Getting into the Foodservice Game
Temper the foodservice drumbeat with a dose of reality, experts say.
Steve Montgomery, president of Lake Forest, Ill.-based consultancy b2b Solutions LLC, gets many calls from companies wishing to get into the c-store business: “They all say, ‘We want to be Wawa.’ “So I say, ‘OK, can we help you get there? Yes. How soon? Well, five to 20 years,’ ” he says. “And they say, ‘What?!’
With that Montgomery pauses, then explains: “They have to understand, [Wawa has] built a foodservice culture and there’s legacy knowledge that you can’t just replicate. You can go out and hire people, but even Wawa finds it difficult when it expands beyond its historic geography because there’s no legacy there.”
There is a paradox to foodservice. Research firms, consultants and retailers alike have been beating the drum for c-store foodservice, stating that now’s the time to steal share of stomach while the economy is down and traditional profit centers are weak. We are repeatedly reminded that the one thing topquartile c-store chains share is a strong and successful foodservice program.
Here’s the rub: Foodservice isn’t a silver bullet. It doesn’t promise prosperity. But you have to do it to win. Foodservice may be the gate of entry to win at c-store retailing, but it’s an awfully high gate to clear.
CALL TO ARMS
There are two angles to the “time is right” headlines: Is the time right for consumers, and is the time right for the industry? Neither have solid answers.
In one sense, the recession set consumers up to trade down to c-stores for their foodservice needs. “They are much more apt to give us a try now because they are interested in value, price-value more importantly than anything,” says Jerry Weiner, vice president of foodservice for Rutter’s Farm Stores, a 55-unit chain based in York, Pa. “What we’re giving them is quality, and it’s worth what they’re being asked to spend.”
But according to research firm The Hartman Group, Bellevue, Wash., indirect industry trends are opening the gates for c-store foodservice more so than direct consumer demands. “From a consumer point of view, there’s not a lot of articulation that they are needing this or necessarily wanting this. But the broader food culture trends indicate that it is the right time to do this,” says Michelle Barry, senior vice president for The Hartman Group. “There are an awful lot of cues around small format, small footprint, ideas about local and communitybased offerings. And certainly there are broader food trends in terms of quality, freshness, different kinds of food preparations like global, ethnic flavors.”
For many of these trends, says Barry, the c-store business model is an ideal template, in particular scalability, “which other food manufacturers and retailers really don’t have the opportunity to do as well.” Tom Terlecky, senior category manager for ampm, La Palma, Calif., also sees the paradox of c-store foodservice. It is indeed a gate of entry, he says, but with standards that few companies are meeting. “The days of just having the roller grill, in my opinion, are kind of passing us by. It is not good enough anymore for the consumer, and you see many in our industry using the roller grill as a base, but also augmenting their offer to the consumer with other items,” Terlecky says. “This promise of upgrading the image, to me, is critical, not only for ourselves but for the industry in general.
“That status quo offer is out; it’s just not competitive anymore.”
DEFINING THE GATE
C-store foodservice is as nuanced as the retailers that provide it, and there is not a one-size-fits-all solution. Size, location, company culture and existing offer all play a role in what type of foodservice you offer, be it a proprietary program or a franchised QSR, grab-and-go or made to order.
Instead, the common denominator among all the c-store foodservice winners is an investment in money and culture—and one alone is not enough to bring success. All the granular elements of foodservice are required— running finances like a restaurant, hiring for hospitality, menu development, proper procurement, safety and sanitation—but to clear the gate, you have to act like a foodservice operator who happens to sell gas.
“We have a two-step rule,” says Montgomery. “Two steps inside of the door, the customer has to know what you stand for, and if two steps inside your door they are not aware that you’re in the foodservice business, then you’re not in the foodservice business.”
A deceivingly simple anecdote, says Montgomery, is cleanliness. C-stores understand cleanliness, a gate of entry for years. But the definition changes in a foodservice business. C-store cleanliness is sterile. Restaurants, while hopefully sterile in the literal sense, also must be appetizing. That includes abundant displays of food and colors that awaken the appetite, such as red and yellow.
“The price of entry isn’t simple,” says Terlecky. “It’s not as easy as putting microwave sandwiches in a cold deli case and letting customers microwave them. That’s not foodservice in a customer’s mind.
“Visibly show customers what you’re doing. Be consistent about it, be dedicated to it, be almost obsessed with it to make foodservice work.”
