How are foodservice sales trending in convenience stores? It’s a question we hear often—and no wonder. Headlines abound regarding foodservice program development, the recruitment of pros out of the restaurant industry, and the shift to larger store footprints to accommodate more offerings. And the increasing number of foodservice companies exhibiting at industry trade shows further points to tremendous investment in the channel.
With all this activity, one would assume c-store foodservice sales are growing by leaps and bounds. At least double-digit growth, right?
The numbers tell a different story. While c-store foodservice is picking up momentum, the channel underperforms the industry overall. Technomic projects total foodservice to grow 5.0% in 2016, while a 3.9% gain is expected for c-store foodservice.
But don’t be put off, because that disparity doesn’t quite tell the whole story. To grasp what’s really happening today in c-store foodservice, it’s important to first clarify what it is and what it isn’t.
Nine out of 10 c-store locations offer foodservice, defined as food and beverage items fully prepared or assembled on-site or obtained from a commissary. Manufacturer packaged snacks, foods and beverages are excluded from the foodservice category.
In Technomic’s tracking, quick-service restaurants operating within the four walls of the convenience store are also excluded (although they’re captured in our limited-service-segment metrics). Instead, Technomic tracks proprietary foodservice programs that are developed, branded and executed by the c-store operator, as well as third-party turnkey programs that are operated by the retailer, such as Hot Stuff Pizza and Krispy Krunchy Chicken.
Peel back the onion further, and you’ll find that c-store foodservice programs are as diverse as the industry itself, ranging from a simple coffee pot to a merchandiser filled with grab-and-go sandwiches to full-blown, made-to-order offerings involving salads, burgers, pizza and specialty drinks prepared by culinary pros and presented in an environment complete with digital menu boards, seating and perhaps a drive-thru window, a la Sheetz, Wawa, Stripes and Parker’s.
Reflecting that diversity, Technomic has identified three tiers of c-store foodservice programs: basic, premium and superpremium (see sidebar at right). Superpremium programs echo the look and feel of a restaurant with menu items and flavor profiles on par with quick-service or even fast-casual concepts. Many of these superpremium operators are achieving steady and rapid gains—some in the double digits—and are garnering industry attention, adulation, emulation and even envy along the way.
But they’re just one piece of the story. Exciting as the trend toward restaurant-like offerings may be, these operators are not the norm, nor are they numerous or large enough to move the needle on the entire industry’s growth rate. The bottom line is that only a handful of c-store chains operate at the superpremium level. The majority—nearly nine in 10—offer a basic foodservice program. That means approximately 125,000 locations out of the nearly 140,000 stores offering foodservice are not presenting a restaurant-like program. For the most part, their sales growth rate is notably slower than the superpremium operators, thus creating a drag on overall channel performance. Hence, the c-store industry lags total foodservice growth.
The c-store industry is a large and mature one, and changing its product mix, core competencies and even store formats to fully engage in foodservice will take time. Recognizing the value of foodservice for increasing traffic, sales and profits, many operators with basic and also premium and even superpremium foodservice programs are working to enhance their offerings, service levels, merchandising and marketing. More than eight in 10 (82%) convenience retailers overall report that they’re investing in their foodservice programs, and nearly nine in 10 (87%) identify foodservice as a strategic priority.
The level of investment and prioritization varies significantly from operator to operator, as does the ability to execute, so some are seeing strong results, while others are realizing nominal if any gains.
The overall effect of this trend is positive, however, and the c-store industry is well-positioned to capture more on-the-go consumer dining occasions. Today’s consumers, particularly millennials and Gen Zers, are increasingly receptive to prepared food and beverages in c-stores. The share of consumers overall saying they are purchasing foodservice items in convenience stores has risen 9 points since 2013 to 29% in 2016.
Where are those occasions coming from? Primarily from fast-food restaurants. In fact, our research shows c-stores are stealing more occasions from fast-food eateries every year, as well as from coffee/beverage and fast-casual concepts. Also, a bit more than half of consumers (56%) overall say c-stores are just as capable as restaurants in offering fresh foods and beverages, with 67% of millennials and 60% of Gen Zers in agreement.
Consumers are increasingly on board, but is the entire industry? For all the talk about prioritizing foodservice, what individual operators, suppliers and wholesalers really need to determine is whether they will commit or keep up. A crucial factor is in the industry’s favor: consumers, and their desire for convenient solutions to facilitate their increasingly hectic lifestyles. Challenges, however, are numerous and include rethinking store formats, staffing, operations, distribution systems and marketing, as well as implementing training, procedures and accountability around food safety.
These obstacles are not insurmountable, as food-forward concepts such as Sheetz and Wawa demonstrate. Labor issues loom large, as a more skilled workforce is needed to execute these enhanced foodservice programs; the recruitment and retention challenge is heightened by the fact that the nation is at full employment, and further compounded by the move toward a $15 minimum wage.
Finally, other channels are pursuing the on-the-go foodservice occasion with equal zeal. We project supermarket foodservice to grow 8.9% in 2016, significantly outpacing c-stores, not to mention foodservice overall, while the quick-service segment is expected to finish the year up 4.5%.
The answer to the question of how c-store foodservice is trending is more complex than a single projection figure. The real question to ask: How is c-store foodservice trending for your organization? The answer lies largely in your level of engagement with the category.
Are you committing or keeping up? Either approach may be appropriate depending on your core competencies and overall strategic objectives. The key is to determine where you’re at, where you’d like to be and what you’re able and willing to do to get there.
We project consistent, slow and steady increases for c-store foodservice over the next few years, and anticipate the share held by basic programs will erode over time as more retailers move toward premium and even superpremium programs. Convenience operators report that their prepared food and beverage sales increases are typically commensurate with their investment of time, effort, talent and innovation. Consider that 3.9% the beginning of the story, the number to benchmark against as you build your own foodservice narrative.
Food, Beverages, Smokes, Cokes and More
Convenience-store foodservice doesn’t happen in a vacuum. Prepared foods and beverages are offered in concert with a range of merchandise satisfying myriad consumer need states—all in less than three minutes!
To better meet the industry’s information needs, Technomic is now expanding its convenience-channel coverage beyond prepared food and drink to include the following categories:
- Packaged beverages, including soft drinks, bottled water, energy drinks, coffee and tea, and alcohol
- Packaged snacks, such as salty snacks and candy
- Tobacco, ranging from traditional tobacco products to e-cigs and vape products
- Technology, such as customer-facing technologies and operations systems
- Fuel, including gas, diesel and emerging fuels
This expanded scope will play out in our Convenience Store Insight Group, Consumer Brand Metrics (CBM), Digital Resource Library (DRL) and other programs, as well as the research we conduct in concert with CSP and on a proprietary basis. That said, we’ll maintain a sharp focus on our core competence—foodservice—in order to help guide the industry’s foray deeper into this increasingly competitive category. For more information, contact Donna Hood Crecca at dcrecca@technomic.com.
Donna Hood Crecca is associate principal of Technomic. Reach her at dcrecca@technomic.com.
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