In 2009, The NPD Group did a study called “The Future of Foodservice,” in which the research firm predicted that food sales at convenience stores would achieve significant growth in the coming years, even beyond the expected spike of fast-food locations.
The study has proven to be nearly prophetic.
According to Bonnie Riggs, restaurant industry analyst for Port Washington, N.Y.-based NPD, foodservice visits to c-stores increased 3% in 2011, whereas similar visits to fast-food locations inched up only 1% last year.
Investing in the Upswing
Of course, other areas of the c-store industry have not experienced the same growth rate. Many retailers have discovered that their foodservice sales have only partially offset losses experienced as a result of declining sales and shrinking margins among cigarettes, gasoline and other traditional c-store staples.
James Venable, vice president of operations for chicken program Chester’s, Birmingham, Ala., agrees, pointing out that c-stores are challenged by margin compression of commodities such as milk, bread and cheese. “To that end,” he says, “the retailers are looking for more foodservice options within their c-store because the gross profit margin and the margin contribution dollars are higher in the foodservice category than any other category inside the store.”
As a result, it hasn’t been merely a wise choice for many retailers to shift their focus toward foodservice operations—it’s been a necessity. According to Venable, 80% of c-stores’ in-store sales are from cigarettes, foodservice, packaged beverages, beer and OTP, an assessment confirmed by preliminary numbers from the NACS State of the Industry Report of 2011 Data. While foodservice ranks second-highest in sales among c-store retailers, Venable says, the category scores first from the standpoint of margin contributions.
For many operators, the investment has clearly paid off. Paul Servais, retail foodservice director for La Crosse, Wis.-based Kwik Trip Inc., has become more involved in foodservice sales this past year, and he sees customers responding enthusiastically to the retailer’s breakfast menu and grab-and-go items. The ease with which customers can purchase items from the roller grill has made the prepared heated foods very popular, too.
“It’s all about speed and convenience,” Servais says. “You don’t have to order it or wait for it to be made. It’s already hot.”
Venable agrees, saying breakfast fits all the criteria to fill consumers’ needs (and their stomachs), as well as fuel a c-store’s success. “A lot of locations are on people’s morning commute, so breakfast has the highest loyalty day-part,” he says. “You always go to the same place because it’s reliable, quick and convenient on your way to work, whereas lunch and dinner are a little more varied.”
Thanks in large part to the rush of the morning commute, both Servais and Chester’s c-store customers have found breakfast items to be among their best-selling orders. According to NPD, 34% of foodservice visits are attributed to breakfast. Riggs says, “If I were a c-store operator, I would focus my efforts on breakfast foods and snacks—not just doughnuts, but also breakfast sandwiches.”
Riggs combines breakfast and snack foods based on the same study by NPD, which found that together breakfast and snacks account for three-quarters of the c-store foodservice industry. Venable has noticed that same trend at Chester’s, saying, “The snacks and in-between-meal times are becoming more popular.” Clients tell him consumers have been trickling in for snacks from 9 to 11 a.m., as well as from 2 to 4 p.m., whether they are in between a destination or en route to an appointment.
Pizza Problems
Still, among the countless challenges to a distinctive foodservice program is pouncing on that promising menu item to complement the core. Retailers across the United States have shared their different experiences bringing various menu items to market, with no set parameters governing which products will prove most popular. So be forewarned before jumping into new sectors without carefully examining the marketplace, even if there is a general track record for success.
Scott Zaremba, owner of Zarco 66, Lawrence, Kan., initially entered the foodservices sector with a pizza venture that he tells CSP can only be described as a failure. Despite pizza being one of the most successful menu categories in convenience stores, and despite Zaremba’s passion for pizza, he couldn’t make it profitable. There are so many operators competing for the same small number of pizza dollars, he says, that it created a race to the bottom. “You order pizza and that is all there is to it,” he says. “There is nothing to complement it or expand on that.”
Jennifer Vespole, foodservice director for Quick Chek Corp., Whitehouse Station, N.J., also avoided pizza due to a market overflowing with options beyond the c-store demographic. “In our area— the New York area—it would be tough to convince customers to buy pizza from us when they can just go to any high-quality pizza restaurant down the street,” she says.
So Vespole and Zaremba transitioned from slices to sandwiches. “Our core is subs and sandwiches,” Vespole says. “Sandwiches are just iconic.”
Zaremba discovered that the subs market was also saturated, but it has a wide mix of quality and variety. Many of Zaremba’s competitors, he says, make their own breads but skimp on meat and cheese. Fulfilling that void in the sub business allowed his menu program Sandbar Subs to succeed despite the glut of competition.
Zarco 66 also features a made-to-order hot-dog program called Surf Dogs. Meanwhile, Quick Chek in late May introduced an upscale hot-dog program featuring the Hebrew National line of hot dogs. Similar to subs and sandwiches, it is easy to build a superior hot-dog program and differentiate its value by providing high-quality ingredients.
Think Locally
We’re not necessarily talking about local produce or local vendors, although there’s certainly an opportunity there.
Rather, know the market, especially when it comes to foodservice. Catering to a large Hispanic population within much of Quick Chek’s 120-store retail network, Vespole sees promise in both the Hispanic category and Asian market in New Jersey c-stores. “It really depends on where you are, what your market is asking for and what they like,” Vespole says, citing the large Asian population in New Jersey.
