1. Coffee’s Bifurcation
At the height of the recession, when a number of major QSRs began focusing on coffee, convenience stores responded by improving upon their own offerings. Today, many leading c-stores are entering the next stage of coffee evolution, developing barista-manned programs or investing in fleets of super-automatic machines with five-figure price tags.
And what are QSRs up to? Not as much.
C-store operators report regular coffee is the beverage with the highest sales growth potential, at 46% of respondents, compared to just 8% of QSR/fast-casual operators (even though 61% of them already offer coffee). Meanwhile, the restaurateurs indicated made-to-order specialty coffee drinks, at 37%, have the highest sales growth potential, compared to 19% of c-stores.
So will c-stores go on to perfect and dominate sales of regular joe, while QSRs and fast casuals focus on barista-made lattes? The former, maybe, but too many c-stores are rolling out made-to-order programs for restaurateurs to ignore. Sounds like an opportunity for both segments to win—but c-stores to win even more.
2. Consider the Veto Vote
C&U (college and university) is the only segment that is pointedly catering to special dietary needs. Nearly all (95%) offer vegetarian items, compared to 23% of retailers and a little over half of restaurants. Eighty-one percent offer locally sourced foods, compared to a quarter of retailers and just under a third of restaurateurs. As the younger generations have developed more discerning tastes and conscious consumption habits, C&U has become a bellwether of menu trends. So what happens when those students graduate, increase their disposable income, and opt not to frequent your location because the menu does not meet their needs?
3. Breakfast Battleground: Sizzling or Fizzling?
Much like coffee, the morning day-part in recent years has been a contentious battleground. The big QSR players have all strategized around winning more sales at breakfast—from Taco Bell’s morning tacos and burritos to McDonald’s seismic shift into offering breakfast all day. In many ways, c-stores were built for breakfast, given their speed and around-the-clock foodservice offerings. These strategies reveal that the battle for breakfast is all about freedom of choice, making the winner—the consumer—a foregone conclusion.
But the State of Foodservice study indicates a new chapter in this fight for a.m. domination. While 47% of QSR and fast-casual operators serve breakfast, just 16% believe it’s the day-part with the highest sales growth potential, coming behind both lunch and dinner. For c-stores in the study, 94% offer breakfast, and 35% believe it has the highest sales growth potential—beating out all other day-parts.
As Technomic’s Darren Tristano points out (see p. 88), one of the bright spots of the full-service segment is breakfast-and-lunch-only concepts such as First Watch. All of these indicators show operators focusing on their core competencies—whether or not that includes breakfast.
4. Where’s the Competition?
The rhetoric around the growth of retail foodservice continues to rise, yet most QSR and fast-casual operators are more concerned about other restaurateurs than the c-store or grocer down the street. Grocery foodservice sales are expected to increase 6.5% in 2015, according to Technomic, and c-stores saw a 9.7% increase in foodservice sales in 2014, according to preliminary numbers from the NACS State of the Industry Survey of 2014 Data. Yet the size of these segments is still dwarfed by that of traditional restaurants, keeping the competitive threat at bay.
Overall, fast-casual restaurants are seen as the biggest competitive threat to the greatest number of segments. With their captive audiences, most non-commercial operators don’t feel any competitive threat—but when they do, it’s from QSRs and also fast casual.
5. Service Styles Meet in the Middle
Regardless of the segment, foodservice continues to become quicker and more convenient, and the blurring of channel lines and insurgence of retailers into the foodservice game is only propelling that trend. By tracking how operators serve certain menu items, we get a sense of the guest experience, and the data shows c-stores moving closer to a restaurant experience and non-commercial providing more speedy grab-and-go options.
The majority of c-stores in the study offer sandwiches ready to go out of a cooler or hot-holding case, but 43% are also making sandwiches to order. When it comes to sausages, 64% offer such items via self-serve roller grill, but 48% serve them via a team member.
