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Vending Operators Share Experiences And Offer Tips On Success In Emerging Micromarkets Sector

by Tim Sanford and Emily Jed
Posted On: 2/3/2013

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TAGS: micro market, micromarket vs. vending machines, self-service checkout, self-checkout markets, vending, vending operator, vending machine, automated retailing, automated stores, micro market vendors, Atlantic Coast Exposition, Scott Denhard, Canteen, Zed Bradley, Piedmont Vending, Mike Coffey, Terry Durling, Vendable Systems, Scott Halloran, Trolley House Refreshment Services, Carl Moser, Cardinal Canteen

MYRTLE BEACH, SC -- Vending operators who are taking a wait-and-see approach to micromarkets were encouraged to jump on the bandwagon by those who have made the move, and who now are affirming the role these self-checkout stores can play in pleasing locations and boosting sales. A panel of early-adopting vendors shared their experiences and explored the opportunities presented by the up-and-coming micromarket retail model at the recent Atlantic Coast Exposition here. The session was moderated by Scott Denhard, Canteen (Charlotte); panelists were Zed Bradley, Piedmont Vending and Mike Coffey, Canteen (both also from Charlotte); Terry Durling, Vendable Systems (Rock Hill, SC); Scott Halloran, Trolley House Refreshment Services (Richmond); and Carl Moser, Cardinal Canteen (Ashland, VA).

micro market, vending operators

The first question they addressed was why a vending operator might want to expand into micromarket operation.

"Because customers like it," Coffey reported. He told the audience that Canteen added micromarkets to the mix a year ago, and primarily uses 365 Retail Markets' system. He observed that, from a retailing standpoint, "this is about new customers, the ones you're not getting now."

Piedmont Vending's Bradley, a 45-year vending and foodservice veteran who got in on the ground floor with micromarkets a decade ago, added that one aspect his customers really like is the ability to buy a number of items in a single transaction for which they pay with "plastic."

"And I got involved because Zed [Bradley] did," Durling explained. "I knew that if he was operating them, they had to be successful!"

Moser, a 20-year vending veteran with 32 vending routes and two micromarkets in the field at the time of the seminar, explained that the greater pricing flexibility and lower labor cost of a micromarket are very attractive. He said that the wide range of healthy options that micromarkets can accommodate are a big driver of the growing demand for them. He added that the self-checkout "stores" are especially appealing to female employees who typically don't patronize vending machines. Cardinal is using Avanti's micromarkets.

"My mantra is to be on the cutting edge," Halloran reported. "I saw micromarkets as the next phase in an industry where we want to be a leader." He told the audience that he had 40 Avanti micromarkets in the field.

An audience member asked how operators are communicating micromarket product prices to customers: "Do you post them, or does the patron get the price at the kiosk?"

"I've heard it both ways," Moser replied. "We tend not to post the prices," Halloran agreed, noting that as with other retail outlets, the customer "swipes" to get the price.

Durling, who installed his first micromarket a year ago and said he had eight in operation, noted that the biggest sales increase he has seen with a micromarket is in food, which accounts for 25% to 30% of sales. He structures his prices accordingly.

"In vending, food is usually a loss leader, but if it accounts for 30% of your sales, you need to get your pricing," Denhard observed.

Bradley added that this food sales lift seems attributable to patrons' ability to pick up an item and examine it before purchase.

Coffey reported that Canteen's micromarkets are attracting customers who do not patronize its vending machines, by offering them fresh foods that are perceived as "healthier," as well as premium offerings like new-age beverages. He attributed a sales lift as high as 150% in some locations to these new customers, attracted to the new products. "Innovation is bringing customers back to shop from us," he said. "They're focused on the quality and not the price point."

Another audience member said that he presently sells about 60 snack selections and 18 cold drinks through his vending machines, and asked how many stock-keeping units the panelists merchandise through their micromarkets.

