Given the amount of ink, stage time and simple conversations spent on how to improve c-store foodservice, the industry is nearly out of breath. We’ve learned there is no overnight solution, no magic bullet. Patience isn’t a virtue; clichés don’t work here. It’s table stakes.
But since the foodservice drumbeat began pounding, the industry has largely focused on the store level: how to create a “theater” of foodservice, how to offer trendy products, how to sample, price right, balance the books correctly, market, train staff, count waste …
But lurking beneath has been one messy, multi-headed question: How do you make it fresh?
Unless you opt for a made-to-order program—which the majority of the industry has yet to embrace—the fresh-food equation is largely left to the supply chain. And as consumers are increasingly critical of the freshness of food in c-stores, retailers and distributors are left to figure out how to make more regular deliveries—and who’s going to pay for it.
A look at what some of the biggest distributors and retailers are doing reveals no single solution. The delicacy for both sides comes from taking a financial risk without critical mass from consumers waiting in line to buy it.
Reaping What We’ve Sowed
Take a look at the quick-service restaurant (QSR) industry—with its vast cold chain spread from coast to coast, street corner to street corner—and you can’t help but scratch your head at the status of fresh-food distribution in the c-store segment.
But most c-store retailers did not get into this business to be food purveyors; were that the case, they likely would have just opened a restaurant. In this industry, chains grow by acquisition or ground-ups, creating a patchwork of store formats, taking it another step further away from the assembly lines of McDonald’s.
For the c-store channel, foodservice distribution is yet another challenge as it confronts dwindling cigarette and fuel profits.
“The big challenge is brought on by the fragmentation and consolidation going on, and the lack of assemblers and kitchens certified to produce product,” says Joe Chiovera, an industry consultant who previously was vice president of foodservice for Alimentation Couche-Tard’s Circle K, and senior director of fresh foods for 7-Eleven. “The other [challenge] is economically efficient distribution … because of the fragmentation. You need X amount of stores in a market to make it work.”
Bob Fitzsimmons is CEO of Food Authority, a Long Island, N.Y.-based distributor of fresh foods. He does not service the c-store channel, but he does distribute to the restaurant industry, as well as organizations such as hospitals, country clubs and schools. While c-store operators are making progress in offering fresh, he says, the industry has not reached enough mass to be attractive to players like him.
“Two-dozen apples, 20 fruit cups, 10-dozen bananas—it’s very difficult to get a guy like me to stop and do that,” he says. “Until [c-stores] can get the volume built up, it’s a huge gap between where they want to go to get the product they want to get at the store level.”
For Fitzsimmons, c-stores as a channel have not yet made the commitment to serious fresh food. “It’s really a true effort and emphasis: Replace the pork rinds with sliced cantaloupe,” he says. “I believe eventually in time, people do want fresh food more and more. The days of asking for fresh fruit and expecting to get citrus in syrup is long gone. People are expecting it, and wherever they can find it, they are absolutely willing to buy it.”
On the retailer side, a well-engineered foodservice program is essential for justifying the distributors’ investment in daily deliveries.
“The menu engineering of a program at the retail level is absolutely critical because it drives everything else,” says Deborah Holand, a consulting partner with b2b Solutions LLC, Lake Forest, Ill., and founder of foodservice consultancy Food Sense Inc. “It drives how it’s going to get through distribution, all the economics of the model. Once a person says, ‘I can do X amount of volume a week in my store and will focus on it,’ then they can make money at it.
“I think the biggest challenge and limitation is everyone’s own thinking, to be honest,” she continues. “Look across other channels: They have challenges, too, but they make it work in fresh food.”
Based on Holand’s calculations, a c-store making as little as $1,000 to $1,500 per week in foodservice sales can profitably receive daily deliveries—as long as the retailer and its distributor are disciplined and flexible about “the how.”
