Tuesday, January 16, 2018 | Today's Vending Industry News
Industry Has What Amazon Wants: Ownership Of 'Last Mile'

Posted On: 12/29/2017

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What can workplace refreshment providers do to continue to enlarge the market they cornered decades ago in a new era, when employees and decision-makers have instant access to a seemingly infinite selection of food and beverages, delivered on demand, through their phones and computers?

It's called the "Amazon effect," which is described - for better or for worse - as the ongoing evolution and disruption of the retail market, both online and in physical outlets, resulting from the growing popularity of e-commerce. The competition to vending, office coffee service and micromarkets is no longer just the brick-and-mortar convenience store or lunch joint down the street. It's Amazon, Uber Eats, GrubHub and countless other Web and app-based retailers and delivery services. In order for the convenience services industry to remain relevant and competitive, operators have more reason than ever to continually innovate, enhance their customer services and introduce new products.

At the recent National Automatic Merchandising Association Coffee, Tea and Water show in Grapevine, TX, a panel of innovators discussed the kind of product offerings and enhanced "concierge"-type services operators can offer to help employers attract and retain today's employees and keep them productive and onsite to a level that only they can achieve, since this industry presently owns the "last mile" between a warehouse and the end consumer.
 
KNOWING THE TERRITORY: Discussing potential benefits harnessing the power of e-commerce - the "Amazon Effect" - by applying workplace service operators' skill at local client-focused distribution are (from left) Jim Carbone, Workwell Food & Beverages/Tradecraft; Joe Hessling, 365 Retail; Greg Sidwell, G&J Marketing and Sales; Chris Harkness, 7-Eleven; and Josh Rosenberg, Accent Food Services.
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The panel, moderated by Josh Rosenberg, president of Accent Food Services (Pflugerville, TX), discussed workplace services' ubiquity in businesses that Amazon would like as customers, and the possible value of partnering with rather than competing with the online retail giant and other new competitors that have emerged as a result of the Amazon effect.

Panelists included Jim Carbone, cofounder and executive vice-president of Workwell Food and Tradecraft Coffee and Tea Outfitters (Chicago); Chris Harkness, vice-president of business development for 7-Eleven; Joe Hessling, founder and chief executive of 365 Retail Markets; and Greg Sidwell, president of G & J Marketing and Sales.

Rosenberg began by asking the panelists how technology can be turned into an opportunity for the convenience services industry.

7-Eleven's Harkness emphasized that the definition of convenience has been changing and that keying in on the role technology has played can be of great benefit to the industry if leveraged effectively.

Case in point: Kids today can watch their favorite television show any time they choose, and then watch it again if they want. "When I was a kid, we waited all week and sat and watched our favorite cartoons in a narrow band on Saturday mornings," Harkness continued. "Today, kids grow up wanting to be entertained when and how they want. We were all born before smartphones existed. Kids are now born with a Facebook page. They're on Snapchat at the age of five. They're entering the workforce, and their expectations of how you're going to satisfy their desire for convenience plays in heavily."

And it's not only the younger generations that has become conditioned to the immediate gratification that technology provides. "It trickles into everyone and everything. We see a pair of shoes we like; we grab our device and take a picture, see whether Zappos has them and we place the order. Businesses are trying to get to customers fast," he observed.


THE EXTRA MILE

Harkness urged operators not to view new demands and expectations as doom and gloom, but rather as an opportunity.

"You have a beachhead," he said. "Amazon wants to expand into that beachhead, but they're not really there. They want to be there – but they don't like people; they want to drop a box. I think there's a real opportunity, because you've established that beachhead in a very captive audience. How you take advantage of that will be very important as you move forward."

Carbone remarked that it is indeed concerning that the businesses operators serve are looking for alternative forms of delivery, often technology-enabled, that might replace them. This makes it imperative for the industry to figure out how to go the extra mile by using strengths that new competitors like Amazon lack.

"We've thought outside the box, and coffee has been the biggest growth for us," he said. Tradecraft Coffee & Tea Outfitters has even expanded its upscale hot beverage programs, which include in-house workplace cafes staffed by its employees, to operations beyond Chicago including Louisiana, Phoenix and New York.

