Micro markets lead convenience services rebound after pandemic-driven setback

The year 2020 will go down as one of the toughest in convenience services, but micro markets, one of the fastest growing retail channels since coming on the scene more than a decade ago, are enjoying a fairly healthy recovery.

Micro markets — unattended stores that offer consumers open product shelving and automated cashless payment from a self-checkout kiosk — suffered the lowest loss on a percentage basis in 2020 compared to three other convenience services tracked — vending, office coffee service and pantry service — according to the 2020 NAMA Industry Census Report.

Eric Dell, executive vice president of the National Automatic Merchandising Association, provided an overview of the industry census during the NAMA show recently held at the Ernest N. Morial Convention Center in New Orleans. The association sponsored the industry census in partnership with Technomic.

Pandemic takes its toll

Industry revenue totaled $16 billion in revenue in 2020, a nearly $11 billion loss since 2019 due to COVID. Convenience services represented a 1.8% share of total foodservice in 2020, from 2.7% in 2018.

Vending, still the largest convenience services segment, fell by 32.5% from 2018 to 2020, following eight years of annual 3% declines, while OCS and pantry service fell by 79% and 82.5%, respectively, from 2019 to 2020.

While only 14% of vending operators reported growth during COVID, 21% of micro market operators did.

More importantly, micro market sales are expected to recover the fastest, Dell said, matching 2019 sales by the end of 2021, and are expected to outpace all the other convenience services segments through 2025.

Vending, OCS and pantry, by comparison, won't reach 2019 levels until 2024 or 2025.

"The industry was growing before COVID," Dell said.

Micro markets surge continues

Micro market placements have increased consistently every year since NAMA began tracking in 2016, largely at the expense of vending machines. Convenience services operators often find they can lower their capital outlay and labor costs by replacing a vending machine bank with a micro market.

The number of micro markets jumped 39% from 2018 to 2020, he said, while the number of vending machines declined by 21%. These changes follow longer term trends: The number of micro markets rose from 19,671 in 2016 when NAMA began tracking them to 43,500 in 2020 while the number of vending machines fell from 4.327 million to 4.14 million in 2020 in the same four-year period.

Unsurprisingly, the number of locations served by micro markets also rose, from 18,500 in 2016 to 34,400 in 2020 while the number of locations served by vending machines fell from 1.6 million to 1.1 million and the number of pantry locations fell from 35,000 to 4,500.

Dell said these changes were exacerbated by the pandemic.

While micro markets are the fastest growing industry segment, the channel represented still only 5% of the total convenience services industry in 2020, representing $1.9 billion in annual revenue and closely matching the percentage of OCS-only sales. Combined vending and OCS businesses accounted for 52% of industry revenue, while vending-only businesses accounted for 27%,.

A 63% majority of operators were engaged in more than one segment.

Recovery on the way

Operators were bullish on the future and expect to see a 64% growth in 2022 over 2020, according to the survey.

"Operators are optimistic," Dell said, noting 70% of operators are optimistic, 32% of traditional vending operators are optimistic and 21% of OCS operators expect sales to stay flat.

"The entire industry is expected to recover to near pandemic levels by 2022," he said.

A lot of the OCS may move to micro markets, Dell said, despite the fact that OCS coffee is free to consumers while micro market coffee is not.

"They (consumers) will actually buy the coffee in the micro market rather than take the free (OCS) coffee," he said.

"Put both in," Dell encouraged his listeners, as micro markets and OCS customers are usually separate audiences at work sites.

While 82% of convenience services operators sell coffee, 36% offer coffee in most or all micro markets while 46% offer it in some micro markets.

More than half, 52%, of the coffee machines in micro markets are single-cup brewers while 43% serve bean-to-cup coffee and 4% are coffee vending machines.

"If you're not selling coffee in your micro markets, this is an opportunity," Dell said.

Manufacturing expected to rebound

Looking at location types, both vending and micro market operators expect the greatest growth in manufacturing locations, at 39% and 50% respectively, followed by office buildings 23% and 46%, government buildings, 20% and 9%, universities, 15% and 4%.

The NAMA Census confirmed other industry reports on the growth of cashless payment, as 80% of vending machines accepted non cash payments, compared to 69% in 2018.

Among cashless payment sales, 82% were from debit and credit cards, followed by 19% that were contactless and 1% that were stored value cards. Biometric payments were less than 1 percent.

Stored value payments declined in 2020 from 87% to 19% of operators using this form of payment.

"That is direct impact of COVID," Dell said.

Manufacturing to rebound

Looking at vend product categories, non-food items offer a growth opportunity, Dell said, as only 8% of vending machines offered non-food items in 2020.

Among the non-food items, 20% were OTC drugs, 18%were personal protective equipment, 4%, beauty supplies, 6%, electronics, 4%, office supplies, 2%, hospital scrubs and/or prescriptions and 1%, tools.

For OCS, 80% of the revenue dropped due to office closures and restrictions.

There was a total of 1.44 million OCS locations in 2016 compared to 924,630 in 2020.

Dell said self-service has an opportunity to replace manual foodservice in the workplace, a view shared by 60% of operators surveyed.

"Vending has an opportunity if operator will use technology to their benefit and expand that traditional vending into new and different ways and areas," Dell said.

"I think a lot of non-traditional locations that have not thought about vending or micro markets or OCS, specifically public locations…I think there's more opportunity. We just need to think outside the box."

"We see really good growth by 2025," Dell said.