COMPETING WITH THE BIG BOYS
Foodservice is not an open market, and increasing your profits from food will require stealing them from someone else—most likely a QSR. Aside from opening your own QSR franchise— which certainly has the benefits of familiarity— you will need to compete with QSRs on two important fronts: brand awareness and price.
“It’s hard to differentiate yourself from other c-store competitors,” says ampm’s Terlecky. “Customers look at many cstore chains interchangeably.” Because of this, before convenience retailers can get aggressive with traditional QSR players, they need to raise the bar for c-store foodservice as a whole.
For ampm, for whom foodservice has been a “hero category” for more than 20 years, raising the visibility of its offer means marketing beyond the four walls of its stores. It advertises its foodservice program on TV and radio commercials and billboards.
“I can’t even remember the last time I’ve seen anyone else doing anything with TV, rarely billboards. It’s just on-site,” Terlecky says. “How much awareness are you going to generate there? You’re just playing to a captive audience.”
Word of mouth is also a crucial tool for building awareness of a foodservice program, and retailers should not passively stand by hoping customers spread the love. Tim Powell, director of research and consulting for Technomic Inc., Chicago, suggests a viral campaign asking existing customers to bring in a new customer to earn “points” toward a free product.
“It really has to happen one person at a time, and the risk is, you only have one chance for a good first impression. If they do not meet the fundamentals, you’ve just wasted the effort,” Powell says. Meanwhile, as the recession has given rise to aggressive price wars in the QSR channel, c-store retailers must stay focused on the greater price-value equation while highlighting the channel’s own strengths.
“I’ve been urging c-stores to actually increase prices on some of their items, just because a lower price can sometimes equal lower or inferior quality,” says Powell, who thinks c-stores can and should price according to limitedservice restaurants and c-stores in their immediate area. “I don’t think they should be afraid to raise prices, because our research shows that consumers and distributors have seen an increase in the quality of prepared foods offered in c-stores in just the past two years.”
With the recession also came a proliferation of QSR dollar menus. The risk of a c-store retailer trying to compete with dollar menus lies in how con- sumers use the two different stores. Largely, dollar menus are used as a lever, a traffic driver to get the customer in the store, who more often than not also buys an order of fries and a drink, or three of the $1 burgers.
Meanwhile, at c-stores, “it’s not a situation where customers are coming in and buying significantly more items then they would in a QSR,” says Terlecky of ampm. “C-stores generally have lower check averages and in some cases less frequency. So it is very difficult for us to compete toe-to-toe with a QSR dollar menu and continue to have a profitable food program.”
Instead, ampm focuses on the value proposition. Its R&D pipeline is full of unique products that other c-stores do not have—and in some cases, such as its line of tortas (Mexican sandwiches) being promoted in California, Arizona and Nevada, QSR chains don’t carry, either.
It also focuses foodservice messaging not solely on price, but on “bigger, better and larger,” says Terlecky. For example, ampm’s 4-ounce all-white-meat chicken sandwiches and 5-ounce double cheeseburgers are now being promoted for $1.49 each. “You would look at that and say, ‘That’s not aggressive,’ ” says Terlecky. “But if you look at our products and compare that to what they can get at a QSR, that’s a huge value for a customer.”
Barry of The Hartman Group supports the value proposition over price wars: “Consumers are trained to be competitive shoppers, and the notion of value isn’t necessarily always about the dollar. It’s about what the actual product is.
“So [it’s] quality and the overall experience, in terms of where they got it, how they were able to consume it, and what their post-consumption perceptions were. And at that point price goes much further down on their consideration set for whether or not they’ll participate.”
QSRs’ ace in the hole has been combo meals, and many c-store retailers have embraced bundling as well. Although combo meals play to QSRs’ inherent strengths, letting the customer place an order for all components— main item, drink, side—from the same counter, c-stores need to focus on their strengths: convenience and variety. “Don’t make it hard for your customer to figure it out,” says Jack Cushman, executive vice president of food services for Nice N Easy Grocery Shoppes.
“Don’t have the chips over in the chip aisle and the fountain over across the store. Don’t make it a drink that’s so specific that by the time you leave the sub line to go to the open cooler you don’t remember what the deal was, and there’s no marketing over there to support it.”
Canastota, N.Y.-based Nice N Easy offers some combo deals, including a free drink with a sub or two slices of pizza. “Our stores are set up so that it flows,” Cushman explains. “Our chips are set up in front of the sub line, and our signs for the two-slice deal are at the fountain. So if you’re not sure what you’re going to eat and you see the sign, you get your 20- ounce beverage, you go to the register and that’s where our slice tray is.”