Coffey said Canteen offers about 325, but is flexible if it needs to adjust that number because of space availability and client requests. The ease of changing a micromarket's menu makes it much simpler to provide new-age beverages and specialty foods like organic and gluten-free selections, priced according to what he called a "healthy premium."

Bradley reported offering about 350 SKUs, on the same principle: "Customers are asking for more 'wellness' selections to satisfy the demands of their insurance carriers, and it's very easy to change products at the drop of a hat in order to accommodate them," he explained.

"And you can offer popular products in different package sizes," Durling added. Vendable Systems carries 300 to 350 SKUs in its micromarkets.

The next question dealt with the population necessary to support a profitable micromarket operation. Halloran replied that he looks for at least 150, but is presently testing a "micromarket lite" concept in sites with populations of 125 or so, where he now provides the coffee service. "In these installations, we're looking at 125 to 175 SKUs," he said. "It's not one-size-fits-all business."

Moser explained that he offers approximately 200 SKUs. "I ran my first micromarket for five months, to make sure I got it right," he explained. "Date codes are tough; you have to really keep at it. And always rotate new products through."

Another audience member wanted to know whether the panelists pre-kit their micromarket orders.

"I do," Moser replied. "We deliver on Monday, Wednesday and Friday, and we make up the orders the night before."

He added that opening a new micromarket installation should be promoted in advance to capitalize on the excitement customers feel about getting the service. "So promote the opening day with raffles; cook in front of the employees and get them excited," he recommended. And he advises prospective self-checkout operators to retain someone experienced in interior design to set up the micromarkets in new locations; "it does make a difference."

365 retail markets, micro market

PHOTO: Above is a location in Michigan employing a micromarket system by 365 Retail Markets. The 365 SmartShop features a checkout kiosk [INSET] that can mount to a wall, countertop or base (for freestanding placement). It accepts mobile payments, credit and debit cards, and branded prepaid cards. It can be integrated with payroll deduction plans and even reads fingerprints.

Halloran pointed out that there is no practical way to do micromarkets on a small scale. "It fundamentally changes your operation, your route trucks and your warehouse," he reported. "It's very food-oriented; you need larger coolers and the delivery technology to accommodate food."

He said that Trolley House pre-kits its vending routes using Streamware's forecasting and sales analysis program, and has addressed stock-picking issues with LightSpeed's warehouse automation system.

"This has been tremendous for us," the Richmond operator emphasized. "We can assemble orders for the vending and the micromarkets on the same line." He presently does the vending route pre-kitting in the morning, using the computer-generated forecast, and the micromarket orders in the afternoon, based on real-time inventory information.

Durling observed that he had spent years paring down the number of SKUs in his warehouse. "Now we're going the other way," he said, concurring with Halloran that the LightSpeed system makes this much easier to do. Bradley said that he also uses the LightSpeed solution.

Coffey explained that dealing with one "store" is quite different from conducting a dynamic micromarket operation. "As you grow and begin to pre-kit, you allow the system to tell you what to pick, and you can pick stock for multiple 'stores' from the same case," he pointed out. "It's also easy to customize the menus."

An audience member asked whether micromarkets require a different kind of route driver. Bradley replied that micromarkets fit very well into existing vending businesses. "Vending route people adapt quickly to the micromarkets, with a bit of training," he said.

Durling observed that both vending and OCS drivers can handle micromarkets.

Coffey noted that the skills are very similar, but the compensation method will be different. "And I think coffee service route sales personnel are more attuned to customer needs and wants than vending drivers are," he said.

Bradley explained that he pays his drivers on a sales-commission basis, and pointed out that restocking a micromarket requires less labor than servicing a vending bank.

Halloran reported that he currently employs two dedicated drivers, both of whom had run vending routes. "We changed the pay structure; we want to pay them to take the time to do it right, so they're salaried," he noted. "We thought paying commission was more focused on speed than on quality of service."