Colleges & universities and hospitals, meanwhile, are offering a notable amount of self-service and grab-and-go items, particularly cold sandwiches (75% of C&U and 74% of hospitals). C&U operators also have the highest percentage (26%) of non-commercial respondents who offer self-service
sausage-type items from a roller grill.
6. Meeting the Needs of Our Aging Society
The senior-living segment is one of the fastest-growing in the total foodservice industry, and these operators—and their guests—have very unique needs. For the right supplier, it could be a great opportunity to fill the gap.
Significantly more operators in this segment report needing improved products (74%, vs. 57% to 63% for each of the other segments), and many indicated troubles meeting the dietary needs of their constituents. “I need to abide by new low-salt, low-fat and sugar-free standards for Partnership for a Healthier America; however, it is difficult to find these products pre-made,” one operator said. “[There are] increased expectations in the healthcare market to offer traditionally high-sodium, high-fat and high-carb foods in a more healthful preparation,” another said.
7. Retailers Invest
Perhaps reflecting the comparative youth of the industry, more retailers plan to invest in equipment than any other segment. Only 17% of those operators report that they don’t plan to invest in any equipment in the next year, and the majority plan to expand, upgrade or purchase new cooking equipment—indicating growth in more hot-food sales such as sandwiches and breakfast items.
Seventy-six percent of restaurateurs plan to invest in equipment, with the majority focusing on cooking equipment. Notably more C&U operators plan to invest in cold-holding equipment, perhaps indicative of the segment’s increasing focus on grab-and-go foods.
8. Suppliers: Know Your Customers’ Needs
Operators have very different needs based on their segments—as well as how long they’ve been in the foodservice game. For c-stores, the biggest hurdles come from evolving into true foodservice players.
Fifty-one percent of c-stores rate finding the right products extremely/very challenging (rated 6 or 5) compared to 26% of restaurants.
Restaurants instead are focused on the hurdles of food costs, and there’s a 32-percentage-point difference between the two segments in how they rate the challenge of food costs. Likewise, distribution is significantly more challenging for c-stores than the other segments, reflecting the need to create a foodservice business atop a retail foundation.
New concepts and products are what C&U and hospital operators want most from supplier partners, while nursing-home, long-term-care and senior-living operators need improved products the most (see takeaway No. 6). Restaurateurs also seek improved products, but at a much smaller margin than NH/LTC/SL operators.
9. Staying Positive
The survey asked operators to describe their greatest challenges, and the responses revealed an industry burdened by painful commodity costs, expensive labor and government oversight. These issues are enough to shut down an operator—and many of them do close their doors under the weight of a challenging industry.
But survey respondents were also asked to share their biggest opportunities, and the ideas that spilled forth were creative, strategic and aggressive. Some shared thoughts on finding the best real estate; others talked about differentiators such as delivery and catering, or marketing efforts including e-newsletters and social media platforms. In the end, in the face of mounting challenges from the P&L to D.C., eight out of 10 operators expected sales improvements in the year ahead. That’s good for everyone, regardless of the segment.
10. Menu Opportunities: Room for Differentiation
A look at menu performance expectations—be it for pizza, hot dogs or lattes—shows different growth opportunities across the segments. While sausages have saturated retail and non-commercial menus, only 31% of restaurants offer such items. Higher-end dogs are certainly popping up at food trucks and casual independents—but how far can the opportunity stretch?
Meanwhile, less than half of retailers offer desserts, and only 2% appear to be focusing on it as a sales-growth strategy. The opportunity here may come from expanding the definition of a dessert to any small, sweet indulgence throughout the day vs. a large finale to a meal.
For non-commercial, in which most menu categories are already well covered, the opportunities lie in snacking, particularly healthy options such as fresh-cut fruits and vegetables. On the beverage front, c-stores have an opportunity to dominate coffee sales as restaurants take their eye off the ball (see takeaway No. 1), while restaurants and non-commercial focus on the smoothie trend.