Austin H.U.M.A.N. Hits Ground Running With Micromarket-Only Approach

Posted On: 8/13/2018

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Steven and Mariah Faust have boldly gone where few, if any, operators have gone before. They sidestepped vending altogether and got their start in the industry with micromarkets. Three years later, with 11 self-checkout stores in the field, the Pflugerville, TX, micromarket operators are finding an eager market for their services, driving steady growth for their business.

TASTE OF THINGS TO COME: Steve and Maria Faust host grand opening at inaugural location — Luminex biomanufacturing facility — in January 2016. With help from site contact Samantha (l.), the event drew more than 100 employees, many of whom opened market accounts on the spot. Austin H.U.M.A.N. provided employees $1,000 in market credit along with complementary snacks and drinks.

"The unique spin for us is we are exclusively micromarkets, and have been since the beginning," said Steve Faust. "Most vending operators switch or migrate their locations to micromarkets. We're always the odd man out at trade shows, and I'd love to share my story and be a resource for others who might be doing what I am – or considering my approach."

The IT veteran, started his business in early 2015 as a side venture with his wife Mariah when they became a H.U.M.A.N. (Helping Unite Mankind And Nutrition) Healthy Vending franchisee. Culver City, CA-based H.U.M.A.N. had initially franchised vending machines, but at the time was heavily promoting micromarkets as generating more revenue per location than vending machines, and was emphasizing their competitive advantage for merchandising fresh food. Faust was impressed with the technology and was sold on the concept.

"It appealed to my wife and me: we could dictate how much time we wanted to put in, and they would chase the leads," Faust recalled. "My IT background gave me a leg up for triage if nothing else, like reinstalling a driver for a credit card reader. Three Square Markets kiosks really made it a positive experience, but I can see how the technology might be a barrier to entry for operators who are used to old-fashioned coin-op and hesitate to jump on the cashless gravy train."

Only a year after the Fausts started their business, with five micromarkets up and running, H.U.M.A.N. defranchised its operation, first shifting its model from vending toward micromarkets and then reinventing it altogether. Rebranded as Snack Nation, the company now ships products directly to consumers at their homes and businesses, Faust explained.

So the fledgling operators connected with fellow H.U.M.A.N. ex-franchisees for support and to swap advice. Among them were Bill and Steve Gallo of BSA Squared in San Antonio, TX, whom he credits for helping him navigate the market and grow, without the support upon which he had relied from H.U.M.A.N.

Coincidentally, Pflugerville, TX, is also home base for Accent Food Services, one of the nation's largest independent vending companies, which has a growing base of micromarkets.

"We survive because, for most larger companies, as far as route density, it's not worth driving an extra hour and a half to serve the greater Austin surrounding area," the operator explained. "Most big companies require $3,000 a month to even talk to a potential customer. We'll put a market in if it brings in $1,000, which covers our expenses and makes a profit. If an account is in on our existing route, we will even take less as a minimum."

Faust added that he goes the extra mile to be flexible and creative in his approach, in order to serve some locations in the outer reaches of his geographic area. For one account, he prekits products and an employee who works at the site delivers the order.

"I told him the location is too far away but I knew he lived locally, so I pitched him to pick up the products," he said. "It's a nursing home and he gets $50 a month credit to spend in the micromarket, $25 of which is my cost, which is a sweet deal to save my labor and driving while serving the account."

Location, Location, Location

The first location that H.U.M.A.N. procured for the Fausts when they signed on as a franchisee was a medical facility. Two months later, that client was acquired. "We never got in, and the big takeaway I learned is that we took too much time. I learned from that to buy a fridge and stands, and just roll them in," Steven explained. "If you close the contract, the moment you close, have something to lay your claim even if it's a simple stool – because if one of the 30 other elements you need isn't ready, you can lose the account if you don't act fast."

Faust emphasized that getting a location's headcount is only a starting point to determine whether a market will be viable. It's critical to dig far deeper.

 

SUPERCHARGED
: Above, Red Bull provides complementary coolers in variety of designs and capacities for merchandising its energy drinks to Austin H.U.M.A.N., which features them in all but two of its markets. Also on tap at this micromarket is nitrogen-infused cold-brew coffee. Below, Steven’s father, Henry, and daughter, Alexa, load on-board solar-powered refrigerator with products for day’s deliveries.
 
 

"A location with 300 employees can be crappy, and one with 60 can be kicking," he instanced. "Mine range from 60 on the low end to the mid-200s on the high end. If they say they have 100 employees, I ask how many work remotely. I've had 75% work remotely; so it's really a 25-person location. If you don't ask, they won't tell. Count cars in the parking lot and take it as a warning if there are only 25!"

Faust also factors in a location's proximity to fast food, how many choices there are and whether they're in walking distance.  "Is it one Jack in the Box and the next place is a 15-minute drive away? That works for a micromarket. If it's a corporate complex with 500 tenants, lunchtime can be a nightmare for them if there's only a Subway and one or two other choices. Take that into account. I learn a lot before I make commitment. The site contact will gloss over anything that could be a negative. One location caters lunch once a week, which I didn't know; my sales suck that day!" he instanced.

