There’s a common trajectory for c-store retailers entering the foodservice fray: Coffee sales beget breakfast sales, breakfast begets lunch, and lunch begets dinner. But finding a retailer who has made it to the end of that path is a rarity. Most are stuck chasing the elusive dinner day-part, not to mention sustaining foodservice sales through the weekend.
But some have cracked the code, and the solution involves chicken. And darn good biscuits.
Earlier this year, Fort Smith, Ark.-based Jam Mart introduced Krispy Krunchy to three of its Arkansas locations in Fort Smith, Danville and Booneville, with a fourth set to open in the fall in Ozark, Ark.
The program has added life to the once-dormant evening food business in the stores. “We would often shut down merchandisers in the late afternoon because volume tailed off, but with Krispy Krunchy we see steady activity into dinner,” says Tyson Washburn, Jam Mart’s vice president of operations.
Since the program went live last February, average daily per-store food sales—all food types accounted for—have increased from about $750 to $1,100 a day.
Four hours south, in El Dorado, Ark., Tom Dunn, co-owner of T-Models Pit Stop, serves about 300 meals a week—and 75% of them include a Krispy Krunchy item. The store, which opened earlier this year, generates about $60,000 a month in foodservice sales, with half of that Krispy Krunchy tickets.
Thanks in part to Krispy Krunchy, Dunn says his weekend foodservice business has come alive.
“A typical Saturday at our store actually feels like a weekday with foodservice volume,” says Dunn.
A promising chance to win at dinner and weekend foodservice sales isn’t the only thing that led Dunn, Washburn and others to work with Lafayette, La.-based Krispy Krunchy LLC. The company also has a unique partnership structure that retailers find easy to swallow, so much so that it’s experiencing an expansion blitz to the tune of more than 1,200 stores in three and a half years.
CONTINUED: A Retailer’s Supplier
A Retailer’s Supplier
So what gives with Krispy Krunchy? Dan Shapiro says you can start with like-mindedness. The executive vice president of Krispy Krunchy, Shapiro and company president and founder Neal Onebane can relate well to c-store operators and their business challenges.
A longtime c-store operator in Lafayette, Onebane understood the myriad challenges that encumber retailers. Shapiro, who previously held executive positions with Charter Food Stores, E-Z Serve and others, understood it as well.
Founded in 1989, Krispy Krunchy operates more than 1,500 locations in 32 states, including 331 opened in 2011, 394 in 2012 and 528 in 2013. During the first 32 weeks of 2014, it opened 314 programs. Once a regional chain in the South and Southeast, it recently penetrated the metro New York and Boston markets, as well as Hartford, Conn., and also established a presence in California about a year ago.
What attracts retailers is a non-franchise arrangement with no long-term contract, 50% profit margin potential and one-mile geographic market protection.
“Because we are not a franchise, I think we can allow retailers to be fearless,” says Shapiro. “Many have a tendency to get nervous about long-term contacts, so this makes them very comfortable.”
As for the food, Shapiro says, “We wanted it so prospective retailers would be convinced our program was not one where the owner’s brother-in-law was cooking chicken in the back.”
The sourcing of brand protein helps add cachet: Springdale, Ark.-based Tyson Foods serves as the sole provider of Krispy Krunchy’s chicken. The never-frozen chicken is injected with the brand’s mild Cajun flavor marinade.
Retailers need not acquire foodservice equipment from the company, and they can opt to buy or deploy their own existing equipment. They do have to expense a hot food merchandising case, menu board system and product graphics, according to Shapiro.
“I think the thing that gives us a leg up is: We’re a small, flexible company and consider ourselves nimble,” says Shapiro. “We can do local mailers and couponing programs where we might send 1,000 mailers to support one store on a super price on chicken. We will subsidize the retailer by giving away cases of chicken to defray the profit reduction due to the promotion.”
All these perks are music to retailers’ ears. Many have been battle-tested via restrictive terms of programs rife with upfront costs, royalty payments and other ancillary obligations.
“Daily volume hit a new level and sustained itself,” says Brad Arterbury, co-owner of Jam Mart, which also sells roller-grill fare, meatloaf and deli items, and roasted foods in its nine stores. “We found there was no cannibalization. People might get a Krispy Krunchy meal and also grab a piece of our apple pie or a corn dog.
“Krispy Krunchy had the quality of chicken [as well as seafood] and the marinades we sought. And then there’s those biscuits,” he continues. “I think the biscuits were the tipping point.”
The one-mile guarantee is also highly valued among Krispy Krunchy’s retailer partners.
“In our market, there is no other Krispy Krunchy within a mile, so that leaves the supermarket deli as the only other logical option,” says Washburn. “The customer who comes in to Jam Mart for a pack of cigarettes is not going to make a separate trip to the supermarket deli for chicken.”