"People expect that things that happen in technology will automatically affect our space negatively, but it doesn't always – as long as we continue to leverage it and innovate," Hessling added.

Rosenberg asked Sidwell what other companies besides Amazon are disrupting the convenience services space.

The veteran vending broker named Chinese e-commerce giant Alibaba as a major contender. Customers use Alibaba to shop online, sell unwanted goods and make online payments. Alibaba has two retail sites: Taobao, which features thousands of non-brand name products sold by smaller merchants, and Tmall, which offers brand-name products. The two sites are hugely popular, and collectively account for more than half of all parcel deliveries in China.

"It's important to watch them as we're trying to figure out how to compete with all retailers," Sidwell said.

He also cited Airbnb, an online marketplace the provides a way for people to find affordable lodging, as an example of an unexpected tech startup that became a major player in a space that was taken by surprise.

"In just a few years, Airbnb is four times larger than Hilton, Marriott and Starwood put together; they didn't' see it coming, They only looked at brick and mortar hotels and motels as competition," Sidwell stated. "Amazon and Alibaba and new startups we don't even know will disrupt our lives. Many new businesses are competing for our accounts."

Sidwell added that Amazon's new distribution center in Manhattan looks like a high-rise office building, and the online retail giant delivers products from it within a three-mile radius. "It's 11:30 a.m. and I want lunch at noon – it's at my desk," he instanced. "What does that mean to our business; what are they doing to disrupt it? Our huge advantage is that we own the 'last mile,' which is the hardest and most expensive mile to get. We touch the workforce."

The veteran vending broker emphasized the opportunity that apps bring to the table with digital marketing. "Everyone has a smartphone. We have to gravitate to that," he advised. "Collectively, we have to put brainpower toward how do we out-service Amazon and other technology people? That will get us to where we need to be."

Rosenberg asked Carbone in what ways he has seen customer expectations change.


INSTANT GRATIFICATION

The Chicago operator pointed to the sense of urgency that Amazon created by enabling consumers to touch their phone screens and order anything they want, whenever they want it. That ability has created new competition for the fastest-growing part of the convenience services business – pantry services.

A growing number of companies – especially technology and financial trading firms – are focused on creating collaborative environments to attract and retain talent and pantries stocked with free food and drinks is central to that mission, which is music to the industry's ears. However, Carbone said he is seeing smaller companies using Amazon to obtain products and local grocery-delivery services like Instacart and Peapod delivering fresh milk and other supplies to office breakrooms.

"We take the heavy lifting from the ordering process for our clients; we create an experience," Carbone emphasized. "We let them do their job and not have to order from six companies. Our motto is 'everything is possible – it's painted on our wall. I want to put in marker underneath – 'for the right price.' We can't forget what it costs us to do this. It differentiates us."

He reiterated that Amazon is in the business of tossing its customers a box, and not in providing a service tailored to their specific needs and expectations and building interpersonal relationships. This is why it's critical that operators tell their clients and prospects why they're better at what they do. "We can't deliver in 15 minutes, but we can fulfill their needs within reasonable expectations," he said. "We can provide next-day delivery if they order by noon. It puts us in the driver's seat that we're not just dropping a box."

Rosenberg asked Carbone what the key selling points are to communicate to decision makers what makes convenience services especially relevant in today's workplace.

Carbone identified ease as the common denominator that every workplace decision maker seeks when it comes to procuring products. Piggybacking on the success that Amazon has had conditioning consumers to the ease of one-stop online ordering, Workwell Food and Tradecraft Coffee and Tea Outfitters is launching an e-commerce site with a $50 minimum order required for delivery. Carbone said the online ordering capability has been a long time coming to let the company's clients shop the way they want to, which increasingly is not by phone or email.

"The biggest gripe they have is that they spend a lot of time going to several sites to order what they want," said Rosenberg. "As they grow, it's a pain for them managing product and shopping. We can do it all and it's mind blowing what they will give for free to employees, including breakfast and lunch. Show them what it's worth for you to do that and the time it will save them and you will win over Amazon."

G&J's Sidwell added that one advantage Amazon and other online and app-based delivery services have is that they remove the thought process in ordering and paying, making it simple and easy.

