Spotlight: Micro markets under the spotlight

The convenience services industry is huge and has broad – if perhaps emerging – appeal to the office products sector. OPI takes a look at this burgeoning segment and micro markets in particular.

Micro markets is a term that appears to be popping up more regularly in our industry right now, with some independent dealers in the US dipping their toes. But ‘dabbling’ is by and large as far as it goes for now in this sector. The potential is considerable, however, if operators can get round the myriad of challenges and risks.

So what’s a micro market? It’s part of the convenience services industry (CSI), a segment of the broader foodservice category. It focuses on three sub-sectors. The first is the traditional vending machine – the self-service device that automatically dispenses a food or drink after payment is made. This is a segment that the OP fraternity has talked about for over 20 years, but it’s actually now in gradual decline within the office work environment.

Second is office coffee services (OCS) which encompass facilities that provide coffee, tea and other hot beverages within the workplace. It’s a lucrative market accounting for around 20% of total revenues in the CSI category – estimated at $25.1 billion in 2016 in the US. Many operators in our industry are actively and successfully involved in OCS including, for example, Denver-based Source Office & Technology (see Big Interview, OPI November 2018, page 16).

Rapid micro market growth

Finally, micro markets is the third component. This segment is a relatively new addition to the category but, by some margin, is the fastest growing. Micro markets – often described as a ‘convenience store at the office’ – provide freshly prepared meals, healthy snacks and drinks that employees can purchase on site. While they still represent a relatively small share of revenues within CSI, they are rapidly being adopted by increasing numbers of businesses. In the US alone, it’s predicted that there will be 35,000 micro market locations by 2022, generating $1.6 billion in sales over the next ten years.

The National Automatic Merchandising Association, which represents the CSI industry, every two years commissions a census that surveys its 1,000+ member companies. Conducted by research and management consultancy Technomic, the most recent completed and analysed census of 2016 confirmed that, while industry operators were placing less emphasis on traditional vending operations, 100% of respondents expressed confidence in the continued rise of micro markets.

Self-service honesty system

Micro markets look and feel like modern convenience stores and consist of open rack displays and reach-in refrigerated coolers, coupled with a self-checkout kiosk. This self-service model relies completely on an honesty system, with consumers expected to pay for their purchases without a cashier on site. As a result, they tend to be used in ‘closed environments’ such as a workplace, rather than conventional retail spaces.

The surge in micro market uptake is partly driven by their popularity among users compared to traditional vending machines. Typically, they attract 18% more visits per day and spend per visit is, on average, higher. Because customers don’t require the correct change and can buy multiple items with one transaction, they tend to spend around four times as much per purchase.

Businesses also see other distinct advantages – the sales area itself can be tailored to whatever space a company has available and operators can experiment with layout and product mix to provide the best customer experience. A single micro market can easily stock between 150-400 products, compared to the capacity of a traditional vending machine which would typically hold just 40. This means operators can use this additional range to provide a more diverse offering, catering, for example, to those with special dietary needs, such as gluten-free or low-carb requirements.

All of this ties in well with the evolving workplace where employers want to offer the best experience to their staff, not only keeping them on site during the working day, but also providing well-balanced and healthy meals. And it all comes at minimal risk to them, as micro markets are managed by the operator, not directly by the employer. Companies typically merely allocate the space needed for a micro market, although profit share options are available too. 

The inventory management system tends to be automatic and web-based, which simplifies operations and ensures shelves are restocked regularly with fresh items.

Payments and pricing

Micro market customers are usually able to pay using cash or credit/debit cards, but the use of a prepaid or ‘stored value’ account – accessed using a smart card, fingerprint or mobile app – is becoming increasingly popular with providers, as the funds are then collected before goods are actually purchased. This move away from the traditional vending model completely alters the cash flow requirements of the operator, which is an added attraction.

Micro market products are typically priced 15-20% higher than those of a vending machine to offset costs incurred by the additional equipment, software and supplies required, plus the inevitable theft and product spoilage that occurs. However, this seems to be a price that consumers are willing to pay and, indeed, some employers are subsidising prices of healthy food options, as part of their overall staff wellness programmes.

According to provider Parlevel Systems, micro markets function best in office environments with an employee count of 50-200. Below that and it’s difficult to make sales that can justify the costs; above that and companies typically have onsite dining services. That said, micro markets are also making inroads in locations such as college campuses where having a ‘grab and go’ option alongside the formal refectory widens the variety for students.

Addressing the challenges

While the micro market concept seems attractive to both companies and their employees, there are challenges for those working in this area or indeed newcomers that want to take the plunge.

Firstly and rather obviously, the products on sale must be attractive to the customer. Tastes and requirements differ between individuals, workforces and regions, and the food choices available must reflect this. Thankfully, inventory tracking will show what items are popular and the mix can be tailored accordingly, with new product additions trialled to assess popularity before being permanently added to the range on offer. The trend for healthier food options, perhaps backed by company subsidies, can also be tapped into. The provision of low-calorie, nutritious fresh food, restocked daily, is an obvious way in which micro markets can set themselves apart from the traditional vending machine.

Layout is also important. Although most micro markets can be customised to work in the available space, providing an attractive, functional setting that ensures easy movement is vital. Access to power supplies for chiller cabinets and check-out systems, are essential.

The key interactive elements of the micro market are the self-service kiosk and the check-out area. Food items must be easy to see and select, and the payment system simple to use. Customers should be able to scan the items selected in an intuitive manner and complete the transaction without any technical hold-ups. The more advanced tills now use touchscreen technology backed by fingerprint readers, barcode scanners and touch-payment options, in conjunction with webcams for added security. The checkout system must be capable of tracking and recording sales data to provide accurate inventory and revenue reports. The golden rule is to offer an easy-to-use, robust system with low maintenance requirements that is suitable for high-traffic areas.

Product extension

Although primarily designed around the provision of food and beverage products, there’s no reason why the office micro market needs to be limited to this. Once the system is in place, it can be extended to offer other items, such as small electronic devices, travel gear, or pretty much anything that space allows.

The potential of micro markets is great, particularly for operators already heavily involved in the breakroom space that understand the requirements. That said, it’s an entirely different sell – the consumer is the customer (and the one who pays), not the typical B2B customer of a reseller – and the category is rife with regulatory risks because of the often perishable nature of the product sold. But for companies of a certain size, their breakroom will ultimately be challenged – a refrigerator with some basics, a range of tea and coffee-making facilities, a fruit bowl and some biscuits might not cut it anymore. Micro markets are the trend.