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Micro markets, a rising customer convenience, call for new operating practices

Attendees at the recent National Automatic Merchandising Association show at the Las Vegas Convention Center had a chance to hear how two micro market operators are addressing the service requirements.

Micro market operators Dennis Lang and Chris Cosentino describe their operating practices at the NAMA show.

May 6, 2019 by Elliot Maras — Editor, Kiosk Marketplace & Vending Times

Micro markets, unattended retail stores located in secure areas inside of buildings that allow customers to pay at self-checkout kiosks, have rejuvenated worksite foodservice in recent years. But because the technology — which allows customers to physically hold and examine a product before making a purchase decision — is fairly new compared to other types of onsite foodservice, micro market operators are still learning the best operating practices.

Attendees at the recent National Automatic Merchandising Association show at the Las Vegas Convention Center had a chance to hear how two micro market operators are addressing operating practices. The session, moderated by Alan Munson, chief commercial officer of Parlevel Systems, a micro market provider, covered a wide range of topics including inventory management, service delivery, product selection, warehousing and sales and marketing.

Alan Munson of Parlevel Systems notes the fast growth of micro markets in the last decade.

Because the majority of micro markets are operated by traditional vending operators, most of these operators are able to use existing warehouse space to support micro markets. They are also able to train existing staff to service micro markets and use vending delivery vehicles to service their customer locations.

Unique needs

Servicing micro markets nevertheless presents its own challenges. Some of the key benefits micro markets offer — greater product volume and variety — require different operating practices than vending machines. Hence, operating practices for micro markets, which entered the convenience services market in 2006, are still being developed.

Panelist Chis Cosentino, manager of Take A Break Vending in Escondido, California, said opportunities to offer better food is the top reason for convenience service operators to get into micro markets.

In traditional vending, the food presentation is limited due to the constraints of the cold food machine. "Food," in vending parlance, refers to fresh food and precooked food that is reheated in microwaves. Food has always been the least profitable category in vending (other categories being candy, snacks, cold drinks and hot drinks) since the waste factor is high and the retail price ceiling is low due to negative consumer perception of vending machine food. The micro market brings the opportunity to offer a greater variety of food (without the package size constraints imposed by vending machines) and less consumer price resistance due to improved perception of product quality.

Both Cosentino and co-panelist Dennis Lang, owner of NWA Fresh Vending & Micro Markets in Rogers, Arkansas, said they try to include higher-priced items in micro markets since they are more profitable.

"Bigger is better when it comes to the micro market," Lang said.

Asked what food items sell best in a micro market, Cosentino said it varies by account. In some cases, he said, products sell better when they are more highly priced due to a perception of higher quality.

Determining the right number of food SKUs has been a process of trial and error, Lang said. He has a weekly menu offering of seven to 10 food SKUs, which he sources from a caterer who prepares fresh food two days a week and from Einstein Bros Bagels.

The service schedule for micro markets is similar to vending machines; Cosentino services his locations weekly.

Merchandising skill critical

The merchandising presentation for a micro market, with more space and fewer product presentation constraints than vending, requires more merchandising skill. Many operators find they need someone with retail experience to oversee their micro markets.

"We went and found someone purposely that managed a retail store," Cosentino said.

Product warehouse operations are usually not an issue for vending companies that expand into micro markets. The panelists agreed that existing vending management software systems — which manage inventory, delivery routing, sales analysis and machine planogramming — also allow them to manage these functions for micro markets.

Lang said an optimization report allows him to know what products are selling best, both in his micro markets and his vending machines. He adjusts his product planograms every four to six weeks based on these reports.

Micro market providers offer their own software, but companies already using vending software often choose to rely on their existing software for both businesses.

"Going to two systems just didn't make sense," Lang said.

Mechanical service issues have not been a problem for either operator. Micro markets contain shelves, coolers, freezers and self-checkout kiosks, which have fewer moving parts than vending machines. 

How to address employee theft

When the discussion shifted to determining what types of customer locations to target, the topic of employee theft captured significant listener interest. Because products are usually kept on open shelves and in unlocked coolers, employee theft has been an issue for many operators. Because of this, Lang said he prefers to work with white collar worksites with a human resources manager that understands theft can occur and is willing to address it when necessary.

Cosentino agreed, adding that he does not work with locations that have a lot of temporary workers since they are less likely to feel responsible for their actions at the worksite.

Many micro markets have surveillance cameras to discourage theft, but not all locations want them.

For servicing secondary break areas with a smaller number of employees than the main break room, Cosentino said he uses vending machines rather than adding a second micro market. He also sometimes uses a "virtual" micro market; a cooler that employees can take products from and pay for using an app.

Customers want them

Convenience service operators have generally found customer locations receptive to having micro markets.

Cosentino said he has not had to solicit customers for micro markets; his website has generated five to 10 inquiries a month, which has been sufficient.

But because micro markets are still fairly new, operators frequently have to educate customers how to use them.

When meeting with a prospective account, Cosentino said he sometimes leaves the self-checkout kiosk at the location for the employees to explore before the location manager decides whether or not they want a micro market.

After the initial sales meeting, the parties discuss the length of the service agreement, the policy for handling employee theft, internet connectivity requirements and the product mix.

Operators typically ask for a service agreement, but some customers don't want to have them. Cosentino said he asks for a five-year agreement and requires a minimum two-year agreement.

Once the service agreement is signed, operators typically have to educate the employees how to use the micro market. An effective tool, the panelists agreed, is a "grand opening," during which the operator presents his products and instructs employees in how to select and pay for products, and how to load value to their stored value payment accounts.

"Having a grand opening in my opinion is an absolute must," Munson said.

"We want to interact with them as much as they want to interact with us," Lang added.

Cosentino said he offers free product samples as well as discounts to encourage first-time purchases. Lang said he loads $2 worth of credit for each employee's stored value payment account.

The panelists agreed that cash acceptance is a must, even in white collar locations. Munson said 78% of the sales in a micro market are made with cash.

As operators fine-tune their operating practices, micro markets continue to grow at a fast pace. By 2016, there were nearly 18,000 micro markets, a 42% gain over 2015, according to Technomic, a foodservice industry researcher.
 

About Elliot Maras

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Elliot Maras is the editor of Kiosk Marketplace and Vending Times. He brings three decades covering unattended retail and commercial foodservice.