Keys to Growing Foodservice Profitably

Why are some retailers prospering when others are struggling? What are the keys to growing the business—even during tough economic times? How are successful retailers approaching the business differently than others?

These are all questions that could be applicable to any part of the retail business. However, the questions are extremely salient to foodservice programs as many retailers are intensely focused on leveraging categories in this area to drive competitive differentiation and profitable growth.

The recent CSD/Balvor Foodservice Survey revealed that top-quartile retailers, ranked and categorized by average foodservice sales per store month, are more likely focusing on improving in-store practices, enhancing shopper value and increasing off-site communications.

These top-line findings help to reveal some of the answers. However, it’s clear that the differences go beyond what strategies they’re pursuing to how they’re executed in-store.

Here are three lessons learned that you can apply to growing foodservice more profitably.

Lesson 1: Don’t Lose That Shopper
When consumer spending is constrained like it is currently, retailers grow mainly by stealing market share. Therefore, don’t give your current customers any reason to spend their money elsewhere.

More top–quartile retailers are working to protect their base business than the rest.  And, although they’re only slightly more likely than the mid-quartile retailers to believe that improving in-store practices is extremely important to achieving their business objectives, they are 27% more likely to believe it when compared to bottom-quartile retailers. (See chart 1)

Having acceptable code dates on packaged foods, fresh coffee available, and well-maintained display cases are examples of basic operational practices that you can monitor and manage every day. Beyond that, it’s important to have clearly communicated policies that empower the store team to win back a shopper when a breakdown occurs–as it will occasionally.

Consider the Sheetz coffee guarantee, “If we don’t have fresh coffee ready for you, we’ll brew it and buy it.” This explicit customer promise provides clear direction to staff as to how they should respond in that specific situation.  The guarantee also conveys a powerful sense of hospitality that’s prevalent with most foodservice operators, but not all convenience stores.

A key factor why successful retailers are building the business is because they’re not losing their current customers to the competition.

Lesson 2: Hold Onto Your Pennies
Many retailers have learned that reducing retail prices, like on hot coffee, may help maintain competitiveness and even increase units sold, but it can also reduce profits more than expected.

Price negotiation and better procurement are two ways to hold onto more penny profits while another involves adjusting the product assortment.

Interestingly, only 35% of the retailers indicate that they added a smaller size cup to the hot coffee offering within the past year.  Top-quartile retailers on the other hand are 29% more likely than the average to have employed this tactic, and even much more as compared to the bottom quartile. (See chart 2)

This subtle shift in assortment is an important tactical move to maintaining a strong opening price point while protecting the penny profits.  This is especially true today as more convenience retailers have migrated to a larger cup assortment, making many retailers more vulnerable to foodservice operators.

Now if you’re a retailer who believes that size does matter, realize that many coffee houses, doughnut shops and QSRs offer cup sizes as small as 10 ounces or 12 ounces. If this surprises you, it is likely due to differences between how convenience retailers and foodservice operators typically market their offering.

Lesson 3: Compel Consumers to Shop Your Store
Motivating current customers to spend more or attracting new ones to shop your stores is vital to growing the business. Unfortunately, if you’re experiencing above-average sales declines, you’re probably focused mainly on improving current programs and operations.

This may explain why top-quartile retailers are 74% more likely to believe that it’s extremely important to invest more in off-site communications in order to achieve their objectives today. (See chart 3)

In other words, top-quartile retailers are focusing on building the business while bottom-quartiles are simply trying to save theirs.

While social media and other electronic marketing methods are still in their infancy, top-quartile retailers appear to have a jump on integrating communication across these mediums. In fact, top-quartile retailers are three times more likely to reach consumers using a combination of these methods versus the bottom quartile. (See chart 4)

Although reaching more consumers is important, providing them with a compelling reason to visit is even more critical. Limited-time-only deals, whether for a specific product or time period, are effective tactics to leverage.

Putting It into Perspective
To grow foodservice profitably you need to do many things right every day.  Top-quartile retailers excel at the basics and have built a solid foundation from which to expand.

Retailers aspiring to become top-quartile performers need to prioritize where they focus based on the current state of their business. Imitating top-quartile retailers is no guarantee for success or creating competitive differentiation.

The answers to our questions are often far simpler than we realize. In foodservice, it often revolves around things like having a consistent offering, good service, value and great people.

Retailers interested in gaining additional insights and perspectives on this topic can view Part 1 of CSD’s Foodservice Webcast Series, which is available free on-demand at www.cstoredecisions.com.

David Bishop specializes in convenience retail and is the managing partner at Balvor LLC, a sales and marketing firm located in Barrington, Ill. He can be reached at davidbishop@balvor.com.

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