Unfortunately, it is difficult to calculate how much daily deliveries would cost without factoring in specifics such as number of stores, distance between stores, type of products, the distributor, volumes and what else is on the truck. But generally, nonvariable delivery costs can range from $70 to $120 for a once-weekly broad-line distributor, which includes fuel costs, insurance, the driver’s wages, etc. When you add in additional deliveries a week, that fee does goes down on a variable basis, but a retailer could still be paying somewhere around $300 a week for five deliveries.
On the distributor side, Holand acknowledges that those who did not “grow up” in the restaurant channel must have the right equipment and space to handle fresh, including refrigerated and frozen storage, and a refrigerated cross-docking area.
“It’s all about the sales throughput, managing out-of-stocks and waste,” she says. Then, as long as a distributor can support refrigeration and cross-docking, “I don’t see any big challenge with the distribution cycle whether you’re small or large.”
Gerald Lewis, a New York-based retail consultant, believes distributors also must differentiate.
“The opportunity for wholesalers is to not to try to sell the same fresh prepared foods to every customer,” Lewis says. “The challenge is, ‘How can I set myself apart by enabling each retail chain to have a differentiated offer, by providing prepared foods made to their own specifications?’ ” Earlier c-store industry cold-chain efforts did not get off the ground, he says, because distributors did not provide customized product for key customers, but rather an across-the-board offer.
“If an individual retailer can do it with a commissary and supply their own transport, shouldn’t a wholesale organization that already has food preparation facilities and refrigerated trucks be able to deliver chain-specific foods more efficiently than individual commissaries?” Lewis says. “It doesn’t have to be a smaller wholesaler—it needs to be one that thinks in terms of supplying the competitive needs of its customers.”
Two Problems, One Solution
As retailers turn to their distribution partners for fresh-food solutions, each of the distributors have taken on their own strategies for delivering based on retailer needs.
McLane Co., the industry’s largest wholesaler, offers whole and cut produce, sandwiches, salads and milk through its Fresh on the Go program. Hope LaGrone, product director, says via e-mail that operators have the flexibility to source from the program the type of products they need—retail-ready, refrigerated components that can be assembled on site, or thaw-and-serve products when demand is volatile.
The Temple, Texas-based distributor works with each customer and sometimes individual stores on assortment and delivery frequency based on factors such as geography, local competition and equipment. The typical delivery schedule is two times a week. “However, if a customer requires more than two times a week, we can accommodate their needs,” says LaGrone. One of McLane’s customers receives fresh product five times per week.
“Most of McLane’s retailers seem to understand that a decision to invest in a fresh program requires a significant commitment of both time and resources,” says LaGrone. McLane also has tools and programs to help retailers anticipate expenses associated with launching a fresh program.
“A modern fresh/foodservice platform is undoubtedly one of the most challenging undertakings a retailer can voluntarily pursue; however, the rewards can far outweigh the introductory pangs,” says LaGrone. She believes many c-store retailers execute fresh and foodservice at least as well as QSRs and grocery stores.
“With that said, failures will linger with consumers far longer than successes, so a c-store operator that decides to introduce fresh must effectively ‘brand’ their store accordingly,” she continues. This includes micromanaging inventory; selecting an appropriate mix of items; and showcasing clean, bright and conveniently designed equipment.
For its part, South San Francisco, Calif.-based Core-Mark International Inc. has a specific number in its sights: 20%. That’s the percentage of sales revenues foodservice represents for many of the top c-store retailers, says Chris Hobson, senior vice president of marketing for Core-Mark. The company has made it a goal to not only help independent operators reach that 20% threshold, but also for Core-Mark itself to see 20% sales revenue from foodservice. For the distributor, this figure is currently at 8%.
“It gives us a vision, a mark to measure ourselves against,” says Hobson.
To reach its target, Core-Mark has invested $100 million in its infrastructure over the past five years, including tri-temp trailers, cool docks at distribution centers, geo-temperature tracking and human capital, including more team members focused on fresh.
Because Core-Mark does not own any assembly plants, it works with commissary partners close to its distribution centers around the country. Its roster of fresh products—including sandwiches, wraps, salads, fruit, parfaits, juices and bakery goods—has grown to approximately 3,000 items.
