Nova Smart Cooler.

Ben Thomas: I would say over the past three years, I’ve been fully immersed in this kind of smart store, smart cooler space. And I can say without hesitation, the smart coolers, smart stores, already are defining the future of unintended retail. Now they’re unlocking entirely new revenue streams, opening doors to new locations, as we’ve mentioned, and bringing a fresh new wave of operators to this space, right? I think there’s this new future operator who’s no longer looking at venue and micro markets. They’re going straight to the smart store, straight to the smart cooler as their form of business. So, it’s a huge opportunity for both existing and new businesses. And this technology fills the critical gap that has existed since the early days of micro markets, offering flexible, scalable, and secure solutions that are going to thrive in today’s world.

What makes these kind of smart stores, smart coolers, game changers? The number one: frictionless checkout, leading to higher engagement and better use experiences. A big component of that is this new technology. We’ve got CV detection, we’ve got a weight sensor, we’ve got a combination of both, and that’s really driving this kind of new reduction to shrink, and giving operators the peace of mind, saying, “Okay, I can go out and test the waters with this location. That’s begging for a micro market, begging for better products, but I don’t have the ability to do it with the vending machine.”

And from a Nayax perspective, you know, we’ve got our Nova smart cooler. So with that, we’ve got, um, kind of the best of both worlds. We’ve got Shekel’s weight-based technology. We’ve got Due North industry-leading smart cooler. And we’ve got the Nayax global payment experience: coming together, providing an accurate, flexible and secure solution.

And I think from my perspective, there’s not a one-size-fits-all solution out there, right? You’re gonna see a range of these products come to the marketplace. I mean, from two years ago to now, there’s probably a 10X increase in different providers coming to this space. And I think it’s important for operators to be educated by it.

And at Nayax, we want to provide that education as well. From our perspective, we went with a weight-based solution because we liked the accuracy, you know, and we liked the flexibility. A lot of these operators want to expand their product mix, right? They want to get away from just traditional vending products and look to provide fresh food options, right? Maybe non-food items. And I feel like with the accuracy level that shelves are able to provide now, it does give the operator that flexibility to expand that product mix. And then again, with our experience with Due North and ourselves, you know, we feel that we’ve built a solution that can really meet that demand.

Bob Tullio: Tony Danna from Cantaloupe is a firm believer in smart stores, and he has some pretty compelling case studies to back it up. Tony, talk to us about some of the technology from Cantaloupe that you believe will improve the results for operators next year.

Tony Danna: It’s smart stores. Everything needs these smart coolers. It’s allowing operators to look at some of these traditional vending locations where they would have never felt comfortable with micro market. But now they can put a solution that offers the same benefits of a micro market. And I think we’ll see a big drive in the top-line revenues for the operators with that.

And then — very similar to when micro markets took off like a rocket ship in 2015, maybe just before that — we saw some tremendous growth. I think that’s what we’re going to see a lot of these operators with these smart solutions. And then really these smart solutions: Not being limited to being able to DEX every six hours of getting your product info. With these smart solutions, everything’s in real time because it’s connected to the internet. So on the back end of the VMS, we can be a lot more dialed in to when you got to be somewhere and what you need to bring to that location. So, I think that’s going to be a big driver.

Where we’ve seen a lot of success with these: non-traditional micro markets. Residential — yeah,  we’ve had success with micro markets and residential and apartments, but it didn’t take off as much because of the theft discussion. Same with fitness centers and gyms. Yes, we have micro markets and fitness centers and gyms, but it didn’t take off at scale. [I see other opportunities for smart markets at] hotels, hospitals, college campuses, car dealerships, senior living facilities and then municipal government buildings. We are seeing success in each one of these verticals.

And we actually have a couple of case studies. So here’s one in a fitness gym. Again, energy drinks, waters, protein drinks, protein bars, Rice Krispies bars. And this operator is seeing $104.81 per day and growing. 569 total transactions.

