Micro markets were introduced to the convenience services industry over a decade ago, and they have helped many operators increase revenue and expand business into new territories. In Automatic Merchandiser’s 2019 State of the Industry report, 85% of operators said they added micro market locations during the previous year, either through conversions from vending machines or in new locations.
At this time last year, micro markets presented operators with many challenges, including a complicated cash flow from rapid growth, diversification of product offerings, the integration of fresh and healthy food, and planogram optimization. While this forum was originally intended to serve as a place for industry leaders to revisit these issues and discuss the current challenges operators face, the conversation has shifted, rightfully, to the coronavirus pandemic.
We gathered a few industry leaders to discuss how COVID-19 is impacting the industry, particularly in micro markets, and asked them to weigh in on what other challenges operators should be aware of during these difficult times.
COVID-19: An immediate threat
As people in communities across the U.S. adjust their daily lives to abide by social distancing and shelter-in-place or stay-at-home orders, many workplaces are operating with a lean staff or are closed altogether. Businesses are encouraging employees to telecommute until these guidelines are relaxed, resulting in a smaller number of people in the workplace and fewer people buying food and beverages in micro markets.
“Two months ago, I think micro market operators would have been talking about how to place more markets, improve operating efficiencies, and the next innovation in the space,” said John Reilly, president of Avanti Markets. “Avanti would have been discussing how to position our platform to support our customers’ operations and growth, innovation and frictionless shopping. All that has changed now. Our customers are talking about how to save their business and protect their employees. Avanti is also now intensely focused on keeping our employees safe and employed and our operators in business.
“We are all talking about shelter-in-place, lockdowns and essential businesses,” Reilly continued. “These are things we could not have imagined in January. The impact for all of us is that [as] the at-work environment continues to shrink over the next couple of months, sales will bottom out. How long they will stay down is unknown. It is heartbreaking to watch this happen. But markets will recover and that has to keep us going.”
Reilly said that the convenience services industry is taking the lead by pressing on the government to be recognized as an essential business.
“So, in these quarantines, lockdowns and shelter-in-place orders, we still support the food distribution supply chain, which is necessary,” he explained. biggest challenge for us is providing the right kind of support for our customers, and their biggest challenge is surviving all the closing offices.”
The coronavirus pandemic isn’t affecting every micro market account in the same way, according to Joe Hessling, founder and CEO of 365 Retail Markets.
“We’re doing daily checks on incoming orders, incoming transaction data and sales data,” Hessling explained. “You’re seeing some areas of the country be hit really hard because the outbreak is stronger there. But then you’re seeing significant spikes, where people are adding third shifts in retail distribution centers and also in manufacturing. So, it’s a mixed bag.”
Patrick McMullan, co-founder and president of Three Square Market, pointed out that since people are minimizing their time spent in public, micro markets serve an important purpose of providing food and beverages for those who are still working.
“Markets provide a solution to allow employees to stay at work and limit being exposed out in public,” he said.
Hessling said that while sales are currently slow, 365 is seeing considerably increased interest in their technology for future installs.
“We’re seeing a significant surge of multiples of our current volume as companies start to look at and reevaluate their offerings to go towards a selfservice offering in the future,” he said.
Prioritize hygiene and sanitation practices
With CDC and WHO advising that people maintain a distance of at least six feet from others to avoid spreading COVID-19, unattended retail provides an ideal situation in which there is no human for the consumer to avoid.
“Any type of automated retail is going to prove to do really well as people will evaluate their purchases differently,” Hessling said. “They’re going to make choices that are without a person on the other end. The only thing we all need to be worried about at this point is cleanliness and how we manage that. To me, that’s a process to solve, where you make sure everything is solved with a repeatable process.”
Micro markets serve an especially important purpose for essential businesses such as hospitals or distribution centers as they’re often the closest and most convenient place for employees of these essential businesses to purchase food and beverages. Reilly says that operators can best serve their accounts by creating an open and transparent communication platform with their customer base to alleviate any fear about spreading COVID-19.
“Talk about what you do to keep things clean — how to sanitize the kiosk, how employees are making sure their hands are washed and they’re doing everything they can to support the customer in the social distancing aspect,” he said. “Keep things clean; keep things separate.”
McMullan noted that operators could provide clear instructions to their accounts in order to properly clean equipment that users frequently touch, like kiosks.
“We have instructional videos on keeping kiosks sanitized,” McMullan said. “We have consistently used these and recently updated them in light of the outbreak.”
Challenges beyond the coronavirus
While most business owners in convenience services are grappling with how to manage the change in operations due to the spread of COVID-19, other challenges remain.
“I would say the biggest challenge facing micro markets right now is undoubtably legislative — state and federal governments continue to change legislation,” Hessling said. “Each time they make changes to legislation, it requires technology changes. The operators really don’t have much of a way of managing it; it really comes down to their technology partner. So, if their technology partner is not proactive when it comes to understanding legislative changes and the effects of those changes, the operators could end up with significant liability.”
Hessling pointed to the Biometric Information Privacy Act (BIPA) law in Illinois and the California Consumer Privacy Act (CCPA) law in California.
“They’re all just forms of GDPR, a privacy law that was passed in Europe that is coming to the U.S., so when they’re passed in different states, they require different changes,” he added. “Also taxation and currency control, the ability to accept cash and things like that. They’re all top of mind outside of the coronavirus.”
