Packaged Food/Foodservice Overview 2013

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Weathering the Storm

Convenience stores are faring well inthe race for foodservice dollars, but they’realso facing increasing consumer demandsfor value, freshness and flavors.

Jitters over the economy as 2013 beganand the shock of payroll-tax increasesbrought a slowdown in restaurant trafficacross most segments of the food serviceindustry. Young consumers in particular havecut back on their restaurant visits, promptinga weaker forecast for the industry, says Bonnie Riggs, restaurant industry analyst for TheNPD Group, Port Washington, N.Y.

But c-stores “have been able to weatherthis storm quite well,” Riggs says. “Somec-store operators have been very aggressivein terms of increasing food offerings,the quality of their products andloyalty programs. That is very appealing to consumers. They want to be rewarded for their loyalty, and that’s helping drivetraffic.”

Keeping Things Fresh

Mark DiDomenico, director of business development for Chicago-based research firm Datassential, says customer perceptions of freshness will play a big role in future growth.

“It has to be more than that sticker onthe sandwich that says, ‘Hey, this was made this morning,’ ” he says.

The success of fast-casual restaurantssuch as Panera Bread and Chipotle speaksto the role of freshness in creating perceived value. Even through the recession, DiDomenico says, those restaurants posted solid growth.

“And yet you can’t get out of there for less than $8. What were they offering? A very solid value proposition,” he says.“Really good food. Good flavors. New,interesting, different. Yeah, it cost a little bitmore, but you got what you paid for. That’s going to be the key driver going forward.”

For many consumers, freshness comes down to being able to see their meal being made. While c-stores such as Wawa and Sheetz have embraced fresh prep with success, retailers that don’t offer made-to-order food have to find other ways to communicate freshness and quality, DiDomenico says.

Tulsa, Okla.-based QuikTrip, for example, prepares its fresh food in regional commissaries. Employees, however, are very visibleon the store floors, staffing the food section, straightening and keeping items in freshrotation on the roller grills.

“It is confirmation that somebody is looking after this section,” DiDomenico says.“That goes a long way in conveying that freshness message, and that’s really what the fast-casual message was all about.

“Keep things fresh. Keep things clean.Keep things rotating,” he says, “and make sure the consumer sees it.”

How Low to Go

While consumers say they want healthier options and are seeking out foods that are better for them when they dine out, they’re not looking for labels such as “low fat,”“low calorie” or “low sodium,” Riggs of NPD says.

“They’re looking for quality food, fresh ingredients and freshly prepared food,” she says.

Operators must be careful in how they promote their healthier products, emphasizing the good rather than the lack of bad ,says DiDomenico of Datassential.

“‘Low fat’ and ‘sugar free’ are the kiss of death for products on the shelf,” he says.“A ‘fat-free hot dog’ is just not going to sell, but the ‘100% beef’ or ‘100% lean beef’might do fine. It’s just a matter of creatingthe right message.”

C-stores also should pay attention toan increase in people wanting gluten-freeproducts. A surveyby NPD found thatabout one-third ofconsumers nowsay they are avoidingor trying toavoid products thatcontain gluten.“I don’t thinkit’s a fad by anymeans,” says Riggs, citing that adults of allages say they are avoiding gluten. “A lot ofpeople have found they are gluten-intolerant,and even if they’re not, many people I’vetalked to say they feel better” not consuminggluten.

Full of Flavor

When it comes to flavors, consumers aremore sophisticated than ever. The rise ofcelebrity chefs and the Food Network, the success of fast casual’s differentiating flavors and the use of social networkingsuch as Yelp for restaurant reviews haveall contributed to a speeding up of foodtrends.

Even traditional blue-collar c-storecustomers expect new and differentflavor combinations, DiDomenico ofDatassential says, citing the success ofTaco Bell’s Doritos Locos Tacos.

“You can emphasize the quality ofthe items and really turn up the flavor… and not just the spicy,” he says. “It doesn’t have to be weird and wacky. It could just be teriyaki. Or it could be sundriedtomatoes and mozzarella. There are lots of different flavors that can give consumers that choice.”

Value Meals

Meal deals and value pricing will remain relevant in the coming months, says TimPowell, director of research and consulting for Technomic. The Chicago-based consulting and research firm has recommended retailers look at costs in terms ofdollars, not percentages.

“If there is a combo deal with a 32-ounce drink, chips and roller-grillitem,” Powell says, “consider the gross margin dollars that can be gained fromthe soft drink. ... Could they charge$3.29 instead of $2.99?”Riggs of NPD says meal-deal traffic is down because the deals no longer resonate with consumers or have become the regular price in their minds. “They are very, very concerned about value. Value is not about the cheapest price, but aboutmeeting their expectations of value, fresh ingredients and quality food,” Riggs says.“If you have something selling for $1 and it doesn’t taste good, in the consumer’s mind it’s not worth $1.”

Discounting prices too much in the c-store also gives the perception that the food won’t be very good, DiDomenicosays, suggesting operators use caution when considering value pricing.Breakfast of Champions. The strongest growth for c-stores has come in snacks and at the morning meal, Riggs says. About 42% of c-store visits were snack-related in 2012, and another 34% of visits took place during the morning meal, according to NPD figures.Yogurt parfaits, oatmeal, breakfast sandwiches and even breakfast pizzas are growing in popularity, according to Powell of Technomic.Variety, convenience and price have been big drivers in that day-part, Riggs says. And some of the stiffest competition will come from QSRs looking to make a dent in those sales. “The marketing clout of the major chains” will be c-stores’ challenge, she says.

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