The largest transaction was $22.37. That was pretty cool because it’s about once every other day. So, I have a feeling it’s the same gym goer, the same two gym goers. We’re seeing that same transaction happen just about every other day. So, they’re purchasing the same products out of this machine.

And so total revenue, they did $3,100 last month. And when you look at an ROI, that’s about 12 months. And I think a lot of operators that are on this call and out there in the industry are pretty happy with the 12-month ROI.

I found this very interesting right when we introduced these smart stores were going into FedEx locations like crazy. The theory is something happened at the corporate level, where they didn’t want to deal with micro markets and theft anymore. But we’ve been installing these smart stores like crazy across FedEx locations, and to say they are doing well in sales is probably the biggest understatement I could say. So, this unit is doing about $663 per day in sales, 4,800 transactions. Average transaction is $4.12. Total revenue last month was just under $20,000. That is a heck of a micro market out there. And now they’re not dealing with theft at this location.

Finally, the last one here, we’re seeing a lot of success with these is car dealerships. So, this one down in Texas is doing about $140 a day. Largest transaction, $20.41. Last month, that did just over $4,200 in sales. We’re seeing the average transaction $5.25.

So what we’re seeing with these smart stores is the same upside as the micro markets, and you just don’t need to deal with the theft aspect of it anymore.

Bob Tullio: Impressive numbers, no question about it.

New technology, Jon Holden, has really opened a lot of doors for operators, know, like grab-and-go options. But ultimately, the end product is the most important thing to the end users. Would you expand on that from your experience?

Jon Holden: Absolutely. I mean, this is the entire convenience services industry, right? From start way back when to finish. Our product that we are putting out there is the user experience. You know, we’re doing it in different ways, whether it’s old school, traditional vending machines, micro markets, now smart markets, office coffee, whatever it may be.

But our end product as operators is that user experience.

So you can have all the bells and whistles. You can have the coolest technology out there. You can have the newest things, the best graphics, but guess what? If your service isn’t there to back it up, you don’t have anything.

You know, I tell my team all the time, if we have a non-functioning cooler and if we have an empty cooler, that is basically a coffin with our logo on it, you know, so you have to have the service to back up what you’re putting out there, managing those client expectations, making sure that your team is ready.

That user experience comes from good, committed service, and it’s got to be repeatable service as well. You know, it can’t be a flash in the pan. So, you know, with that user-experience focus, you have to kind of take it from, okay, customer purchases the item and work back from that. How do we get to that perfect place where once that person walks up to the cooler, it’s a quick transaction? It’s a seamless transaction? It’s a frictionless transaction?

We’ve used that word a couple of times today, but you know, that user experience is what we do as operators in the convenience services industry. And that’s where we have to really put our focus to make sure that any type of technology — new or old — is beneficial technology for us.

Bob Tullio: Hey, Jon, do you see a little bit of people weaponizing technology out there to try to work their way into your locations? In other words, competitive pressure — maybe from a newbie who’s throwing the technology around, maybe inappropriately coming in with something less than a state-of-the-art smart market, maybe a not-so-smart market —and how do you deal with that?

Jon Holden: Well, I mean, Bob, we’re in a super competitive industry, relatively low barrier for entry. I mean, you can leave here, hop on any social media site, type in vending business in the search bar, and you’re going to have 100 videos telling you how you can make $20,000 in profit a month with zero dollars down, and maybe spending one hour a month working on that business, right? But we as operators have found maybe that’s not quite entirely true.

And so, we have seen some competitors that are emerging into this space with smart coolers or micro markets even, that really aren’t getting a full — and I’m trying to say this as nicely as I possibly can here, Bob, it’s the family show, right? — so they may have not figured out all of the factors before going and promising a potential client, a smart cooler or smart store or micro market. And really, you know, everything comes back to can it be serviced effectively, and can it be serviced with profitability?