The market is always asking for convenience, and Hispanic foods can often provide that “to-go” aspect of c-store food service. For Chester’s, Chipotle flavoring has become a popular trend with customers for the hot and spicy kick it gives. As a dry mix applied to chicken, boneless wings and potato wedges post-preparation, the Chipotle spice makes for a fast and easy way to inject flavor right before serving. Similarly, Kwik Trip has noticed an increase in popularity in the past year with burritos, all-in-one transportable meals customers can eat even on the go.
Sometimes success with a new menu category can be as simple as proper timing. Servais tried adding burritos back in 2004, but he pulled the plug after little success. “Then we did it again in 2011,” he says, “and it was twice as successful. Often we tried menu items that didn’t really work, then we later brought them back, and they were very successful.”
Who You Calling Chicken?
One of the most popular categories of foodservice is arguably one of the most challenging: chicken.
Servais serves chicken at Kwik Trip, but it is just a chicken patty, an endeavor far easier to pull off compared to the labor-intensive process of preparing fried chicken. If a retailer plans to launch a fried-chicken program, Servais cautions, “it’s high-labor and high-risk.” For similar reasons, Vespole says Quick Chek has only “one location left that still serves chicken.”
“You’re starting with a raw food,” Zaremba says, “so there are major challenges with how you handle it and ensuring you handle it properly. You have to put processes in place that are followed exactly.”
Zaremba recommends becoming ServSafe-certified by providing employees with training through the National Restaurant Association’s ServSafe Food Handler Program. This ensures workers will know the proper protocol when it comes to handling and preparing food, including basic food safety, personal hygiene, cross-contamination and allergens, time and temperature, and cleaning and sanitation. “ServSafe training is vital,” Zaremba says. “Do it first, not as an afterthought.” As for his own foray into poultry, he admits, “We weren’t ready for that and didn’t execute.”
This, says Venable, is why Chester’s franchise program is successful in the c-store industry. “There’s a higher degree of standards that’s attributed to a front-of-house brand because the customers understand that someone is coming by to inspect to make sure they are following the rules, processes and procedures,” he says.
Fresh and Fancy
Even as c-store foodservice largely avoids the challenges of chicken, the industry is transitioning to include more fresh food on its menus in response to growing consumer demands for healthier, higher-quality options.
Based on a new report, “Consumers Define Healthy Eating When They Go Out to Eat” (www.npd.com/lps/Healthy_Eating/), from NPD, consumers looking to improve their diet—and combat the growing rate of obesity—base their definition of eating healthy “on quality features rather than fewer calories.” The study goes on to explain, “The feature most important to consumers seeking healthy menu options is quality, such as fresh, natural and nutritious ingredients.”
“Typically the perception has been that healthy eating to consumers means low-calorie and-low fat, and our findings show that the perception is not the reality,” says Riggs. “Clearly, descriptors like fresh or natural will resonate more with consumers than less calories. I expect there will be even more demand in the next few years for quality foods, fresh ingredients, healthier and lighter options.”
Surprisingly, this demand resonates equally with consumers of all ages. (See chart on p. 84.)
With every demographic following the same rough guideline about what constitutes healthy eating, convenience stores don’t have to cater to multiple age groups. Instead, they can maintain a consistent focus on producing healthy, high-quality dining options for all their customers regardless of their date of birth.
Convenience stores are finding sales to be consistent with the study’s results, incrementally increasing along with the number of customers looking for more nourishing meals with the same quick turnaround. While healthy choices once had little presence on c-store menus, the wave of healthy eating trends has reopened the potential of offering high-quality foods. For instance, Kwik Trip once offered “a very high-end Angus burger,” Servais says, which wasn’t successful until the company took a second stab at it in 2011.
It certainly helps to develop a reputation and rapport with customers. As Servais found out, “Early on, we hadn’t yet earned the trust of our customers. They didn’t know that you could have high-quality foods at a gas station, so they weren’t willing to pay $3 to $4 for an item. Now they see that you can get very good foods here, so they’re willing to pay for it.”
As always, sales success is not simply reduced to health and high quality; cost and taste still factor in. As the aforementioned NPD study discovered, not all customers are willing to pay a premium for healthy food. According to its findings, “70% of consumers ... expect to pay no more for healthier items than they do for other menu items.” However, the report found that “more consumers at full-service restaurants expected to pay the same price for healthful items as they did for other menu options, while fewer consumers at quick-service restaurants did.”
Nonetheless, “One of the key takeaways from the study results is that pricing of the healthy options needs to be consistent with pricing of other choices on the menu,” Riggs says. “The market for health today is growing, and there is a good opportunity for operators who find a way to offer healthier options at lower price points.”
With this trend toward healthier, higher-quality menus, convenience stores are slowly shifting the perception of what they have to offer. No longer are the lonely, withered hot dog and the old pot of coffee enough, according to Venable: “If you’re going to do foodservice, do it—don’t do it halfway.”
Zaremba agrees wholeheartedly: “The industry isn’t known for having fresh products and as a whole gets a bad rap. Making fresh food—fresh-squeezed orange juice, eggs made to order, homemade biscuits—we’re trying to change that by example.”
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