Micro Markets

Micro markets raise the bar big time for convenience food

Micro markets offer operators the chance to boost sales and customer satisfaction with more food offerings, but it also tasks them with managing more inventory in a low profit margin category.

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Image provided by 365 Retail Markets.

September 11, 2023 by Elliot Maras — Editor, Kiosk Marketplace & Vending Times

Food — the "double edged sword" in convenience services — continues to present both challenges and opportunities for convenience services operators — now more than ever.

That's because the rapid growth of micro markets in recent years has opened the door to greater food variety and improved customer satisfaction. Micro markets allow operators to showcase more food in refrigerated coolers and freezers to appeal to more customer preferences compared to vending machines.

However, the chance to boost sales and customer satisfaction also tasks operators with managing more inventory in a low-profit margin category.

And while micro markets allow for higher sales, the food segment remains a "loss leader" for most convenience services operators.

Food has always allowed operators to distinguish themselves from their competition, but waste, higher overhead costs (for equipment and service) and customer price resistance has long forced operators to rely on their extended shelf life offerings — candy, snacks and beverages — to cover the losses from their food offering.

This being the case, frozen food, with its longer shelf life than fresh food, continues to play an important role in the food category as the category expands.

Tailoring food offerings to locations has become a multi-faceted balancing act that needs to take stock of customer demographics, consumer food trends, break times, access to competitors, food waste and service frequency.

Micro markets on the move

Ray Friedrich

Ray Friedrich, a long-time Detroit-area operator who currently serves as an advisor to operators (East Street Business Advisors), has witnessed the replacement of traditional manual cafeterias in locations with micro markets. COVID exacerbated this change as many companies and organizations did not have enough employees on site following COVID, even after they began calling them back to work.

"One of the best things that the pandemic produced was the reduction in manual foodservice operations in favor of these 24/7 markets because the operational costs are so much less," he said. "All of a sudden, boom, you don't have that anchor of a foodservice operation and you've got a very profitable micro market and you're selling a hell of a lot of food."

"COVID accelerated the whole micro market segment mainly because of the labor," agreed Tom Tipton, Western region manager at Ruiz Foods Products Inc., a food manufacturer. "Now, with the labor issue the way it is and with the expenses the way they are, they don't have these big cafeterias any more. They're putting micro markets in. So many of those cafeterias have been replaced by micro markets."

Micro markets, for their part, challenge operators to find more food variety and tailor their selections to their accounts.

Tracking food trends

"A progressive operator that really watches the market will recognize trends ahead of other people," Friedrich said. "All these point-of-sale systems and most of these kiosk companies are able to capture that data so you know in a real time scenario what's selling and what's not selling."

Jeff Parks

Five Star Food Service Inc., a Canteen franchise based in Chattanooga, Tennessee, uses convenience store industry data to make some of its purchasing decisions along with other information sources, said Jeff Parks, senior vice president of retail operations.

"That's where the real retail comes into play," Parks said. "We just happen to have a captive audience which makes it a little more challenging in terms of providing variety."

Frozen and fresh: both have a place

The challenge of minimizing product waste continues to require operators to offer both fresh and frozen food. Customers often prefer fresh sandwiches and salads over frozen prepared food, but fresh products have shorter shelf life and higher waste.

"Frozen food has got its place," Friedrich said. "The frozen category really gives you an opportunity to sell a recognized branded product. And we all know that frozen food has gotten so much better over the years. The engineering and food science that goes into producing a really qualified frozen product has come a long way.

"The beautiful thing for an operator is if you screw up on your fresh food inventory and don't have enough available on hand, you've still got that frozen back up which doesn't spoil."

Frozen products offer the benefits of extended shelf life as well as consumer branding. Image: Adobe Stock.

Jeff Reider, president of Tri-R Coffee & Vending in San Marcos, California, agreed with Friedrich.

"The fresh food, the customers do buy it, but it's so highly perishable," he said. "You can run into spoilage really quick. It can eat your profit. That frozen component is something that we're trying to add more and more of. It saves your butt."

Frozen products comprise half of the food in Reider's micro markets.

"We'll usually do two-single door coolers with food, and then one-single door freezer," he said.

He acknowledged that freezers are an additional cost and also require a certain number of microwaves to prevent customers from waiting to heat their frozen meals.

In locations not large enough to justify a freezer in addition to coolers, thawed frozen items are placed in the coolers along with the fresh items.

"A burrito will sell a lot of times a lot faster than a fresh sandwich will," Reider said. "It's a great replacement for some of the highly perishable food."

Steve Tomes, general manager at Dependable Break Room Solutions in Upland, California, said there are several factors in deciding which type of food to offer.

"We offer both (frozen and fresh) options, but the decision to implement one over the other depends on multiple factors," Tomes said. "These include the accounts' volume, the specific industry, workforce demographic and the accessibility to competitors such as restaurants, convenience stores and food trucks."

More frozen food variety needed

Jacob Plassman

Jacob Plassman, vice president at Maumee Valley Group in Defiance, Ohio, was among several operators who said more frozen food variety is needed for vending and micro markets. Plassman, who has his own culinary operation, relies mostly on freshly prepared sandwiches that sell for $4 to $5 and breakfast items that sell less than $4. His micro markets include both coolers and freezers.

"Maybe the big (food) manufacturers aren't aware of how big of an industry micro markets are," Plassman said.

Rhonda Dunn, owner of Machine Cuisine Vending in Kingman, Arizona, does not think product availability has fully recovered from the COVID supply chain disruptions. Like Plassman, she would like to see more product variety.

"There are not enough offerings with micro markets being such a big part of what we do now," she said. "We need better food at a competitive rate (price)."

Dunn needs to price sandwiches at $5.49 or $6 while wedge salads are $4.99. If she goes above this, she risks losing the sale and taking a loss on the item.

Dual trends: healthy and ethnic

Operators agreed that health-focused and ethnic preferences are playing a bigger role in their food offerings.

Linda Saldana

Linda Saldana, CEO of Seventh Wave Refreshments in Atlanta, works with a variety of food suppliers, including local caterers, with a focus on wellness and ethnic oriented items. "We want to just do what we can to be creative and keep variety going," she said.

"Our demographic is a lot of Hispanic people for sure," said Dunn at Machine Cuisine Vending.

Reider at Tri-R Coffee & Vending said Hispanic products are especially important in Southern California.

"Food is number one," said Saldana. "It's super important to us. It's the reason we are growing the rate we're growing."

Photos: LinkedIn