Micromarket Panelists Probe Processes Required For Profit

PEOPLE+PRODUCT+PROCESS=PROFIT

MYRTLE BEACH, SC -- Launching and expanding a successful micromarket operation was the topic of a novel business session conducted in conjunction with the 2015 Atlantic Coast Exposition. Organized "by operators, for operators," the session was moderated by Scott Halloran, Trolley House Refreshment Services (Richmond, VA); his panelists were Randy Peak, Canteen (Winston-Salem, NC); James Bourne, Trolley House; Erich Markee, A&B Vending (Middleton, NH); and Ben White, Vending Insights (Sykesville, MD). Halloran is a vending operator who has pioneered micromarket adoption by full-line vendors; Trolley House had 55 of the unattended stores in the field at the time of the session.

Ben White

"'Process' is defined as 'a series of actions or steps taken in order to achieve a particular end,'" White observed. "What particular end do we want? Markets that meet the desired profit margin expectations; markets that are merchandised and serviced properly; customer satisfaction, creating trust and loyalty; and data accountability and integrity, so the information we get is reliable."

And, of course, it's essential to establish the acceptable margin of profit and develop a reporting process that reveals whether that margin is being attained and, if it isn't, what needs to be corrected.

"Know your numbers," White urged. "Use separate profit-and-loss statements for the micromarkets, when possible. In vending, we know 'the numbers' but, in micromarkets, there are some new data points that we have to understand."

It's essential to review reports periodically, the speaker continued. "Sales volume is not the only criterion; reliable data will indicate where your numbers need attention.

"And manage spoilage," he urged. "A higher volume of fresh food means a higher spoilage rate, if you don't manage it well." Repeating a theme of the earlier presentation on products, White recommended attempting to negotiate a subsidy for the fresh-food category.

Loss prevention, too, is an important management responsibility that can have a very beneficial effect on profits. "I've met an operator who has three loss-prevention people chasing thieves," White reported. "And he's gotten $25,000 in restitution this year [2015]. Do set up a loss-prevention plan; understand your markets' camera systems before you have to rely on the cameras for proof. Make sure they'll capture the visual information you require for evidence. And watch the video," he advised. "Be sure the cameras give you a full field of vision."

Location management has a role to play in implementing a good loss-control program, and its cooperation should be enlisted from the outset. "The proposition is 'let's catch a thief -- theft is contagious; people who will steal from me also will steal from you.'" Finally, he added, employees should be made familiar with loss-prevention processes: "Your employees are more valuable than your camera," White pointed out.

Patron Focus Builds Sales

Ways to enhance profitability include providing the widest possible range of payment options, including credit, cash, mobile payment apps and even payroll deductions. "This has an interesting future," White predicted. And, since micromarkets are very well-suited to the sort of sales promotion that industry observers have been calling for over the past quarter-century, operators should engage suppliers to develop discounts and other incentives that will increase market participation.

The effect of procedures implemented to protect and bolster profits has to be gauged, and management must have reliable data in order to do this. "Data integrity refers to the accuracy and consistency of data over its lifecycle," White said.

The cycle starts with setup and continues through sales, fulfillment and service from one inventory to the next: "the right product at the right time." As always has been true of data processing, "garbage in yields garbage out," so data integrity must be a fundamental value of the operation's culture. "You need to be passionate about this -- or, if you aren't, make sure you pray a lot," White advised.

Thus, management should take the time required to think through the process of collecting, retrieving and interpreting data: "What do you want the reports to look like?" Once in place, the process requires that product costs be fed in accurately, and adjusted as they change, White emphasized. At present, data maintained by an operator's vending management system does not transfer perfectly to micromarket software, so information must be kept scrupulously up to date.

Cross-training of personnel is very helpful in maintaining the integrity of data. "It's important to have a 'deep bench.' It's common for data integrity to shift when there's staff turnover," the speaker noted. "Having a deep, knowledgeable 'bench' helps reduce mistakes."

The real payoff of reliable data is that it enables management to be confident in holding people accountable for results, he summed up.

Simply keeping accurate payment records is not enough. "Use a 'whole-market' solution, which includes prekitting, to get full return-on-investment information," White urged. "Don't just look at the payment terminal. Know your chosen solution's fulfillment process, and what it takes to guarantee fulfillment: you can't sell what you don't have in the market.

"Take the time to document your processes and train your drivers," White said. "Get sign-offs for confirmation, to assure accountability. Service on the front line starts with a well-trained driver."

As in all kinds of selling, one doesn't get a second chance to make a good first impression. "Start by knowing the demographics of your account, and merchandise the market accordingly on the day of the setup," the speaker recommended. "Start out on the right foot.

"Accurate inventory procedures are absolutely critical to consistent market fulfillment and service," he continued. "You simply must know when to send what." With these imperatives in mind, the aspiring micromarket operator might consider creating a "micromarket merchandiser" staff position in the organization. This individual's duties would include ongoing data analysis, making adjustments and resets, planning and conducting promotions and assisting with new-market setup whenever necessary.

