From Vending Times
Selection, Display And Rotation Can Stimulate Micromarket Sales: Part 2, Product by Tim Sanford and Emily Jed –
MYRTLE BEACH, SC — The fast-growing micromarket business was the subject of a special three-hour forum at the 61st presentation of the Atlantic Coast Exposition. Held on the afternoon before the formal opening of the 2015 convention, the add-on educational program was moderated by Scott Halloran, Trolley House Refreshment Services (Richmond, VA). 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). White is a veteran of Monumental Vending (Baltimore, MD) and was instrumental in implementing its launch as an operation based on the latest information technology. Halloran, an early adopter of micromarkets who reported that Trolley House had 55 of them in the field at the time of the session, led off by reporting that operators spearheading the adoption of the popular self-service retail stores have identified “four Ps” that, if addressed from the outset, will minimize friction and wasted effort, while maximizing the chances for early and consistent success. They are People, Product, Process and (of course) Profit. Leading the discussion of the first P, People, was Canteen’s Peak. He pointed out that it is difficult to implement a novel business model with a staff that is thoroughly accustomed to the present one. “Vending guys will make vending decisions,” he warned. “We found that out with coffee service.” The solution, he said, is to assemble a new staff that can be trained from the start in the skills required to merchandise a micromarket installation (see VT, December 2015). The process starts with retaining a “market manager,” someone with a background in merchandising a wide variety of products that are not protected by being displayed behind glass. It extends to new route drivers who have not learned vending habits, and may include warehouse personnel. “How do I find all these people with all those skill sets?” an audience member asked. “You start by wearing a lot of hats,” Peak replied. “And you implement a lot of internal change,” Halloran added. “There’s a new technology component to micromarkets; you have to pre-kit your route orders, whether or not you’re doing that in your vending business.”
Bourne, who led the discussion of Products (the second P) noted that he brought a background in direct store distribution of packaged goods to his new post at Trolley House. “You’ll need lots of different new products for micromarkets,” he emphasized. “You need your distributors to understand that.” Thus, supplier management is an essential component of successful micromarket operations. Consumer demand for “healthier” alternative snacks is increasing, Bourne observed; these range from baked and low-carbohydrate selections through gluten-free and organic to all-natural. In response, distributors have been working to bring these “specialty” items into the vending channel — which includes micromarkets — but certain products may be available through an operator’s present supplier only in particular regions. Operators can do their homework to compile market information that can persuade a distributor to stock desirable new items, he added. Consumer snacking remains a prevalent behavior, and it continues to evolve. Brands matter, just as they do in vending. Published market analyses show that snacking has increased across all dayparts from 2010 at least through 2013. It does not seem to be slowing down, but it is changing; 62% of consumers at present say they want lower-fat snacks, compared with 32% in 2011. And 61% consider their brand of choice to be an important attribute of a snack; 73% of consumers look for a favorite brand when choosing a snack. Salty Snacks Surge Among snack categories, salty is the driver of growth in convenience stores. Studies by IRI for calendar years 2011 through 2014 showed that, while candy represented 33% of sales, the candy category grew at a 20% rate. Salty snacks, at 32% of sales, saw an increase of 26%. Pastry, at 16% of total c-store sales, grew at a 12% rate; meat snacks, at 13%, exhibited growth of 9%; and nuts and seeds, at 9% of the total, grew at a 6% rate. Bourne emphasized that precise inventory control is essential to micromarket operations. Each market should be inventoried at least monthly, and drivers should carry tablet computers with scanners for best speed and accuracy. Each inventory visit should be followed by preparation of a “no scan items” report, which helps to identify slow-moving items — 15% of market inventory. “Watch this,” he warned. “Don’t let your markets get sparse; they can’t look unattended.” Survey data can help persuade a distributor to add items for which demand is demonstrably increasing. Planograms are as essential in micromarkets as they are in vending, and require close attention to location sales and consumer trends. There is no one right approach to planogramming, Bourne said, and present software tools are limited. The object of planogramming is to apportion space to a product category on the basis of its sales volume. The place to start, Bourne explained, is to determine what products the operator wants to carry, using market data; vending sales are a good starting-point. “Be sure to carry strong local and regional brands, as well as the national best-sellers,” he added. In the Carolinas, for example, the beverage menu should include Cheerwine. “Consumers will search for these items,” he pointed out. The placement of products in display cases also is important, Bourne said. “You should place your top sellers on the bottom shelves,” he instanced, evoking memories of the product-placement discussions caused by the advent of glassfront snack machines four decades ago. “Place impulse, discontinued and high gross-profit items on the top shelves; and put new items at eye level, ideally in the ‘first’ position — closest to the door handle — because that’s where the customer looks first.” Planograms should be refreshed quarterly, or semiannually at the least. “Our goal when we do this is to eliminate 10 to 15 items, and introduce 10 to 15 new ones,” Bourne pointed out. It also is important to make use of promotions to boost sales and invite market patronage.