CONTINUED: Making It Work
Making It Work
How can Krispy Krunchy corporate sustain itself and drive its own profits without relying on the accumulation of fees that franchises bank on? The way it works is Krispy Krunchy sells its product to a distributor—Sysco being a major partner—and does so at a profit.
“We basically make our money at that point, so we don’t have to go back to the retailer [for what would typically be royalty or other fees within a franchise agreement]. The retailer deals strictly with the distributor,” says Shapiro.
As they conduct their own due diligence on whether a retailer is a good fit, Krispy Krunchy executives analyze a store’s potential, and they steer clear of ones they don’t believe can generate at least $20,000 in food volume per month and attain a 50% gross profit.
As for retailer retention, the chain has a 5% average loss rate per year of retail programs. Along with partners such as Mapco and Circle K’s regional franchisors, Krispy Krunchy has “a small handful of large-size retailers that do $100K a month in volume.”
On the income side, retailers who are proficient about controlling shrink, spoilage and waste should generate 50% gross-profit dollars, says Shapiro, but that can vary. In dealing with its larger-size partners with multiple stores, Krispy Krunchy personnel have seen wide margin gaps from store to store. This is one way to benchmark quality control: If one store in a chain achieved 50% margin, why don’t all of them?
“One large chain had gross profits that ranged from a low of 3% in some stores up to the expected 50% margin in others,” he says. “We find that inventory control is the key. When we got them on an inventory control program, all store margins rose dramatically.”
CONTINUED: Enter the Breakfast Battle
Enter the Breakfast Battle
Looking ahead, Krispy Krunchy plans to continue to not only grow its partner universe nationwide but also branch out and enter new pockets of opportunity, including breakfast—driven by impulse purchases.
On that point, Shapiro says it’s imperative that hot food cases and menu systems be positioned as close to the front of a store as possible. “We feel that if we can get the product into people’s mouths on impulse, we retain them as regular users,” says Shapiro.
Ideally, it likes hot food cases on the transaction counter—a radical concept—and the fryer and hood behind the counter to consolidate labor, all in what is a 4-foot space, says Shapiro.
“Consolidating everything in one place saves the operator labor cost, and it also projects the image that this is a bona fide QSR program with transparency,” he says.
For breakfast fare, Krispy Krunchy has offered some new items on a limited basis, and that’s expected to grow. It has tested chicken tender biscuits as well as a breakfast empanada. It is also examining the viability of new offers such as macaroni and cheese, and a kolache.
But Shapiro is quick to temper expansion plans by saying, “We have to make sure we do it first class. That said, I think he breakfast day-part can represent 40% of a retailer’s food sales for the day, so to get them to see the magnitude of it is huge.”
Retailers know they can rely on Krispy Krunchy’s corporate expertise to help drive their success. Training and marketing support is considered thorough and objective—not a one-size-fits-all template.
Jam Mart appreciated the way Krispy Krunchy’s local marketing rep trained its staff. “A lot of our tenured foodservice employees are accustomed to doing things one way, and the marketing rep was very flexible in dealing with our people, not force-feeding a corporate process to them,” says Arterbury.
After a slow indoctrination period with profit expectations, Dunn’s El Dorado store is now approaching the 50% profit threshold that Shapiro tells retailers is the norm.
“We like knowing that all this is within our grasp, as much as we like a program that does not involve a brand and its people constantly looking over our shoulder,” says Dunn.
Inspired Chicken
If imitation is the sincerest form of flattery, then consider yourself flattered, Popeye’s Louisiana Kitchen.
The national Cajun-style chicken chain, founded in 1972, gets an assist for jumpstarting Lafayette, La.-based Krispy Krunchy Chicken LLC, which made its debut 17 years later. Krispy Krunchy took a close look at what drove Popeye’s success and emulated parts of its operating model.
Neal Onebane, the founder of Krispy Krunchy, had relied on a pressure fryer to cook chicken in his c-store back in the 1980s—that is, until he caught wind that Popeye’s deployed open fryers, so he migrated to that process, which yields a crispier outer breading that stays juicy for 3 hours in a hot-holding case.
Onebane was intrigued by the way Popeye’s merchandised its chicken, using “dump stations” behind the counter. So he designed a hot food case on the sales counter. “Instead of having chicken in pans, we have chicken on grates. It merchandises much better and provides a much better look,” says Shapiro.
Further enhancing product presentation, Onebane did something seemingly unconventional—but it proved to be a masterstroke. “He removed the doors from the back of the hot food merchandiser because the case became steamy inside and the chicken got soggy,” says Shapiro. He also added attractive, bright lighting to the food case that made it “light up like an alien landing field—all the heat comes from light bulbs,” says Shapiro.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.