Are You In or Out?

Big questions loom over menu-labeling law.

Abbie Westra, Director, Editorial, CSP

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Movie theaters are out—for now. So are amusement parks, hotels, general-merchandise stores and airplanes— for now.

C-store retailers, you’re in. Well, maybe. For every bit of new information released on the pending menu-labeling law, more questions follow. How will “retail food establishment” be defined? Will there be a cushion for calorie-count compliance? How do you label graband- go? Will you even be covered under the law?

Part of the 2010 Patient Protection and Affordable Care Act, the Nutrition- Disclosure Provision will require foodservice operations with more than 20 locations to post calorie counts on menus and menu boards.

The U.S. Food and Drug Administration (FDA) is in charge of formulating all the little details and then enforcing the provision, expected to go into effect in 2012.

For a provision that—out of the gate—most industry groups supported, there’s a lot of dissatisfaction over the current proposed rules. As we reach the closing of the commenting period and await the final regulations, there are more questions than answers on how c-stores will have to comply—or whether they’ll even have to.

Regardless of the final language, many retailers and consultants are finding that the menu-labeling law is just one part of a bigger change in the business of food in America. And with that, it’s best to get out in front of the change before it runs over you.

As It Stands

On April 1, the FDA released its proposed regulations—183 pages of them—regarding the Nutrition-Disclosure Provision. It first gave the public until June 6 to comment on the proposal, and later extended the deadline to July 6. Within the proposal for restaurants and retail-food establishments are very fuzzy answers to some long-lingering questions, including the most critical of them all: Just what is a retail food establishment?

FDA is proposing that the term “restaurant or similar retail food establishment” mean an establishment where the sale of food is the primary business activity. This would be determined by one of two things: Either the establishment presents or has presented itself publicly as a restaurant (through consumer-, industry- or investor-related materials such as being listed in the Yellow Pages under “restaurants”); or greater than 50% of the establishment’s gross floor area is used for the preparation, purchase, service, consumption or storage of food.

As an alternative to using percentage of gross floor area, FDA is considering defining a retail food establishment as a business where more than 50% of revenue is generated by the sale of food. While variable menu items, font sizes and grab-and-go labeling are also big question marks (see sidebar, left), the definition of retail food establishments is by and large the most important decision for c-stores the FDA will make. During the review period, the agency specifically sought comment on whether floor area, revenue or some other measurement is best for determining compliance—and likewise whether 50% is the appropriate threshold for either floor area or revenue. NACS has met with FDA face-to-face, and the association submitted its own comments to the agency. Among the comments is the question of whether gross sales area would include prepackaged products—such as chips, which already have nutritional labeling— or the fuel island, which would quickly exempt most operators from compliance. NACS is also consulting with some retailer members on the effects of the revenue option. “I think it makes more sense if the majority of your revenue comes from prepared foods that aren’t already labeled; then maybe you should fall under the regulated entities,” says John Eichberger,

NACS vice president of government relations. “But if you’re going to have us include our potato-chip stands in our foodservice area, that’s ridiculous. There’s more information on a package of potato chips than there are in the requirements of the new law.”

Overall, says Eichberger, NACS is seeking a “more realistic” definition that would cover those who are heavily invested in foodservice, and exempt those who aren’t.

‘Special’ Treatment

 C-stores aren’t the only retailers on the menu-labeling fence. In this initial proposal, FDA stated it expected to “generally” exempt movie theaters, amusement parks, general-merchandise stores, hotels, trains and planes from the law. This angered some in the industry who felt the exemption was unfair. Others warned that just because you’re exempt doesn’t mean you’re off the hook for good.

“From the best of what we’ve learned so far, we don’t think that c-stores will be forced to comply with the menu-labeling regulations the same way that restaurants do, simply because their primary purpose is not to be a restaurant. And secondarily, their prepared food is not nearly 50% of the operation,” says Rick Van Warner, senior partner at Parquet Public Affairs, Orlando. Pa rquet advises companies on dealing with legislative issues such as menu labeling.

But there’s no time to breathe a sigh of relief. Just as movie theaters have been attacked by public-interest groups and lawmakers fighting for healthier foodservice and retail options, it’s not likely c-stores would be left alone for long.

“They’re not going to just sit there and say, ‘Oh, well, too bad. We didn’t get the c-stores, [but] we got the restaurants,’ ” says Van Warner. Instead, once the dust settles on the national law, a new patchwork of state and local initiatives targeting c-stores and other exempt channels could take shape.

“The forces are pretty strong to have nutritional labeling everywhere,” he says. “So you might as well get out in front of it.”

Out in Front

While the industry answers to lingering questions, some retailers with strong foodservice programs are moving proactively. Maverik Inc., North Salt Lake, Utah, has been gathering and compiling nutritional information for all of its products, so the information will be ready once regulations are instated. Meanwhile, it’s experiencing an increase in customer requests for nutritional information.