Larger markets in particular will require the operation to have more stock-keeping units in inventory, the speaker said. These will include fresh food and refrigerated and frozen snacks, stocked in reach-in coolers and freezers, as well as larger “sharing” sizes. This need must be met by increasing the size of walk-in coolers, making better use of warehouse space through added racks, and implementing or expanding a route-order “prekitting” system. It can be greatly expedited by speeding and simplifying the order-picking process with LightSpeed’s warehouse automation technology, adding refrigerated vehicles and making sure that the warehouse manager understands the new requirements. The question of using customer surveys to help in category planning, planogramming and discussing new product opportunities with distributors led an audience member to ask, “How do you go about conducting a survey?” Bourne replied the process can be as simple as maintaining a “comments box” or as sophisticated as an online program using an interactive tool like Survey Monkey (surveymonkey.com). “If you do surveys, try giving people an incentive for participating,” another audience member suggested. The speaker agreed, suggesting the micromarket operator reward participants with a sandwich. Bourne emphasized that a good fresh-food program can be essential in realizing the full earnings potential of a micromarket. “Fresh food represents 30% of overall sales,” he reported. “It draws consumers in and increases the value of the average purchase.” For best results (as with fresh-food vending), it’s important to rotate menu options, slot in seasonal and holiday-themed selections and feature regional favorites, when possible. Operators unfamiliar with commissary operations should start off on the right foot by making sure everyone involved in food preparation and transport is certified under the National Restaurant Association’s ServSafe food safety training program for food handlers (servsafe.com). This brought up the traditional vending question of whether it is possible to make money selling fresh food; and, if it isn’t, whether the food component can be provided at cost, more or less, while getting the operator into locations that generate profitable snack and beverage sales. In reply to these questions, centered on food waste, Bourne said that fresh food has a short shelf-life — and, as in vending, this reality must be dealt with by rigorous management and attention to detail. An advantage micromarket operators have is that targeted price changes can be made in real time. “Anything that sells for $3 or more and has a ‘sell-by’ date of today can be discounted to $1.99, for example. If people wait for that discount before they buy, that’s fine with us. You could offer 10% off all sandwich sales on Friday,” Bourne instanced. Stocking the food cooler to optimize sales also can improve matters, he added. A workable display plan might arrange fresh, premium and “better-for-you” items on the top shelf. Visible at a distance, these attract customers to come and take a closer look. Suitable selections include salads with a protein component, hummus, premium yogurts and parfaits. Shelves in the middle of the cooler, at eye level, should be stocked with higher-price, higher-margin items, Bourne continued. These may include breakfast items (a category with growth potential), with five or six selections on a shelf. He has found that breakfast sandwiches sell best; sausage-and-biscuit is the top seller. The middle of the display also can include heat-and-eat lunch sandwiches in “fresh appeal” packaging: hamburgers — a cheeseburger at the minimum; bacon cheeseburgers also sell well; and a breaded chicken sandwich. These premium heat-and-eat sandwiches warrant one or two shelves, in typical locations. They should be complemented by cold deli, upscale and “healthier” (but generously sized) sandwiches, which also have eye-appeal. The basics are turkey and cheese, ham and cheese, Italian meat combinations, and flatbread or wrap sandwiches. This arrangement leaves the lower shelves available for lower-value and commodity items, as well as snacks; one or two shelves can be devoted to these. Examples of suitable products are cheese sticks, hard-boiled eggs, cheese-and-cracker combos, milk, premade fruit cups and vegetables. A freezer case can be stocked along similar lines. The top shelf might display “trending” foods and ethnic favorites such as premium Asian selections, wraps and specialty items. Again, these are visible at a distance and will attract patrons’ attention. Some judgement is required in finding trendy items that are, nonetheless, mainstream; and it’s important to keep reheating times in mind when choosing products for this position. The eye-level middle shelves receive premium protein items, specialty appetizers and finger foods; pizzas (pepperoni has proven a top seller for Trolley House); paninis and entrees. Mainstream favorites like pasta