On the flip side, Faust said he often has been pleasantly surprised. At his second location as a start-up franchisee, a nursing home, it was only after he had operated a micromarket in the building for a year that he learned there were two breakrooms, one at each end of the facility. So he installed a second self-checkout store that attracted enough steady traffic for the location to support both.

Likewise, Faust opened a micromarket in a mental health facility that he didn't know serves as a training center for other locations. "Guess what? The training class takes a 15-minute break and all they have is my market!" he said. "I was seeing a huge spike on Tuesday and Thursday afternoon; I didn't know there was training then. I might have dismissed that location because it was too small. It's so critical not only to know how many people work there, but how many will have access."

Paying Off

The operator emphasized the need to be attuned to the preferences of each location, not only in terms of products but also for payment methods. Three Square Markets is his kiosk of choice, and while cashless is king, cash is still a necessary option at the majority of his accounts.

"If they don't have the option of paying with cash at the terminal, I've had customers who will actually shove cash into my suggestion box when they buy something!" he said. "Besides not meeting the customer's needs, that screws up the inventory as a ripple effect. Every kiosk I operate has a credit card reader, and I provide a cash option in all except two locations."

One gripe Faust has is that equipping a micromarket for cash acceptance increases the upfront cost in the kiosk and the ongoing maintenance expense, and still requires customers to have exact change or have change credited to their market account, if they have one, but many choose not to. Adding the ability to dispense change bumps the investment disproportionately higher by thousands of dollars, Faust said, but there are instances where it's necessary, especially in blue-collar locations, he noted.

About half of Austin H.U.M.A.N.'s customers do not choose to set up a micromarket account, despite the operator's best efforts to incentivize them and educate them about the benefits. Those include special promotions and the ease of checking out with a fingerprint reader or key tag.  "If they have an account and there's a problem, I can instantly find their profile on my phone and credit their money, and they go from angry to happy in minutes," Faust pointed out. "Information from our account-holders  also gives us even more drilled-down data about purchasing habits and preferences that help us tailor our offerings."

TASTE OF THINGS TO COME: Steve and Maria Faust host grand opening at inaugural location — Luminex biomanufacturing facility — in January 2016. With help from site contact Samantha (l.), the event drew more than 100 employees, many of whom opened market accounts on the spot. Austin H.U.M.A.N. provided employees $1,000 in market credit along with complementary snacks and drinks.

Keeping It Fresh

Faust is constantly in search of unique items with a healthy focus, and samples them regularly to drive trial. He also encourages customers to request products.

"If they taste it and love it, it lays the groundwork to succeed in our markets. We can carry anything," the operator emphasized.

Some favorites among Austin H.U.M.A.N. customers are Hint water, Blue Sky cola and Sensible Portions Veggie Straws.

Fresh food is big seller at Austin H.U.M.A.N.'s markets. The company procures some food from a local caterer and carries AdvancePierre's Fresh Cut sandwiches and wraps, which have a 21-day shelf life.

"Most local caterers can't provide more than a five-day shelf life, which at the beginning made me deliver on Monday to all locations," he explained. "The Fresh Cut line is high quality and took a lot of pressure off – even if I take three days more to get there, I only lose a small percent of the shelf life. I can stock to capacity on Tuesday and keep back stock in the warehouse."

Austin H.U.M.A.N. supplements its fresh food with shelf-stable meals including tuna kits, Thai Kitchen noodles, Barilla pasta meals, Campbell's and Healthy Choice soups, Kellogg's cereal bowls, mac-and-cheese cups and ramen noodles.  

In some locations, the company also sells frozen meals and ice cream. Faust said he has found it necessary to mix "healthy" options with more indulgent ones in his freezers to turn a profit.

"The problem with healthy frozen meals is a Hot Pocket costs 99¢ but an Evol meal costs $4, and most people are not willing to pay that premium," Faust said. "I talk to the contact and explain that it's best to have half the freezer with ice cream and Hot Pockets, and the rest meals like Evol.  I've found I can't make the numbers work without doing it that way; I don't have the buying power as a smaller owner to negotiate rock-bottom rates."

Shopping Around

He emphasized that for micromarket operators to be competitive and continue to expand, it's imperative that they go beyond shopping at cash-and-carry wholesalers.  

"Sam's discontinued Kind bars and got rid of Diet Mountain Dew. If your plan is just use cash and carry, all your eggs are in one basket," he stressed. "People see through it and realize you're just giving them what they can get on their own. I get a third or more of my products from places they could not get them from. You need an angle of exclusivity and local venders, especially to attract millennials."

In Austin H.U.M.A.N.'s markets, some standouts are Buddha's Brew kombucha, Moonshine Tea, Big Swig sparkling water and Shade Tree lemonade. He added that his local suppliers have bent over backwards to help get their products in front of his customers.