Doing it right involves paying very close attention to dates, the Virginia vendor observed. "A lot of things have dates, including many things you don't know about. And what is a 'Julian code?' You may not know, but your clients do! They're younger now, and they have smartphones." With those instruments and all the information available online, consumers can find out how to interpret even obscure package codes.

He recalled that in one micromarket, the driver kept refilling an M&M's display carton with fresh packages. "The box was out of date, and customers noticed, even though the product was fine," said Halloran. "This is a very different animal from vending."

"One reason for our assigning an OCS person to service the micromarkets is that level of detail," Moser said; "to arrange product in a great way that looks good on the shelves -- and to listen to the customers, because they communicate so many things to you that you may need to fix."


The audience raised questions about spoilage and theft.

"Spoilage hasn't happened," Moser said, "because we watch it so closely, and we have relatively few micromarkets out. It's eye-opening to see how many stales drivers bring back with vending.

"As for stealing, it's hard to say," he continued. "We tell clients that we've got cameras, and we haven't seen much theft at all. We can live with something under 1%, with the increase in sales that we're seeing."

Halloran said that waste is, indeed, a factor in micromarket operations. With food representing as much as 35% of the volume, stales can run as high as 4% or 5%; the food cooler has to look full. And long shelf-life items are not necessarily the answer, because people will shop for the newest ones by reading the dates.

He agreed with Moser that it is difficult to speak definitively about shrinkage. "You can't always tell whether something was stolen, or simply not picked or delivered," he said. At present, it appears to be less than 1.5%.

Durling reported that stales can run as high as 5.5%, and for that reason, it is important to pay very close attention to ordering. He reported experiencing shrinkage of about half of one percent.

Bradley suggested close monitoring of the cost of goods sold as a tool for detecting theft. "If we're not content with those numbers, then we start watching videos," said the operator. "We were missing Mountain Dew; we watched the footage, and we caught the culprit quickly."

He agreed that stales are higher in micromarkets than in vending, but this is offset by higher prices. "Train your service people to load from back to front, whether they're stocking 'dry' or refrigerated products," he recommended. "The individual who services the location must be attentive to this."

After a month or two, he added, many route people actually will prefer servicing micromarkets.

Coffey observed that, if the operator puts in premium products, the staleage will be about twice that of vending -- but the profit is much higher. And it is, indeed, difficult to get a handle on shrinkage, he added; "we're vendors, and perpetual inventory is new to us."

An audience member agreed. "Yes," he said. "The 'front end' is well-developed; the 'back end,' less so." And he asked the panelists to discuss marketing, beyond product promotions.

"We do retail-focused seasonal promotions," Coffey responded. "And if we have 11 dark chocolate mint candy bars left, we use promotions to move them out. I learn when I shop at other stores.

"And you have to rotate your menu to keep it fresh," the Canteen executive continued. "If you don't change the product mix, the micromarket becomes a vending machine. We know our top 25 items, and also the bottom 25; we promote new-product introductions to move product and build excitement." And Canteen also conducts "grand opening" promotions of the sort recommended by Moser.

"When you open a new 'market,' you can add credit to the market card to encourage first use," Bradley pointed out.

"We spend two days on site, for an opening," Durling added. "We give the patrons a $2 credit on their cards. We discount fresh food on Fridays; and we conduct 'buy one, get 50% off the price of another' promotions."

"A grand opening is fun," Halloran said. "And it also trains you and your staff. Work with the location's human resources contact; you get to interact with your clients at a higher level, and to build a relationship with every user through their market cards."

The discussion then turned to questions of the cost of doing business, ranging from Internet connectivity to sales taxes.

"Well, you can charge sales tax," Moser said. "This varies from state to state." The key to controlling cost is to put micromarkets in the right locations, he emphasized; "You don't want to have to pull one."

Halloran explained that the micromarket operator has the advantage of being able to sell an account because the service offered is not vending; but the costs are higher, especially credit-card fees. "On the other hand, you do recoup the sales taxes," he agreed.