"When you want an Uber, you don't have to think about chasing one down," he instanced. "You find one nearby on the app, get where you need to go and then pay with the app and walk away. You don't think about the price. Maybe it even costs more than a cab." The industry can benefit by finding ways to leverage technology to match this level of convenience.


MAKING LEMONADE

Rosenberg asked Hessling how convenience service providers can leverage technology to be relevant.

"What did Amazon do? They found and removed friction points and got products right in front of people who didn't even know they cared about buying them," the 365 Retail Markets chief said. "Amazon Prime costs $100 a year and people are willing to pay because they like the service. Now Amazon Business Prime is targeting companies selling products to businesses and why wouldn't they throw Snickers bars into that box?"

He emphasized that the industry doesn't have to follow suit in the way it uses technology or be threatened by it, but rather learn from it.

"We don't need to see Amazon Go as an alternative to a micromarket just because they have one automated store in Seattle; that really does not apply to us," Hessling advised. "Focus on what we already have and leverage payment systems so it fits your model, in terms of cost and location. Leverage partners like food tech startups. There are at least 100 of them, like Delivery Hero and Chefs on Demand. You don't have to do it all yourself. You can find partners and leverage them in a way that makes sense in terms of consumer engagement and payments."

Rosenberg asked the panelists if they view competitors as a threat or as part of the convenience services industry.

Harkness said he believes that Amazon is clearly part of the ecosystem. He proved his point by asking for a show of hands, demonstrating that nearly everyone in the room was a client of the online retail giant.

He emphasized that Amazon is well funded, and advised operators to think about where they might partner with the online retail giant, and where to compete.

"I don't think it's Amazon's intention to eat the world," Harkness said. "They're constantly experimenting. They've been around for 20 years; this didn't sneak up. They may be a better wholesaler for some of your products.7-Eleven partners with Amazon Lockers in our stores. As of yesterday, we accept Amazon cash, which lets customers pay cash at 7-Eleven stores to buy Amazon stuff online."

It all comes back to who's closest to the customer – and that's the vending and OCS operator, the 7-Eleven executive emphasized. Amazon's limitation remains that it's an impersonal process for consumers to find products on their computer or phone and simply have them delivered.

"The service economy is evolving and getting better and you've outlasted a lot of startups," Harkness said. "You have a steady cashflow. You've made relationships with customers. Just how you expand is the question."

Sidwell emphasized that operators have to figure out what consumers want and how to get it to them and work with these new competitors in some ways while at the same time figuring out how to outmaneuver them.

"I'm buying from my biggest threat as an Amazon customer and I'm happy to do so," he said. "They're already in the pantry business. They deliver snack boxes to offices. I don't think you should be deathly afraid that the Big Bad Wolf or Boogie Man is under the bed. Use it as a rallying cry. You already have new competition. Find something they don't do and do it better with a new product or technology. One of them is Amazon, but we're going to do what we do best."

Rosenberg asked operators to consider if the threat of new competition and need to adapt is really Amazon or consumers wanting immediate gratification where they live, work and play.

Hessling pointed out that people go into a 7-Eleven store because it's conveniently nearby, and has just about anything they might want, including coffee, food and snacks, on demand

"We have the space, logistics, customers and relationships. What can we do to expand? he asked. "If 7-Eleven has food and snacks, that's what we beat."

Carbone urged operators to stay ahead of the trends. He said millennials are going to represent 60% of the workforce, and that the industry must look at what that future is if operators are to beat Amazon at being ahead of the game.

"Focus on being different. Create experiences. Think of what's next," he stressed. "Our industry has a way of wearing blinders. We don't look at what's coming. NAMA's Emerging Leaders Network is a group of millennials with great minds and ideas; they know what's going on."

Rosenberg asked Carbone how to identify these trends. The Chicago vending and OCS veteran recommended attending trade shows, reading industry magazines and keeping a close eye on other local retailers.

"I walk around the streets in Chicago to see what's there," he added. "Go into Starbucks and see what they're selling. Create experiences. Coffee is a legal drug and we sell it. We can't stay with 1-1/2 oz. frac packs; we need to be different. Bring in whole beans and grinders – but not for free."

Tradecraft Coffee & Tea Outfitters has not only satisfied, but also created, a burgeoning demand for bean-to-cup coffee by presenting it as an upscale option. It's also found a growing number of locations willing to invest in the ultimate experience with onsite coffee bars that rival the local Starbucks, staffed fulltime by Tradecraft's baristas.