But while that works for Nice N Easy, other c-store retailers need to remember to play to the strengths of their format. QSRs may be able to get the customer everything in one quick, convenient place, whereas c-stores offer countless snack and beverage options. Focus on strong signage and good store flow to highlight your variety of offerings.
LOCATION X 3
Beyond food quality and value, two other factors that can influence foodservice c-store success are location and size of chain.
Urban locations generate more foot traffic, whereas rural locations often have fewer restaurants to compete with a cstore’s foodservice offer and also provide a way to make a strong connection with the community through special events, fundraising and sponsorships.
The effect of the chain’s size will again depend on the company’s culture. Smaller chains and independents are more nimble and often have the owner—the key stakeholder in making foodservice succeed—working in the stores regularly. But these companies might not have the means to hire a food professional if necessary.
A larger chain, meanwhile, has more strength in brand visibility across its network of stores and more capital to invest, but it must work with its existing stores while lacking speed and flexibility to make change quickly. “If they are small, they may lack the skill sets and requisite supporting infrastructure,” Montgomery says.
“If they are large, then they have to ask, ‘Is this possible across my network of locations?’ ”
“I would think the smaller the chain, the easier it is to implement foodservice across the network,” says Technomic’s Powell, citing chains Rutter’s and Family Express, two moderately sized chains that, like many other top cstore performers, fall in the 25- to 50-store range.
Dick Meyer, president of c-store consultancy Meyer & Associates, sees more opportunities for larger retailers to be successful at proprietary foodservice.
“If you’re an independent and you can’t leverage a local or regional proprietary brand, then maybe you look at QSRs,” he says. “If you’re a major oil company, operating your own locations, and foodservice is not a core competency, maybe you should look at premade sandwiches, or a combination with QSRs. And if you’re a strong regional company that is company-owned, where people trust your brand, then you can think of these other [proprietary] things.”
Just as foodservice is replete with requirements to play, the risks are high: a lack of focus, the inability to deliver what is promised, lost investment and unrealistic expectations. “It’s like people saying ‘We should have fuel,’ without putting up a canopy,” says Meyer. “We tend to put up a challenge that just can’t be met, and people spend a lot of money.”
“I think another risk is occasions,” says Barry of The Hartman Group. “If you look at what some of the most common occasions are for c-store frequency, it’s usually more around convenience [and] indulgence. It’s quick, and it needs to be something that’s highly portable. And so the implications in terms of packaging, efficiency and also hanging onto those quality cues despite price perceptions or environment and store perceptions could be fairly difficult to contend with.” While c-stores must take on a foodservice business model to succeed, a continual exercise for retailers should be ensuring they are playing to the strengths of their channel, instead of trying to be something they are not.
“We do have some advantages,” says Weiner of Rutter’s. “We have speed. If you have speed, you have something that a lot of places can’t give.” Weiner has focused on speed of service in his foodservice department, creating a cook-andhold system where foods are finished to order.
“The other part is we actually have fuel, and that’s a benefit. I know a lot of people look at fuel and say, ‘Oh it’s an ugly thing for food.’ Really, it’s not. It brings feet to the real estate, gives people one less reason to go someplace else.”
Likewise, the broad offer of a c-store is both a strength and a weakness. While a traditional restaurant can focus on just one thing—selling food—the c-store retailer must sell food as well as a store full of other products. That difference can either hurt operations and infrastructure, or it can help drive traffic by being a one-stop shop. It all depends on execution and embracing foodservice business protocol.
“This is a big disconnect for many,” says ampm’s Terlecky. “They like the simplicity and execution of a convenience store, they want to apply that thinking to foodservice, and it’s not that easy if you want to actually grow your foodservice business.”
How to Become a Foodservice Pro
- Success in foodservice requires an equal investment in money and culture.
- Industry trends such as smaller formats and community-based offerings are a stronger call for c-store foodservice than direct demands from consumers for c-store foodservice.
- Consumers must first know you’re a foodservice operation before considering trying your food. Build brand awareness inside and outside of your stores through advertising.
- Don’t fall into the trenches of the QSR price wars. Focus on value over hot-pricing food items to help margins and consumers’ perception of quality.
- While a successful foodservice program will emulate a traditional restaurant business, don’t ignore the inherent strengths of a c-store that QSRs often lack: variety and convenience.