Fees can run as high as 10%, he reported. Halloran has found that topics requiring study include accounting for the beneficial "float" that the operator enjoys when patrons use prepaid market cards, and implementing a method for refunding the unused balance on an employee's card when he or she leaves.

Durling agreed that it's important to understand that market-card "float," which he sees as the opposite of the usual vending situation in which cash is tied up in changer funds.

"Yes, micromarkets do offer savings that offset their higher costs," Bradley concurred. "You can bolster your bottom line."

"Start with the right pricing structure," Coffey advised, and explained that the cost picture changes substantially as more micromarkets are added to an operation. "With only a few 'stores' out, costs are high," he observed. "We think that in a 'mature' model, with seven or more 'stores,' the costs will be substantially less." Costs also are affected by volume, as in vending; "With 500 people, a micromarket is wonderful," the Canteen executive added.

An audience member, speaking partly to Halloran's point about the advantage one has in selling micromarket service, pointed out that vending is not going away -- and micromarkets can confer real benefits to providers of vending services. "Since you can charge sales tax on micromarket transactions, you can have two price structures," he instanced. "The 'markets' are great; they may help get vend prices up to where they should be."

Another operator asked whether any of the panelists has made an installation in an account large enough to require two micromarkets, or a micromarket with two checkout terminals.

"You can add a kiosk," Halloran replied. "But I haven't seen any bottlenecks; checkout is very quick. If there were a bottleneck, it would be at the shopping step."

"We do have several 'stores' with multiple payment terminals," Coffey reported; "in one case, there are three." He observed that bottlenecks can occur in high-volume blue-collar sites; when populations exceed 600 people, it's a good idea to add checkout stations.


"When you put in a micromarket, do you take the vending out?" an audience member asked. "No," Coffey answered. "We see a fit for micromarkets in 10 to 15% of our accounts, and micromarkets will increase participation. But we're a vending company."

Durling agreed that 10% to 15% of accounts are a fit for self-checkout stores.

Halloran concurred that adding micromarkets can help vending operators increase their market share. "We're looking to use it at new businesses, not to replace existing vending accounts where they're successful."

"Vending is our bread and butter, but this is a great thing to have in our back pocket," said Moser.

Denhard emphasized that every breakroom is different; many are better served by vending machines, while micromarkets present a solution "in the middle, between vending and a cafeteria."

Coffey pointed out that wellness is a big factor behind the micromarket model. Halloran has found this to be true, too; he said that a Trolley House market has a well-defined section devoted to better-for-you products.

"We moved all the 'healthy' products to the left side of the kiosk," Moser reported. "Customers love fresh salads and nuts and cheese." He has set up an automatic alarm at the kiosk which sends an email if one of those products sells out.

"There's such a push on the obesity factor, and our ability to work with the client to offer so many fresh, healthy foods is a big plus," said Bradley.

An operator asked the panelists how frequently they inventory each store.

Halloran explained that he recently added a micromarket supervisor; "We're going to a retail model. Our routepeople spot-check inventory, and the supervisor goes out and does full counts once a month." That task includes making site visits with customers and checking dates regularly. "This lets routepeople focus on filling and merchandising," the Virginia vendor pointed out. "The last piece would be for the vending software guys to partner with the micromarket guys to develop a comprehensive inventory system!"

Durling said Vendable Systems inventories its micromarkets every two weeks. Coffey reported that Canteen has its drivers do a blind count of each category.

"If we see a high cost of goods, we check it out," said Bradley.

The panel concluded by observing that there are costs associated with vending and with micromarkets. Operators of any size today must withstand the expense of computers and management software, whether by outright purchase or by subscribing to an online service. Coffey pointed out that a certain amount of redundancy, and effective processes for minimizing downtime, are important to succeeding with either service method.

Micromarkets represent the latest combination of payment systems pioneered by the vending industry with automated product-identification technology developed for supermarkets. They are fast becoming a valuable new addition to the full-line vending toolbox.