“Biometrics and privacy — that’s a big issue,” Reilly added. “How operators are dealing with the different laws that are coming up around the use of biometrics and databases and privacy policies coming out of California. I think those are challenges. What’s happening in the EMV world, and payments and security, are challenges that they’re faced with, and then, how to react to this growing frictionless environment.”
Hessling said he believes that despite the continued growth of cashless payments, cash will always be part of the U.S. society.
“Look at Europe and other places — even the highest users of cashless still have forms of cash being used because of its convenience and also because of social norms,” he said. “I don’t see that cash will go away. I think it will certainly be used less in certain areas. People use cash because it allows them to limit their spending, whereas with credit or debit, you can spend more.”
McMullan, on the other hand, has a different view on cashless payments.
“I believe that our society will be cashless within a decade,” McMullan said. “Mobile payments have doubled in the last 24 months and as more and more payment options like Venmo, Zelle and more become staples in our society, cash will become a needed elimination from our society.”
Of course, operators are faced with the same ongoing challenges that any business owner experiences, Reilly said, such as how to operate more efficiently and how to get better business intelligence and more dynamic information to operate nimbly and quickly. Every operator has to find balance between growing sales and optimizing their operation.
“There has to be an ongoing focus on how to grow your business,” he said. “Where can you get innovative? What new channels can you get into? What new products and services can you offer to the market that will continue to make you relevant and be attractive to the marketplace? If this [coronavirus pandemic] goes longer than we think it’s going to go, let’s keep looking for new channels, new distribution and new applications that you can deploy and use to continue to build the value in your business.”
McMullan agreed that operators should consider how unattended retail and convenience services can offer a multitude of solutions for their clients.
“We have migrated our focus from being a break room solution to a true self-service convenience solution for break rooms and beyond,” he said. “We bring solutions to where people live, work and play. Our trajectory of growth has never been better.”
A look further ahead
Hessling said that while the immediate future may look bleak, micro markets are still poised for success in the long run.
“Short-term, [it’s] negative for micro markets just because no one is going to work, but long-term, extreme positive,” Hessling said. “We see opportunities growing immensely because the safety and removing the human from the scenario.”
Reilly said that while many operators will likely experience a short-term decrease in sales, micro markets were born out of a time of economic downturn during the Great Recession of late 2007 to mid-2009, which led to a period of massive growth for the industry.
“That’s where the birth of micro markets started,” he said.
Hessling also noted that micro markets emerged from an economic slowdown at a time when customers were asking for more service, longer hours of operation and more products on a lower budget.
“If people stop going to work and people stop eating, then we’ve got a serious issue on our hands. But I don’t see those two things happening,” Hessling said. “Micro markets are a very affordable and flexible product, especially the newer ones that are coming to market. Operators will tell you that when they convert [from vending], revenues go up.”
Hessling said that in the future, we can still count on businesses wanting to retain talented employees.
“There’s always going to be a need for talent, and talent always desires benefits,” Hessling said. “An employee benefit is food and beverages at work. If we believe that will continue forever, then the need to facilitate that will continue forever. And that is where micro markets fit in, or vending machines, or anything else that’s unattended retail. I wouldn’t say we’re recession-proof, but we’re recession-strong.”
Hessling added that he’s optimistic about the future of micro markets and advises that operators use the opportunity of slowed business to convert vending machines into micro markets.
“The biggest thing I hear from operators is, ‘I can’t put them out fast enough.’ Now is a great opportunity to do that,” he said. “It’s a good opportunity to prepare yourself for the future. A micro market is a great example, but there’s a need for everything, from vending technology to mobile technology to dining to micro markets. To us, self-service is undoubtedly the winner of the argument, and we’re obviously bullish regardless of the economy because we’re all so bullish on selfservice as a social trend.”
Reilly said that he’s been optimistic about the future of micro markets, and the current slowdown due to the coronavirus pandemic has shifted his focus to helping operators get through this difficult time.
“Before today, we were very optimistic about the market and about growth and expansion,” he said. “It’s really an interesting environment. Now, we’re seeing things happen that we never thought could happen, and there’s a lot more to come — it’s still a very fluid situation. I don’t know what’s going to happen in the market space, but we’ll continue to focus on what we can deliver that helps operators. And if they come out of this with fewer at-work environments, then we have solutions for them to grow in a different channel.”
As for what these channels could include, Reilly noted that operators have the capability to expand into rapidly growing areas like contactless delivery, frictionless environments and more public locations.
“We were pretty bullish on the micro market space in our extension into other channels, and I think we’re even more so now as we look to see what happens,” Reilly said. “I think the micro market operators are uniquely positioned to be the last mile suppliers, to run the back office systems and to support the community. I can only talk about Avanti, but we can continue to innovate in the market and bring a frictionless experience to [operators] on the same platform so they don’t have to go and learn a whole different system. We can continue to offer our operator base the tools, the application and functionality to address the changes that the market is going to have. That’s how we can best support them.”
While the severity of the coronavirus pandemic may have caught some business owners off guard, McMullan advised that operators use this opportunity to be better prepared in the future.
“Operators will see a correction in their growth in the event of an economic slowdown only if they allow it to,” he said. “I always recommend that our clients have a two-year, forwardlooking plan that includes a shock scenario that includes an economic slowdown. In that event, they adjust their planning including ROI plans based upon that. But even with an economic slowdown, businesses are out there that need our services.”
Abby White
Abby White is a former chief editor for Automatic Merchandiser and VendingMarketWatch.com.