“Five years ago, it was zero,” says Hobson. “For Core-Mark, there’s no category percent increase greater than fresh over the last three years. It’s remarkable, but it had to be because we spent over $100 million to make it happen.”
Of course, sourcing product and getting it to the distributors’ delivery centers is just one step, and Hobson concedes that retailers’ wishes for multi-day deliveries is the larger hurdle to mount.
“It’s like the cart before the horse,” he says. “You can’t build this great product with two days’ life when you come there once a week.”
And herein lies the problem: It’s largely too expensive for the distributor—or the retailer, depending on who ends up with the cost—to run a daily fresh program. Core-Mark has decided to solve the riddle of more regular fresh deliveries by approaching another puzzle: direct-store delivery (DSD).
To spur greater economies of scale, Core-Mark wants retailers to turn over their DSD-delivered product to the company. It has software that can evaluate a given retailer’s supply chain to see what can be moved over to Core-Mark. The more products Core-Mark has to deliver to a given store, the more often it can affordably stop there, making regular trips with those highly perishable items more feasible.
“All that merchandise will pay for these additional deliveries without putting the burden of all that additional cost on fresh product,” Hobson says.
While the number of delivery trucks congesting their parking lots daily is no doubt a thorn in many retailers’ sides, the strategy has been a difficult one for operators to buy into, especially independents. But there have been successes, says Hobson: Dairy has traditionally been a DSD product, but over the past five years Core-Mark has gone from zero retailers buying dairy products through it to 7,500 stores.
With a major investment in infrastructure, a network of commissary partners around the country and a focus on absorbing traditional DSD products, the distributor is staking its future on the hope that c-stores truly embrace freshness.
But Hobson understands it’s a lofty goal. “I’ve been in this industry my whole life; there’s never a silver bullet,” he says. “It’s always a long, drawn-out process for things to take shape.”
Growing Volumes
Serving the industry as both an assembler and a distributor, Naperville, Ill.-based Eby-Brown plays a unique role in the evolution of the fresh supply chain.
In 1994, it acquired a distribution center outside Columbus, Ohio, that also housed a commissary. For some time, the distributor made sandwiches for a specific client, but soon realized that the “logistical economics of fresh sandwich delivery was not there, strictly based on the volume,” says Ron Coppel, senior vice president of national accounts. So it began exploring modified atmosphere packaging, or MAP.
MAP is used to prolong shelf life by removing as much of the oxygen in the package as possible and adding a mix of nitrogen and carbon dioxide, which slows the aging process.
“This is the best of both worlds insofar that it is a fresh, never-frozen sandwich, but using the MAP technology extends the shelf life to really make it a fresh sandwich in a convenience store that a consumer would really like,” says Coppel. “It worked into the distribution model of our customers.”
In 2006, Eby-Brown opened up its MAP products, packaged under the Wakefield brand, to all of its customers. Since then the company has upgraded its packaging to a less factory-made feel, using a cardboard wedge and paper sub wrapper.
The company introduced the new packaging in 2011 and experienced a 30% increase in same-store sales.
With a 100% tri-temp fleet and a fresh-food reach from Minneapolis to Atlanta thanks to MAP, Eby-Brown is now focusing on foodservice category management with a three-level foodservice program aimed at evaluating whether its retail clients are optimizing their programs. As such, Eby-Brown advises on products as well as category management tools, and assists when retailers want to upgrade their foodservice program.
But what about fresh, multi-day or daily deliveries? Eby-Brown is paying attention to the conversation and is prepared to meet its customers’ needs, but recognizes the obvious challenge for most retailers.
“The issue is paying for it, and that I think is the conundrum that is facing our channel,” Coppel says. “Are there more products in the future we can bring in on a daily-type basis? Will foodservice grow in the stores at a rate that takes it from two deliveries a week to three, from three to four?
“Our mindset is open, and we’ll continue to analyze, to study and to look at what it’s going to tak,” he continues. “But the one certain answer has to be more critical mass of products than a couple trays of sandwiches, a couple trays of doughnuts.”
