Micro Markets: The Next Step in The Retail Evolution
“It is a well-known fact that bringing in technologies in the retail sector is good for customers” — N. R. Narayana Murthy, co-Founder, Infosys
Trade is the oldest activity of mankind, that has been evolving over the years. In the 1880s the trade took a big leap through the first vending machines invented by Percival Everitt in England. Initially, the mechanism was relatively simple when they used a coin to unlock a padlock so that the user could open a compartment and take the product.
These machines have evolved over time and through technology, becoming a relevant element in the retail sector. There are currently more than 15 million vending machines worldwide, in the United States, these vending machines represent a market size of more than USD$22bn. Today we find vending machines in any location such as schools, offices, airports, subway stations, etc.
In the same way, trade in the traditional channel has evolved integrating technology to increase the convenience of its customers. For example, convenience stores now act as bank correspondents where customers can make payments for any product or service and even withdraw money through technologies such as Sonect. Also, they have become a self-attended format where cashiers are not required for the operations, like Zippin. According to Passport, there are currently more than 195k stores in the United States with an estimated market of USD$135bn.
This evolution has allowed startups to focus on technological or business development. There are multiple technologies that are responsible for enabling vending machines or convenience stores, improving the user experience. For example, contactless payments (Mishipay), product location (Oriient), analytics (Veda Labs), among others. These startups focus on technological development usually charging as SaaS, some of them charge a fee per transaction or a commission per sale.
The main commercial development comes from self-attended or robotized stores, these startups usually own the inventory and earn a commercial intermediation margin from the sale of the products.
These developments currently refer to micro markets. The main micro markets are:
- Automated convenience store: It is an automated commercial space that does not require personnel for customer service. The user’s journey begins when, through their cell phone, they open the doors to access the store. Inside, cameras installed on the ceiling follow their position. The user approaches a shelf and takes the product he wants to buy. Sensors detect this movement by crediting the product to the user’s shopping cart, reconciling the store’s inventory and sending an out-of-inventory alert if applicable. The data processing is developed with Edge Computing and on servers in the cloud. When the user leaves the store, the purchase is automatically processed in their digital wallet and the store credits the payment. Amazon Go is one of the use cases that is being closely followed by companies like Zippin, Accel Robotics, AiFi, Grabango, AWM.
- Robotized store: It is a store where the customer selects the products through a screen. Inside, robots select the products and place them in an output tray. The user opens the tray, takes the order and the payment is processed in their digital wallet. There are companies with this type of model such as 1M Robotics in Israel and Swyft in the United States.
- Smart vending machine: This is the evolution of traditional vending machines with more than 100 SKUs of capacity. The transaction is controlled through the use of software on the machine or on a mobile device. Similarly, some companies such as Smart Retail in Singapore have integrated rewards programs and personalized promotions through their vending machines.
- Smart locker: Today any closed refrigerator or shelf can become a dispensing machine. A conventional refrigerator is transformed by installing sensors that detect the movement of products, cameras that recognize the image of the person and the product, and a magnet that serves as a padlock so that the user can unlock it through their cell phone. Some companies that are promoting this technology are Intuitivo, Zippin, and Stockwell, among others.
- Mobile micro market: Today there is no need for the customer to go to a vending machine or to the convenience store, companies go to your home. Some examples are GoodieBoxx, Nuro and Robomart where the user downloads the application on her mobile device by entering her personal data, selects the products of interest and the order is processed to send home. An autonomous vehicle travels to the customer’s home, upon arrival the user receives a notification to go out to collect the products. Once the delivery is made, the payment is processed through the digital wallet.
Technological evolution has drastically impacted the retail sector including vending machines. This evolution has focused on increasing user convenience by generating economic value for startups. The COVID-19 pandemic has accelerated this trend, this is the main reason why micro markets will become an important part of consumers’ lives.
“You walk into a retail store, whatever it is, and if there’s a sense of entertainment and excitement and electricity, you wanna be there” — Howard Schultz, CEO, Starbucks
Hector Shibata. Director of Investments & Portfolio at ACV a global Corporate Venture Capital (CVC) fund and Adjunct Professor for Entrepreneurial Finance.
Ricardo Latournerie. Investment analyst at ACV.
ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.
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