Cooking up Surefire Profits

As rising food and gas prices and killer credit card interchange fees are making for one hellacious economic hurricane, a c-store’s foodservice program could prove to be the fallout shelter.

That was the consensus from c-store retailers and researchers participating in the first installment of CSD’s Foodservice Webcast Series, sponsored by Sam’s Club, on June 26, the first of three such online presentations delving into current market trends and key strategies retailers are using to build profitable foodservice operations.

“Foodservice really represents, from many perspectives, a strategic opportunity to drive the economic engine of convenience retailers today,” said David Bishop, managing partner of Balvor Inc., the research firm that partnered with CSD to head up a foodservice study exclusively for the Webcast.

Bishop was joined by retailers Jon Bratta, director of proprietary brands at BP’s ampm brand, and Jack Cushman, vice president of Nice N Easy Grocery Shoppes, an 81-store chain in upstate New York, both of whom laid out concepts their chains are using to drive in-store traffic and generate margin-boosting sales.

Fleshing out the elements and strategies of an effective foodservice program is an increasingly difficult proposition in today’s economy, where record-high gas prices, rising food costs, increased competition, shrinking fuel margins from interchange fees and a generally lackluster shopper are all converging to wreak havoc on the industry’s bottom line.

“These factors indicate to retailers that they need to find areas of the business that can generate, incrementally, greater profit for their business,” Bishop said. “Foodservice offers a lot of that.”

Surveying a pool of nearly 100 retailers, Bishop found that top performers among c-stores are holding the line on prices for various foodservice segments in hopes of boosting their margins by way of sheer sales volume.

Bishop’s survey drilled into the morning daypart and focused largely on coffee sales, a critical driver of foodservice, which often accounts for 20% of in-store sales during the morning rush. Peeling the data by quartile, Bishop found many retailers are raising price points in response to rising food costs, but the top quartile is either holding steady on coffee prices or passing only marginal increases along to the consumer.

It’s paying off. Profit from sales volume at those top-quartile retail locations is offsetting the stayed prices.

Competitive Focus
But commodity and energy prices aren’t the only devils hunting c-stores these days. Fierce competition in channels outside convenience is proving other retailers are willing to snag convenience concepts to expand appeal. Quick-service juggernaut McDonald’s has already begun test-marketing sales of Red Bull cans in some stores, and it’s ramping up efforts in four areas, three of which are fundamental to c-stores’ success: convenience, breakfast and beverages.

While Bishop’s survey results showed the majority of retailers see other convenience stores as their primary competitor, many c-store operators consider QSRs to be a formidable opponent. Successful retailers like BP/ampm and Nice N Easy are staying ahead of emerging trends and capitalizing on their chains’ speed of service, quality and overall value to maintain and, in many cases, grow their share of sales.

Bratta, of BP, said c-store customers don’t always equate low prices with value. A store’s speed of service, emphasis on convenience, diversity of offering and great-tasting products are just as effective in driving customers from the gas pump to in-store profit centers, particularly when shoppers are looking to reduce the number of retail trips made each day.

Bratta and Cushman said their stores are increasingly focusing on the growing health and wellness sector. Sales volume on healthier and fresher items like fruits and yogurts at Nice N Easy’s stores, for instance, were sometimes 300 to 400% greater than other foodservice items, Cushman said.

Marketing products and programs effectively is pivotal to increase sales, Cushman said, a point backed up by Bishop. Leading retailers are using innovative tools to expand their reach and disseminate word about the value of their stores, Bishop said, whether through direct-mail or e-mail campaigns, Web sites, radio advertising or free product sampling.

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