His concern is akin to a retailer going all-in on a pizza program, only for it to go bust six months later, leaving the company with a graveyard of pizza ovens, dough cabinets and cheese slicers. For distributors, daily, fresh delivery is a multimillion-dollar risk tied to the whims of the retail community and its customer base.
“You can get too far ahead of the curve. It’s a real delicate balancing act,” says Coppel.
“As more consumers are used to going into a c-store and getting more of a foodservice offering, that will lift all ships.”
A Different Path
While retailers and distributors play a tug of war with costs and volumes, some top chains have taken matters into their own hands.
Many, including Sheetz, Wawa, Kwik Trip and QuikTrip, have adopted a self-distribution model. They also control at least some element of manufacturing, be it commissaries or the whole kit and caboodle, such as in Kwik Trip’s case, which makes generating a profit off distribution less necessary.
The move to self-distribution solves not only the fresh-food problem, but also the other supply-chain inefficiencies this industry has taken on over time.
“They’ve all gone to self-distribution because no one would do this for them,” says Core-Mark’s Hobson. “They’re controlling their own destiny.”
Some regional chains, meanwhile, opt to go the route of traditional restaurant distribution—which is no easy solution either.
Nice N Easy Grocery Shoppes, Canastota, N.Y., does not work with c-store suppliers for foodservice. Instead, back when the 86-store chain began getting serious about foodservice in the late 1990s and early 2000s, it enlisted a foodservice distributor, Deli Boy, and started the long process of getting on the radar of traditional foodservice vendors to gain access to product that was restaurant-quality but already at a level of preparation that was realistic for a c-store chain without a commissary.
Once the company started building volumes, vendors’ doors began opening, and now they’re knocking on Nice N Easy’s door. Today, Nice N Easy is Deli Boy’s top account.
As c-stores gain more visibility on the greater foodservice stage, these relationships will likely become more common. In August, York, Pa.-based Rutter’s Farm Stores entered into a three-year agreement with U.S. Foods Inc.
Rutter’s is working with two chefs at U.S. Foods to help stay ahead of industry trends and elevate the menu at Rutter’s to the level of a restaurant and not be “constrained by the convenience-channel label,” the company said in a statement released in August.
All 58 of Rutter’s c-stores, located in central Pennsylvania, will be supplied by U.S. Foods’ Allentown, Pa.-based distribution center.
Of course, Rutter’s and Nice N Easy operate differently than the majority of their c-store brethren, sourcing ingredients to prepare food onsite vs. items premade elsewhere.
C-store veteran Chiovera has a vision of an industry in which retailers band together to find regional assemblers and distributors by market. “The more people that get in the pipeline, the more wheels on the street, the more efficient it is,” he says.
Chiovera sees a number of commissaries, bakeries and other fresh-food “assemblers,” as he calls them, eager to get into the c-store foodservice game, as well as foodservice for supermarkets, mass retailers and drug chains. “They are looking for synergies and efficiencies,” he says.
The snag comes in trying to get those products from the assembler to the retailer frequently enough for the product to be fresh and appealing. Chiovera points to distribution as “the biggest gap,” making it cost-prohibitive for retailers to get such products into their stores.
“Broad-line distributors … are the answer, and they just don’t know how to deal with it,” he says.
Holand suggests that distributors could do more to serve as foodservice category managers for retailers, actively and aggressively coordinating and putting programs together. Many, including the companies mentioned in this story and the Category Management Association, are taking more steps toward advanced foodservice category management tools.
“I need to look at what I have in my four walls, and have to act like a category manager of a retail operation, and say, ‘What do I need to have in my distribution center to give to my retailers to make them competitive?’ ” she says. “It needs to be a push back out to the retailer.”
Chiovera sees retailers partnering to be able to economically fill a truck with fresh product and get it to their stores daily; it’s his solution to critical mass.
“[Retailers] need to find a way to align from an assembly standpoint, but compete from a retail standpoint,” he says. “And people need to be comfortable with that, but they’re not.
“There’s a solution out there, but it’s really going to take … competitors working together on the infrastructure in order to compete on the street. That’s the big gap right now.”
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