And so you can walk into any location. If they don’t have the right headcount for that market, you’re not going to get your ROI. You have then soured that client on a micro market. Same thing for a smart store. Same thing for really any of our options within the industry here. And so, it all just comes back to, how can we service this client? Like Josh was saying, it’s got to be the right products, the right equipment, right pricing.

We’ve definitely seen our fair share of people popping in and kind of flash-in-pan situations. You know, I’m fortunate to work for a company that’s been doing this for over 60 years. I’ve learned from some really great people. I’ve got some great mentors within the industry as well.

It all just comes down to the fact that we all need to do our homework and not race to the bottom. I’m a big industry supporter. I want every operator out there to do well. And when we start undercutting on price or over-promising equipment for the wrong locations, it kind of sours the whole pot.

In support of the entire convenience services industry: New guys, we love having you here, but do your homework, and know what you’re putting out there before you promise it to a client.

Bob Tullio: Natali Pupovac-Peters of Naturals2Go said her company focuses on training, and that often means teaching operators to choose the right equipment.

Natali Pupovac-Peters: As much as we may be excited about micro markets, as much as we may be excited about AI, you know, as all the rage right now, what does your business or that location actually need? And that’s something that we really focus on with both our clients, as an operator, and then also teaching our clients or our operators as well, is you have to look at what the business needs.

You know, we provide all the training, we provide all the equipment, we provide all the support in creating that successful entrepreneur. State-of-the-art equipment that’s easy for our customers to use that are actually using the machines or the micro markets or the coffee. But at the end of the day, we need to really make sure that that location is one that is happy with what we’re doing with the products that we’re putting in there with the service that we’re providing and really looking at it as a holistic approach to this industry, because it’s not at the end of the day about about us as the operator, it’s about the customer that gets that end user experience.

Naturals2Go is really here to support those smaller operators to get into the business, and then be able to grow as big as they want, and provide them with all the tools and the resources they need to be able to scale and grow their business — and compete with the big dogs in the industry. Because I think that they can definitely do that. Anybody that’s willing to put in the work and the time and the energy and the money to do that can compete with the right tools in place.

Bob Tullio: Here is Orrin Huebner, Tony Danna and Natali Pupovac-Peters, each with their own crystal ball perspective.

We’re going to go to the crystal ball here. And this is one of my favorite things because we get to hold you guys accountable for next year in terms of your predictions. So, you’ve got 30 seconds each. Let’s pull out the ball. We’ll make it a multiple-choice question. What do you think will be the most prevalent trend over the next 12 months?

Huge increase in new operators entering the industry? Even more operator consolidation? Decline in vending? Continued growth of micro markets? Or smart markets will increase in a big way? Let’s start with Orrin.

Orrin Huebner: Can I get an all of the above? I really believe that all of the above is going to continue to happen. But if I were to pick one, I think smart markets will increase in a huge way. I don’t think big will be the answer.

Bob Tullio: That’s exactly what Tony wants to hear. Tony?

Tony Danna: Managing the small and medium business team, new operators are coming in this industry like crazy: what I’ve seen from August last year to today on smart markets, it’s a wild ride. And it’s something that can get more wild.

Bob Tullio: How about you, Natalie?

Natali Pupovac-Peters: I do agree with both of the gentlemen. But I do have a little bit of a different take on it. First off, I don’t necessarily think that we’re going to see a decline in vending.

If anything, what we’re seeing is sometimes we’re going to locations now and replacing micro markets — because of theft and things like that — with vending. Because it does seem to be an easier way for locations to manage that type of stuff.

And I do think there’s going to be a smart markets increase in a really big way, but I’m very curious to see what that looks like, know, one, two, three years down the road. The new fad, it’s the exciting thing, but I do think there will be some obstacles along the way. So I’m curious to see how that looks, but I do think all four of those will happen as well.

Bob Tullio: That’s it for now. On the next episode of Automatic Merchandiser’s Vending and OCS Nation podcast, we’ll take a long look at a company that is having a definite impact on the number of new operators in the convenience services industry.

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