Software Integration

Erich Markee

The goal is to enable the development of management software that will provide full warehouse inventory accountability and serve as a single source for sales and inventory reporting, as well as product and price information. Such a system will support the use of a single handheld device for servicing both vending and micromarket points of sale, and the provision of near-real-time sales data for prekitting route orders in the warehouse. And it will offer complete cash and inventory accountability across both systems.

"It soon will be possible to feed both vending machine and micromarket information into one database," Markee predicted. Thus, administrative expense and effort will be reduced by eliminating the need to manage two distinct databases. It also will speed and simplify setting up a micromarket by enabling the use of the existing VMS pricing and planogram programs. By using the planogram provisions of mature vending management systems, a consolidated VMS also will improve the merchandising process, as drivers will know the correct product positioning as changes occur.

By allowing operators whose VMS suites support handheld route computers to employ the same ones for both vending and micromarket routes, a consolidated system will reduce capital hardware costs, Markee concluded. The consolidation also will reduce the labor required to service micromarkets by streamlining the front-line inventory process, and will improve the data integrity of the entire operation by simplifying the management of data points throughout the whole system.

White then turned to actions taken by micromarket operators that can create customer loyalty. Some of them are analogous to principles worked out in the early days of full-line vending; the speaker suggested that the criteria for a micromarket might be "clean, filled and merchandised."

As with anything that sells food and beverage items, the micromarket must look as though it's being taken care of and filled with new products to maintain customer interest and encourage participation. "Schedule 'market resets' to freshen up products and the overall appearance of the market," White advised. This is one of the tasks for which a staff "market merchandiser" can be made responsible.

"And take full advantage of your loyalty solutions," he suggested. "Many operators are missing the boat here. Engage your customers to foster loyalty and generate new sales."

While micromarkets inherently offer more pricing flexibility than the typical vending machine, it remains important to price products correctly, the speaker added. It is too easy to look at the micromarket concept and see only the potential for higher price-points and the ability to sell just about anything. But it still is a retail outlet operating in the real world. "Don't get greedy and price yourself out of the marketplace," he warned.

At the same time, micromarket operators -- and vending operators, too -- should avoid the mistake of undervaluing their services. "A vending machine's value is convenience," White pointed out. "So is a micromarket's. Our proposition is, 'We're putting a store in your location.' Is that a value? Sure it is. It's a service we provide.

"Traditional vending machines may bore your sales manager, who is excited by micromarkets; but do your clients see matters that way? If a micromarket is somehow better, then it should be more valuable to the location. Whatever it is, we shouldn't sell ourselves short. It isn't 'the candy bar'; it's that we bring that candy bar to you.

"We deserve a better return, and we must gain the confidence to charge for the real value of what we do," he emphasized. "You can make a micromarket whatever you want it to be, but charge what the service is worth."

Halloran added that micromarkets have a number of attractive characteristics, among which is the ability to accommodate odd-sized packages and containers, square bottles and the like. "These things are very difficult to vend, but they're in demand," he observed. "And people have no expectation of what they'll cost in a micromarket."

"Yes; it's important to re-think," White agreed. When customers are able to buy a number of items and pay for them all at once, they lose sight of the unit prices, especially if the payment is cashless. "I swipe and I go; what did it cost? I don't know.

"As an operator, I want to be in a position to say, 'You can pay me any way you want, but I want you to pay me a fair price for what I'm bringing to you.' If we're doing something new, then there are no expectations."

...And Profit

With the right people delivering the right products through the right processes, an operation should be profitable. To make it as profitable as it can be, attention must be paid to margins, management and metrics, and the panelists wrapped up the workshop by addressing these matters.

White defined "margin" as the ratio of an item's cost to the revenue it brings in, or, less formally, "How much will I get, and what will it cost me to get it?" Vending operators are aware of the factors that determine their margins: "You'd like 100%, but you've got to deal with product cost -- perhaps 47% of the price -- as well as commission, the cost of the equipment and the delivery system, the cost of the facilities, labor, insurance and sales tax. There's also loss, including shrinkage and parking tickets."

Halloran pointed out that the product categories with the most attractive margins are coffee and water, so these things should be placed front and center.

Turning to management issues, the panelists concurred that an ideal employee would be an investigator, an inquisitor, when necessary; a tech-savvy individual who loves to count things; an enthusiastic and thorough cleaner and organizer; and a "people person" who is always agreeable to customers. Few, if any, candidates will possess all of those attributes, so it is management's job to hire people carefully for the set of characteristics needed for particular tasks; all of them contribute to profit.

It is an old axiom that "what we measure, we improve," and micromarket management thus requires specific metrics by which to measure performance. These include shrinkage and sold-outs -- the fewer, the better -- and collection (or units sold) per visit. "You've got to inventory the market to determine this," White noted. It's also important to measure location volume, and to track which items are moving and which are not. "Once you know these things, you can stop, focus, and make it better, one area at a time."

Other profit variables that a micromarket operator should be prepared to encounter are the cost of new trucks, or bodies, with refrigeration equipment; power inverters; more cooler space in the warehouse; freezers; and an expanded LightSpeed automated warehouse picking line with additional lights. Labor expenses will include compensating drivers, training staff for additional data management, adding warehouse personnel to handle the greater number of SKUs required for a micromarket operation; and perhaps additional managers.