dishes, chicken and rice, lasagna and similar staples should be chosen. Dessert items with higher price-points also do well on the middle shelves of a reach-in freezer, Bourne added. He noted that it’s best to offer desserts that don’t closely resemble mass-market frozen items available in supermarkets, to avoid comparison shopping. This leaves the lower shelves, which Bourne said can represent 40% or more of the freezer, for ice cream novelties: “drumsticks,” ice cream sandwiches, Snickers and Twix bars and other ice cream bars. He recommends displaying these in baskets to maintain a neat assortment and minimize damage; six to nine baskets can work well. Destination Grouping Considering product variety overall, Bourne said, the operator should design a micromarket installation with “destination zones” in mind. Thus, a “breakfast zone” might position the coffee brewer in proximity to a display containing pastry, and an “impulse zone” near the checkout kiosk can feature gum and mint selections. He reported that Trolley House presently is experimenting with “vertical planograms” to make these destination zones easier to implement. In essence, a vertical planogram arranges items in a category within its own vertical shelf array, rather than spreading them out horizontally on as much linear shelf-space as required by their popularity. The vertical groupings may be easier for patrons to navigate. For purposes of positioning and promotion, it can be useful to remember that the “dayparts” of a typical micromarket operation are breakfast, a morning snack (9 a.m. to 11 a.m.), lunch, an afternoon snack (2 p.m. to 4 p.m.) and dinner/ride home. “Do you run a commissary?” a seminar participant asked. “Yes,” Halloran replied. “We have a commissary because of our micromarkets.” In his experience, the food waste in micromarkets runs from a low of 3% to a high of 9%. “We try to control it,” he said. “This is the hardest thing to do.” “I’m losing on fresh food,” an audience member said. “But I think that, without a commissary, you can hope to break even — even make a buck, but not lose — while you get the drink and snack sales.” Halloran noted that food obtained from an outside supplier has a margin averaging 35%; commissary food has a 55% margin. Still, it’s possible to lose money on it. Bourne added that using allocation sheets to keep track of daily returns can help in keeping waste to a minimum. “Remember that, with perishable product, a fast nickel is better than a slow dime,” he said. “Do you get people who ask for smaller portion sizes?” another participant inquired. “Local delis don’t think that way; to them, bigger is better.” Bourne agreed, and said that working diligently to find satisfactory suppliers is about the only remedy. Halloran added that, in his view, “The micromarket business is a single-serving industry like vending. I don’t want extra-large bags; if you’re in an office, what do you want to eat? You’re not at home in front of the TV set, where no one is watching! Think ‘single serving’; people don’t stash a large package in their desks and eat it all day long.” “And look at the location demographic,” Bourne recommended. “Males tend to want large sandwiches; women often want smaller ones. We have 17 items on our menu, and we try to provide something for everyone.” “What percentage of your products come back as stales?” an audience member asked. “Nearly all our stales are fresh food,” Bourne replied. “And that’s the way it should be. You shouldn’t have snacks or beverages going stale.” The consensus appears to be that between 30% and 35% of fresh food will come back. An operator in the audience suggested that having a conversation with the account can be very valuable: “You say you want wider variety, and we’re happy to provide it; but look at this spreadsheet. Are you willing to help us by offsetting the expense of food waste?” Bourne concluded by pointing out that the snacks, food and beverages sold by convenience stores address an audience not dissimilar to the one that patronizes micromarkets. Both rely very largely on preportioned single-serving products (as does vending), and he suggested that a solid starting-point for thinking about the expanded variety of items needed to keep a micromarket interesting to patrons is to study the data on c-store performance and sales trends published by market research organizations. With the issues of appropriate staffing, product selection and menu development understood, the operator’s next step is to design and implement the processes required for smooth functioning and close management oversight. Process thus is the third P, and will be the focus of our next exciting episode!
SEE ALSO: Early Adopters Share Wisdom On Four Ps Of Micromarkets: Part 1, People – http://www.vendingtimes.com/ME2/dirmod.asp?sid=&nm=Vending+Features&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=B2482BC89704465E9F55DF9D7D81E9CF
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