CHICAGO -- Jeff Ranck of Sterling Services (Canton, MI) and Richard Harvey of A&R Services (Monument, CO) know how operators can get involved in self-checkout markets. The two veteran vending operators detailed how their companies and customers have benefited from self-checkout systems, also known as "micro markets," during an Operator Perspectives session at the National Automatic Merchandising Association's 2011 OneShow.
Ranck led off by reporting that unattended SmartShops from 365 Retail Market Inc. (Birmingham, MI) have proven to be an effective and profitable alternative to manual foodservice in select sites his company serves. He explained that many clients in Sterling's southeast Michigan market have workforces that are too small to support a cafeteria. Most are also unwilling to subsidize the cost of foodservice for their employees. Self-checkout markets offer a viable solution.
The unattended stores work especially well in accounts with 24-hour traffic, in which Sterling Services has traditionally operated full-service cafés during only the breakfast and lunch hours. "The self-checkout micro market is open around the clock," noted Ranck. "Sales go up because you can keep serving customers in the off hours. And it's simple to package fresh food from the cafeteria and put it in the cooler to sell during the off hours."
Each item in the store is "tagged" with a Radio Frequency Identification (RFID) tag. As the items are carried to the kiosk, product information is automatically transmitted from the tag to the self-checkout terminal. The patron can use cash, credit or debit cards or set up a personal account to fund a prepaid card. "It can take cash and give change in pennies, but we round off the prices," said Ranck. He also noted that prepackaged items are not taxed in Michigan.
Once the payment has been processed, the security code on the tag is deactivated. If someone leaves the store without paying for an item, security gates equipped with RFID readers detect the potential theft, flag and log the incident, and notify the operator with an email detailing the day and time. Security cameras provide surveillance 24 hours a day using motion-detecting technology and record all store traffic and transactions using a DVR.
Ranck said shrinkage has been minimal in the company's self-checkout markets, averaging 2% to 3%.
An operator attending the session asked if the self-serve checkout mini markets burden the route driver.
"No. The management system gives us all the information online, so we can see what sold and when," Ranck explained. "So the driver knows what inventory to take before he leaves the warehouse." The company has one driver assigned to every dozen self-checkout stores and currently has 2.5 routes dedicated to the new business segment.
A typical unattended market equipped with a coffee machine takes the driver approximately 25 minutes on average to service, according to Ranck. The stores typically carry 400 to 600 SKUs. In addition to food, snacks and beverages, Sterling Services sells a wide range of general merchandise.
We sell things we never knew people wanted, like boxes of tissues and over-the-counter medications. We even sold snow scrapers last winter.
Brokers and manufacturers are seeing self-serve as a whole new category," said the operator. "If we had vending in conjunction with a store, we cut it down or eliminated it."
The benefits of 365 Retail Market include eliminating commissions to locations and offering more variety. "And people like that they can walk in and pick something up before they buy it. It's fresh food and it doesn't have the stigma of vending," the speaker added.
A&R's Harvey spoke next, sharing the success his company has had with Avanti Markets. "Customers are looking for different things and we can offer 200 to 400 or more SKUS with Avanti Markets versus 60 to 100 in vending," he pointed out.
The operator acknowledged that it can be difficult initially for location contacts to understand the concept. "But once they see the self-serve touchscreen interface, it is very intuitive and it's something everyone is familiar with from the supermarket," he said.
A&R's first experience with Avanti was at a 650-person call center that it had served with vending machines and converted to an Avanti self-checkout store. "It took off with a bang, with $7,500 in sales the first week," reported Harvey. "Even in the slow season, it consistently generates $6,500 weekly in sales. I thought 45 items would take care of everything our customers wanted. Now we have 360 items and it's tripled our volume.
It's absolutely revolutionary for your bottom line, and from a competitive standpoint, you have this thing others can't offer."
A&R Services has traditionally sold only frozen food in its vending machines. With Avanti Markets, the company sells 250 fresh sandwiches a week. It discards four or five out-of-dates a week at most, according to Harvey.
"The power to look three dimensionally at a fresh sandwich, there's no comparison," said the operator. "I love vending, too. But with Avanti, there're no service calls, no spiral delivery system; they just reach into a cooler. Maintenance involves changing the receipt paper -- and cleaning the validator because it takes so much cash!"
Customers simply select the items that they would like to purchase and scan the UPC symbols at the kiosk. "We don't put the price on anything," explained Harvey. "Customers scan it to see the price, and they put it back if they don't want to pay. But usually people touch an item and become attached to it. It's what they want and need, and they don't put it back because of the price."
Harvey added that 60% of Avanti transactions are made with credit or debit cards and that consumers are apt to spend more with cashless payment. Customers can also use Avanti's prepaid Market Card, which can be funded with cash, credit or debit card.
A&R's warehouse personnel pre-pick product into bins, allowing route drivers to work at peak efficiency. Most locations require service twice weekly, since the majority of the company's fresh sandwiches have a three-day shelf life. The largest locations require service five times a week. "We go through so much product and it takes drivers only 45 minutes a day versus five hours a day that it would take with vending ," said Harvey. "And the worker who is prekitting is making a lot less than the driver."
The shrinkage rate at A&R's Avanti Markets is around 1.5%. "Sometimes the drivers pick the wrong stuff; sometimes it walks out the door," noted Harvey. "In vending, we see a percent higher than that just from waste."
The Colorado operator said Avanti's self-checkout stores are a practical solution in sites with at least 150 people. "Business locations with a set group of people are best for Avanti," the speaker noted. "The camera system keeps an eye on the location. If it catches someone stealing, the location knows who it is. Some locations terminate them; some give them a warning."
An audience participant asked Harvey how he addresses coffee in his Avanti locations. The operator said he sets up gourmet coffee bars using Keurig single-cup brewers. "They hit a button at the kiosk, indicating the flavor they got and it's done," he said.
Another operator asked the speaker what percentage of sales is from food. Harvey said he sells significantly more food in his micro markets than he ever did in vending, adding that fresh bananas are extremely popular.
Sterling Services' Ranck said 30% of his 365 Retail Market sales come from food, most of which is priced between $5.75 and $6. Harvey said his average food price is $4.50.
"How do you approach the theft issue from an HR perspective?" asked another audience member.
"A lot depends on them," replied Harvey. "If they steal from me, they will steal from their company, so our client is generally happy to take it on; others do hesitate. We don't charge them for what disappears."
Ranck said he has one location that heavily subsidizes his services. It closed its manual service in the evening and now relies on a self-checkout store. "We had an issue with people walking out without paying, and two people were terminated," he said.
An audience member asked how much an Avanti Market costs. Harvey said each location costs A&R approximately $9,000 to install. The smallest market has a self-checkout kiosk, two coolers, a freezer and a camera system. The largest has five double-door coolers, ice cream freezers and five to eight camera systems and doesn't cost significantly more. "We use bottler coolers at a lot of accounts, which costs us nothing," Harvey pointed out. "My smallest account makes $500 a week on a $9,000 investment and our margins are 16% to 20%. It's a good return on investment."