WASHINGTON -- The growth of traditional competitors and changing consumer preferences are two of the biggest threats to convenience-store retailers today. A number of convenience-store operators are differentiating themselves and growing in-store sales by investing in foodservice, from revamping legacy items to adding grab-and-go options, healthy lines and international foods. With more operators following suit, and other competitors vying for the same share of wallet, how can convenience retailers win in foodservice?
Clearly, adding foodservice is not the right decision for every operator. Before investing the big bucks, many operators are considering lessons from the original foodservice experts: restaurants. While not all restaurant strategies will work, many of these tips may be useful for operators. From Applied Predictive Technologies’ (APT) work with more than half of the top 15 U.S. restaurants and a number of leading convenience retailers, here are five lessons to consider when taking the plunge.
1. Test and learn: making data-driven decisions
Restaurants run structured in-market tests on everything they do, from menu design to dessert prices, to ensure that they make the most profitable decisions.
The only way a convenience retailer can be sure that foodservice is profitable is to run a business experiment. The test-and-learn process should inform every major decision regarding foodservice, including what types of foodservice to offer—whether a deli counter, a third-party franchise or prepackaged foods—how much store space to dedicate to foodservice, and where in the store to place it.
Adding a popular franchise may bring in new customers, or it may steal sales from current high-margin prepackaged offerings. As leading restaurants have found, the only way to be sure of a decision is to test it first in a small but statistically significant subset of markets.
2. The menu: giving food and beverage offerings a makeover
Many restaurants are rethinking their menus to keep up with new diner preferences. Strategies include adding seasonal offerings; introducing healthier, locally sourced choices; and expanding breakfast and lunch options to broaden customer favorites and bring loyal customers into the restaurant more often.
For convenience retailers, expanding menus can be a great way to draw customers from the pump into the store, but it’s important to tread carefully. From what restaurants have learned, some of the top considerations include:
Which new items best attract target customers and grow customer loyalty?
Which items can be discontinued without losing high-value customers?
Which menu designs and displays encourage more visits and add-on purchases?
3. Employees: making the most of your current investments
As numerous states have raised minimum-wage rates, restaurants and convenience retailers are coping with significantly higher labor costs. Many restaurants have already raised prices to cover these costs and are focusing on new ways to use their valuable staff.
Expanding foodservice can lead to new labor requirements that complicate staffing decisions. “How many employees should we staff, at what times?” becomes “How many employees of each type—bakers and cooks, for example—should we staff? How does this vary by day, week and season?” As labor costs increase, it’s more important than ever to keep workforces as productive as possible, especially when considering new fresh and made-to-order items that require skilled kitchen staff.
4. Pricing: finding value in localized and variable approaches
As restaurants seek new ways to maintain margins, many of them have created more bundled offers to nudge customers to buy more. At the same time, more restaurants are considering localized and variable pricing strategies to find hidden profit opportunities across their chains.
Similarly, bundling drinks, snacks and desserts with an entrée purchase may be worthwhile for convenience retailers, as well as introducing entrée offers such as two-for-one taquitos. Targeting pricing and promotional strategies by store and local fuel price can further drive toward a better bottom line.
5. In-store tech: making investments that enable flexibility
Digital menu boards and tabletop devices have become common in restaurants as many chains have rolled them out nationwide. The key question has shifted from “Should we introduce technology?” to “How can we use technology to provide a more personalized, enjoyable experience?” Some restaurants are using new menu boards to promote items based on weather patterns, and others are using tabletop tablets to offer gaming, pay-at-the-table and check-splitting options.
For convenience retailers, digital menu boards and ordering kiosks can increase speed to update prices, seasonal offerings and advertisements for new menu items. Also, kiosks can drive add-on purchases and reduce the number of employees needed to take orders. Retailers introducing larger seating areas may also find value in the advantages of tabletop devices for the sit-down experience.
Winning in foodservice means thinking like the experts. Consider these lessons from restaurants, who have been in the business for years, and you may find the right balance.
Marek Polonski is a senior vice president for Applied Predictive Technologies and has extensive experience applying test-and-learn in-market experimentation principles across a broad variety of functional topics in convenience retail.