"And I'm not their smallest customer," he pointed out. "They send reps to sample alongside me, and they also refer me and sell my service to locations."

The same is true for national brands, Faust added.  He advised micromarket operators, once they determine what they plan to carry, to reach out to manufacturers to see what merchandising aids they have already built to help sell their products in the self-checkout stores.

Kellogg, for example, supplies a free-standing spinner display, and Living Essentials created a display for its 5-Hour Energy shots that suctions onto the inside of the cooler door.

"They grabbed real estate that was unused and created their own space," Faust said. "We struggle with 'micro' side of micromarket, being limited to 10 ft. of wall space. I have to get creative."

Real Jerky Co. provided compact stands with hooks to merchandise its Chef's Cut meat jerky between two market furnishings. And Nestlé furnished Austin H.U.M.A.N. with a 1-ft.x2-ft. self-standing countertop Tic Tac display that holds 100 packs of the mints.

Faust has been adding non-food items to his product mix, including phone chargers, batteries, and packets of over-the-counter medicine like Advil and Pepto-Bismol.

He is also experimenting with selling greeting cards. "If there's no public traffic, the odds of success are lower," he commented. "If people are just passing through, it's more likely to work. I'm trying it at a hospital now, where get-well cards make sense. It wouldn't make sense at a manufacturing plant."

Efficient Operations

The husband-and-wife Fausts ran their business by themselves until they reached eight locations a year ago and hired a part-time delivery driver. They further expanded their team with the addition of another part-time driver and the help of Faust's father, along with a high school student who prekits orders for the next day and loads the delivery van. Their two young children also do their part to pitch in, prekitting boxes for delivery.

The micromarket operators keep food transport as simple and cost-effective as possible by using Austin-based Yeti's coolers to transport food, with dry ice for ice cream during the summer months.

"We also wired our delivery van to power a mini fridge in the van. using a solar cell on the roof, for chocolate, fresh food and cold beverage deliveries," Faust said. "We've found that a refrigerated van is not necessary; it would be a lot of overhead for a small part of the inventory."

Most locations require once-a-week service but some need two. One way Faust has been able to minimize service frequency is by adding more equipment.

"Favorite sodas are a lifetime commitment; people are very loyal to their brand and they generally won't drink something else," Faust said. "I added a second refrigerator at one location, and now we only have to go once a week instead of twice. One less day of delivery pays for the fridge in three months. Some locations don't have the real estate to add a fridge. But if they never want to run out of Diet Coke and they're the best customer, it's worth it."

Austin H.U.M.A.N. recently formed a reciprocal alliance with Oakbrook Terrace, IL-based First Choice Coffee's local Round Rock, TX, division. If one of his clients requests coffee service, he refers them to First Choice. In return, that company refers its customers to Austin H.U.M.A.N. for micromarkets.

"The OCS market is a good play for operators, but I decided to trade that potential revenue stream for the ability to leverage a professional salesforce to land micromarket accounts for me," Faust explained.  "First Choice has more dedicated sales people in Austin than I have employees total, and they have access to advance sales tools, leads they purchased and an extensive client list they can leverage, plus a lot more."

Since most locations provide complimentary coffee to their employees, Austin H.U.M.A.N. provides hot coffee in only a few of its micromarkets, either by making Keurig K-Cups available for purchase through a vending machine adjacent to a Keurig brewer, or by placing a bean-to-cup machine that accepts credit cards.

Faust prefers to focus on leveraging the popularity of ready-to-drink cold coffee beverages in his micromarkets, including La Colombe, Starbucks Frappuccino and Forto espresso shots, along with kegs or cold brew coffee.

Minimizing Losses

If there's one challenge that's a thorn in the side of all micromarket operators, it's theft, but the risk is minimal and surmountable, Faust emphasized. The key is for operators to be proactive by reinforcing the passive deterrence of surveillance cameras with a live feed that's displayed in the location.

"It drives it home to those in the market that they are being watched," he said. "I've had the live feed go out, and theft goes up, which proves the power of surveillance."
 
After trying nine closed-circuit TV systems, and three IP-based ones, the IT pro said he found the most effective solution by putting the two types of systems together. The CCTV provides the live feed, but the IP camera uploads recorded video clips to a server offsite for later playback and record keeping, the operator explained.
"With my IP camera and live feed, I can monitor it in real time from anywhere, and if the network feed is out, I have the CCTV also serving as backup for recording," he pointed out.

Austin H.U.M.A.N.'s policy is to cover a loss of 5% or less, and he says his surveillance systems generally deter the numbers from being any higher. Faust's advice to his fellow operators is to include their theft policy in their micromarket contract. and to encourage their clients to make it a part of their new-hire script that theft from the micromarket is grounds for termination.

"Overall it's far more pluses than minuses. We're big fans of micromarkets and we encourage people out there to make a go of them," Faust summed up. "There's plenty of business to be had, and I hope our advice, based on what we've learned, can help get others off to a strong start."