There are few sure things in business. But partnering with an established foodservice brand could be about as close as one can get.
That’s because proven concepts offer so much, such as built-in brand equity, customer loyalty, honed or even turnkey systems with shorter learning curves, proven menus and recipes, pre-existing designs and equipment packages with the bugs worked out, as well as potentially more efficient purchasing and distribution. Plus, big brands often come with advertising and promotional support, training programs and varying degrees of in-the-field and back-office assistance.
Running a proprietary program, however, is like being a trapeze artist without a net. Its success rests on the expertise the operator brings to the table. Unless that operator has achieved some degree of size, every function involved—from design to sourcing products—can prove more expensive and time-consuming.
On the other hand, there is no revenue sharing or fee payments, local differences are more easily exploited, there are no restrictions to abide by, marketing supports the retailer’s own brand, uniqueness sets it apart from well-worn concepts, sourcing is more open and the sense of operator accomplishment can be greater.
Proprietary or branded “is a good question, because they are both good options,” said Jack Cushman, Ph.D., executive vice president of foodservice for the 80-unit Nice N Easy Grocery Shoppes in Canastota, N.Y. “It’s like anything else. For instance, is this a good time to get an apartment, a house or a retirement home? Well, obviously it depends upon a lot of things, primarily your age.”
Under Cushman, Nice N Easy has been fine tuning its Easy Street Eatery and Momma Mia’s Pizza & Subs program.
“(When looking at a business through the same lens), if you really don’t have any expertise—if you don’t have someone with my background for example, or you don’t bring it yourself as a sole proprietor—then franchising a Subway, another respected national brand, or whatever else really works well with your customer base is a good way to go,” Cushman said.
Some concepts tailor programs specifically toward the needs of convenience stores. For example:
• Hot Stuff Foods LLC operates, licenses and franchises quick-serve restaurants that offer partners everything from concept development and product introductions to ongoing marketing and operational support to retail operators in the convenience store industry.
• The Hunt Brothers Pizza program charges no franchise, royalty or advertising fees. Its basic unit fits in 59 square feet of space and returns an average of $368 of gross margin per square foot per year. Its team also provides marketing support in the form of on-location marketing materials and even pizza promotions to help drive traffic, sales and profits.
• Piccadilly Circus Pizza’s program also offers an extensive menu of pizza, subs and breakfast items. Operational support includes territory managers who are available when operational or marketing support is needed. The program also features on-site training, business strategy planning, marketing consulting, cost-control, waste analysis and sales and profit evaluations.
The Joys of Proprietary
While devoid of national brand benefits, proprietary is trending upward, said veteran consultant Dean Dirks of Dirks Associates LLC. “Retailers can typically make more money, and a lot of branded foodservice companies view the convenience store market as a non-growth arena,” he said. “Several fast feeders are pulling back and focusing on their core operations to survive.”
For example, Dirks added, “Taco Bell pulled out of the c-store market because they felt that the quality of the brand was being compromised due to poor execution.”
Going with a proprietary concept, though, means “investing a great deal of money in a concept that is not proven,” Dirks said. “Buying a Subway is safe in that regard: you know the concept is going to work.” Dirks, who spent 20 years as foodservice director at several convenience store chains operating both proprietary and chain concepts, is quick to say he’s not promoting one over the other.
Another difficulty, according to Dirks, is that proprietary foodservice “does not come with systems in place like a Subway does. Setting up the systems for execution, profitability, food safety” and more can prove costly and time consuming.
Proprietary operations must overcome the “‘I feel uncomfortable buying food at a gas station’” image, Dirks said. How to do that? Operators with their own programs “have to execute better than branded foodservice to build their own brand equity similar to what a Sheetz has done.”
Another stumbling block to success with in-house foodservice programs: Many operators lack experience. Proprietary programs need experienced personnel to create and execute the concept.
“The companies I know in the industry that make money in proprietary foodservice have very talented foodservice people,” Dirks said. With a proprietary program in place, operators need not pay an 8-12% royalty that most branded concepts charge. Overall control is another factor that moves some operators to keep things totally in-house.
When an operator opts for a franchise, he is getting a proven concept “in virtually all cases,” Cushman said. “Take Subway, for example. It has certainly proven to be a viable business plan that works. You’re going to get the expertise all the way from sourcing to menu engineering to food safety, even to developing your management and your rank-and-file.”
As a company grows it can draw people who have that core competency, and then try to bring foodservice in-house. That’s when an in-house concept can compete effectively.
“I think it has been proven by companies like Sheetz, Wawa, Nice N Easy, Quick Chek, Rutter’s, Maverick and a number of other organizations that have decided to go there, that hiring people with an expertise and a background in foodservice was absolutely necessary to develop those programs,” Cushman said.
Many operators may not realize that, despite franchise or licensing fees, they can usually find it more economical to work with a partner because they don’t have to worry about a lot of marketing details, said Cushman, who has spoken on this topic before NACS and other organizations.
“If you look at the royalty you pay a national brand, it’s about 8%. But you’re going to get that back in food cost through more efficient purchasing,” Cushman said. “If you’re a little guy you may not have the wherewithal to buy a lot. Smaller chains trying to handle foodservice on their own not only tend to have higher food costs, but lower overall margins and traffic counts as well.”
Those proprietary operators who feel they are better served by purchasing the lowest-price items possible, however, are likely to find that consumers will not respond favorably. That could lead to smaller volume, Cushman said, “and then you are going to fall into this whole spiral of frustrations.”
Running a large number of stores isn’t a requirement. “If you’ve got 10 and you’re willing to do some conversion, or a raze-and-rebuild, then you can start there,” Cushman said.
But operators should keep in mind that 10 is not a hard-and-fast number. “It all depends on what kind of traffic and demographics you have. What’s the competition like? If you want to go proprietary and you’ve got a McDonald’s, a Panera Bread and everybody else right on top of you, and you are new at the game, you might suffer through a pretty long learning curve.”