Micro markets first appeared on the convenience services scene around 2005 and have seen exponential growth across the industry. Although they have a look and feel similar to a convenience store, they are similar to vending machines due to their self-service capabilities.
On the surface, micro markets seem like a no-brainer for vending machine operators. A single micro market can hold anywhere from 150-400 products, while vending machines can hold about 40 products. However, the additional selection of products comes at a cost. For many operators diversifying their businesses by adding micro markets comes with hidden costs in terms of time and money from both an implementation and day-to-day operations standpoint.
More SKUs = Increase Inventory Costs
If you are not ready to spend additional time into managing your inventory, you may want to think twice before entering into micro markets. In Automatic Merchandiser’s 2016 article, “The Hidden Costs of Micro Markets,” Pete Johnson, Food & Beverage Manager of Quail Mountain Vending, comments on the complexities and costs associated with managing an increased amount of product SKUs offered by micro markets.
“The sheer labor cost of changing inventories and backend work to make sure every product goes into your store and comes out of your store will be surprising when you first get into micro markets,” said Johnson.
In addition, depending on the type of products you are selling, you may need to upgrade your vehicles as well. For example, if you plan to sell frozen products and your vehicles are not refrigerated, then you will have to shell out extra money on freezers or coolers, which can cost as much as $10,000.
An advantage of a more limited range of SKUs offered by vending machines is that you can still offer customers the most popular products while creating efficiencies in your backroom inventory process. Plus, with a more limited range of SKUs, you are more likely to have a lower spoilage rate than if you have two or three times as many SKUs.
Open Access = Product Shrinkage Due to Theft
Shrinkage due to theft is common in the retail sector and likewise it is especially prevalent when it comes to micro markets. According to Automatic Merchandiser’s article, “The Hidden Costs of Micro Markets,” Rod Nester, president of Clarinda, Iowa -based Smith Vending, found out about this firsthand.
“We can burn two or three days trying to go through footage and working with clients to resolve theft issues,” said Nester. “Pretty soon I’m spending $400 to $600 in lost time to catch someone who stole a $1.50 bag of chips. It’s expensive,” said Nester.
Traditional vending machines do not face these problems because the consumer pays for the product before receiving it.
More Data = Increased Software Costs
The cost structure is another concern when it comes to considering micro markets. While many micro market software platforms can identify what product is selling, where it is selling, when it is selling and in some cases, who is buying it, some operators find this level of data unnecessary considering the high costs associated with the software. A few years ago, Kim Curtis, president of Good Stuff Vending, found the provider costs so prohibitive that she went out and created her own micro market software.
“We do not have 50 or 100 markets – we have three – and the monthly fee I would have had to pay were too high for the number of markets I operate and the revenues they bring in,” said Curtis.
The cost of entering micro markets has gone down significantly in recent years, but there are still substantial drawbacks. While vending machines might not offer as much product variety as a micro market, they provide security, are easy to manage, and have minimal software costs.
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