Where is the margin leakage in convenience-store foodservice coming from?
That was the question posed by Liza Salaria, merchandising and foodservice practice lead at Chicago-based W. Capra, speaking on June 19 at CSP’s C-Store Foodservice Forum in Schaumburg, Illinois.
“Our foodservice model is actually really good with the QSR [quick-service restaurant],” Salaria said.
The difference, however, comes in net margins, where it’s 64% for QSRs compared with 35% for c-stores.
There are four main areas of margin leakage, she said: gross margin, known loss (waste and spoilage), unknown loss and supplies.
Gross margin is a function of three things: the store’s retail, product mix and cost.
Examining Costs
Diving into costs, Salaria said that sourcing is one aspect to consider.
“You can source direct or you can go to third parties,” she said, saying that with produce, the goal should be to eliminate middle players and work with suppliers. If not, “You’re building double markups,” she said.
Another consideration is made-from-scratch versus pre-cooked. In this area, QSRs have a 10 percentage point advantage over convenience stores, primarily because many c-stores “don't cook from raw,” she said.
“Some of you do, but we’re primarily a heat-and-eat assemble model that drives our costs up. Everything’s coming in pre-sliced, pre-cooked, pre-breaded for popping in a TurboChefs. It’s a higher cost,” Salaria said.
She added, however, that c-stores all could switch to cooking chicken or scratch pizza—but that would increase labor. “There’s an offset that you have to balance, but this is why our top-line margin is a little bit less,” she said.
Free for All
Food costs also increase in the c-store model, which doesn’t control portions as well as QSRs, Salaria said.
While Jersey Mike’s will put a specific amount of mayonnaise and lettuce on a sub, convenience stores are in the “free-for-all business,” she said.
With her clients, Salaria said she will examine their sandwich and roller grill topping bars and coffee condiment bars.
“I roll it all up, and then I see what it actually costs them,” she said. “And this is a huge diluting factor because we don’t have portion control.”
To get to the QSR-level margins, c-stores will have to change the model.
Quality
The quality of food—premium versus value—also affects costs, Salaria said, adding, “Sometimes we don’t need the quality that we think we do, and I’m not suggesting tomorrow you go and you reduce quality.”
However, the art of menu development is a balance and a texture, not a feel, she said. “Sometimes if you have better bread, we might not need the best of the best turkey,” she said.
Cheese
Lastly in costs, Salaria discussed one of her favorite topics: American cheese versus cheddar.
With American cheese, retailers should consider how they are using it in their recipes. The benefits are:
- Processed cheese has a lower melting point, which means the retailer doesn’t have to put it back in the oven when making a breakfast sandwich, she said. “You just lay the cheese on and it starts to melt. You eliminate labor.”
- American’s creamy, tangy flavor is a complementary balance to salty proteins such as sausage and bacon.
- Its higher moisture content keeps bread and other components softer during later hours—and can possibly increase shelf life.
- It typically is shipped in 5-pound institutional packaging and is traditionally less expensive than cheddar.
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