Most, if not, all of the 227-store chain’s prepackaged foodservice items already come with nutritional information on the package, but as NACS’s Eichberger says, that might not even matter. “I have started looking at potential menu boards and the cost,” says Ryan Olsen, adventure’s first chef for Maverik. Pricing and nutrition labels currently go directly on the foodservice items, so menu boards would be a new buy for the chain. Maverik compiles nutritional information from the manufacturers of each ingredient, says Olsen. The information is entered into a software program that creates a database of ingredients for recipe building. “The software combines the nutritional information of each component in the recipe, for the complete nutritional information of a menu item,” Olsen explains.

Meanwhile, Kwik Trip, LaCrosse, Wis., has found a bright side.

“We approached it in two ways. One, we knew things were coming at us from the FDA eventually; and then we used it as a marketing tool, too,” says Jim Bressi, director of food research and development for the 410-store chain.

Kwik Trip began front-of-label packaging about a year ago after seeing it in Europe. The labels include fat, calories, sodium and fiber. Just about every new product gets a label, along with older products that get a packaging revamp.

“People love it. It has been really, really positive for us,” says Bressi.

The practice is affecting the newproduct pipeline—and in subtle ways tying in to national attention concerning our country’s overall diet (CSP—June ’11, p. 46). Higher-calorie items are going off the shelves, and Bressi and his team are watching for lower-calorie options. Low-sodium items—made with either salt replacements or sea salt—are also on Kwik Trip’s radar.

Studies in municipalities with existing menu-labeling laws have found a range of results in regard to consumer response to calorie postings—though for the most part the change is minimal. One argument in favor of calorie counts points out that healthier foods such as lean proteins often have higher price points and margins, potentially affecting sales for the better.

Still, all those unanswered questions about the law make it difficult to put a price tag on compliance, particularly for c-stores. For limited-service establishments, FDA estimates the initial costs for compliance at $1,800 per store. And what is the ROI? For Kwik Trip, happier and more knowledgeable consumers may lead to long-term growth and loyalty to the company’s foodservice. But it is too early to say for certain.

Accepting the Law

The biggest downside, says Bressi, are those upfront costs. Beyond that, he says, Kwik Trip sees health and wellness as a consumer interest that isn’t going away any time soon, so getting in front of the demand has been a core focus. Meanwhile, NACS is centered on making the law as clear for retailers as possible. “If you make a structure so costly and difficult, it becomes easier to strategize how to get around it, rather than how to deal with it,” says Eichberger. There is another question, a speculative but potentially dramatic one. Over the past decade, foodservice has been the convenience channel’s fastest driver. Industrywide, operators have installed enhanced equipment, multi-day-part menus and intense marketing plans. Even those with only modest programs have demanded fresher prepackaged programs with more frequent deliveries.

If menu labeling becomes a threat to this momentum, will c-stores scale back?

Van Warner of Parquet thinks so: “Look at health care. If you have 49 employees, you’re probably not going to add another job to get to that 50 threshold, which makes you provide full health-care coverage for every employee.”

It all may depend on how much skin you have in the game. For Kwik Trip, menu labeling can’t and won’t impede the promise that foodservice has offered to the company.

“If we do see some things that are dropping off in sales, we’re going to react and we’re going to figure out what consumers want, because we can’t give up our momentum,” Bressi says. “We’re still on the uptick. Food growth is great for us. If we have to take cheese off or reformulate a bread to have no trans fats or take sodium out of a burger, we’re going to do it. And there’s going to be a cost to that.”

Gray Matter

Below are some key provisions found within the April 1 proposal, followed by some key questions for which the industry awaits answers.

Proposed Provisions

  • Calories for variable menu items such as combo meals must be displayed in ranges.
  • Foods on display must have calorie counts listed per item or per serving on a sign adjacent to the display.
  • The law does not apply to daily specials, market tests, temporary menu items, condiments and custom orders. Market tests must run for fewer than 90 consecutive days, and temporary menu items for fewer than 60 days per calendar year.
  • Calories must be listed with the same color and background color as the menu item it relates to, and in a “clear and conspicuous” font size.

Still Up in the Air

  • What is the difference between a variable menu item and a custom order?
  • As it’s written, grab-and-go items may all require individual calorie tags. NACS is proposing that operators should be able to post the calorie counts on a single placard near the holder.
  • While many c-stores retailers don’t have menu boards, they do have smaller signage around the different foodservice points. NACS is recommending the law state that the calories need only be posted on the primary menu board.
  • The FDA has yet to announce how the law will be enforced, and by whom. It’s likely to fall to existing state and local regulators, such as health inspectors.
  • It’s likely the law will allow for a buffer in which an operator’s calorie counts must fall to be compliant, but that range is not known 

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