"Create differentiating ways to get your foot in the door," Carbone advised. "Refrigerated products are harder to get there, but it's worth it to set yourself apart."

Harkness noted that 7-Eleven has some 70,000 products available to its franchisees, and that there are about 3,000 items available in a typical store.

"The more you define the customer and expectations, the better you'll be at product selection," he advised. "What happens if you spend 15 minutes a week doing client development? Figure out what's missing and give it to them."

The 7-Eleven executive also pointed to the value vending and coffee service providers can bring to startup product suppliers, by leveraging the hundreds of points of distribution they have. "It's easy to start up a product company today. What they don't have is distribution and you have such low barriers to entry," he pointed out. "Find private-equity firms behind new products, go to tradeshows and find startup products. What does it take to get a pallet and see if it will work? Be the first to have it; be known for it. Don't even go through a wholesaler."

Sidwell added that even well-established CPG companies face the same challenge of figuring out how to connect with today's consumers by making conversation and getting product in front of them to grow brand share.

"How do we change the retail relationship? No one knows; it's still evolving. They're looking, the same way as we are, at how best to embrace technology," Sidwell said. "The key to Amazon's success is how to make it easier for the customer. How do we bring that to the consumer in the breakroom and micromarket?"


INCREASING TRAFFIC

The veteran broker noted that one of the perennial challenges to operators is how to maximize the percent of the workforce that comes to the breakroom. And new forms of competition require new approaches. "How do we get more of them to come to us? How do we push ourselves to them?" he asked. "Do they have to come down three flights of stairs and then wait in line? Can they use an app to pay, to make it easier and remove friction?"

365 Retail's Hessling noted that delivery services like Delivery Hero and Grub Hub will aggregate a delivery at a discount if five or more people from a location order. "By them making your location a destination spot with food, you will get to participate with other products that go with the sale, like drinks and snacks. Inevitably, people will leave the office to eat. Maybe leverage their technology to keep them there, and capture the sales you can of other products. Sell their products on consignment. Put them on your shelves and you don't have to do anything."

"You own the real estate. That's precious," Rosenberg added.

Hessling also said he's seen more operators working together in different parts of a city and through national programs to deliver innovative refreshment solutions to clients.

"Operator-to-operator collaboration makes us stronger as a unit and betters the industry," Rosenberg concurred.

The moderator encouraged operators to look at branded solutions in the breakrooms they serve and revealed that Accent is collaborating with 7-Eleven to build both its and the convenience store chain's brands.

"We thought of your proximity to customers with micromarkets and the manufacturing of local products," Harkness explained. "We saw your industry growing but consumers not knowing the name of the micromarket and we looked to bring our brand equity for loyalty. It's another frontier to explore."


OPPORTUNITY KNOCKS

"Why let someone else come in when we own the last mile? Partnering can be a real opportunity as we go forward," Rosenberg said.

Hessling emphasized that mobile technology is a necessary piece of every retail environment. 365's applications allow consumers to scan and pay and check their balances and enable two-way communication, allowing users to receive offers and promotions and share their feedback with the operator.

Sidwell informed operators of a new app-based solution that G&J Marketing and Sales represents geared toward OCS operators called Social Feedia. It provides operators with turnkey snack and packaged cold drink solutions to turn traditional coffee stations into "office convenience stations."

Specifically, Social Feedia offers assorted snack boxes, fixtures and racks to create small displays alongside coffee stations, along with cold drinks in coolers through a partnership with PepsiCo. The Social Feedia app can be used as a payment system, replacing the honor box. Employees load value onto the app, scan their product and hit the checkout button. Employers can also choose to subsidize the cost of the products or provide them for free.

"The goal is to get closer to the consumer; if they won't come to us, we have to go to them by putting snacks and cold drinks at the coffee stations. And you can't do it without mobile payment," Sidwell stated. "Social Feedia is a step in that direction. Mobile is the new norm and it's not going anywhere. It's very sticky and holds onto the customer for a long time and it's a connection OCS operators never had before. There's no one way everyone goes to market. And it's evolving; there's no one size that fits all. We're a smart industry and we will figure it out."