Is co-branding or a proprietary program the right choice for your chain? Retailers weigh in on what factors to consider before selecting a food brand.
By: Erin Rigik, Associate Editor
In today’s market, foodservice is crucial to attracting customers and maintaining strong sales.
When adding foodservice, building a proprietary brand, co-branding and leasing space to a QSR are three very different approaches—each with its advantages. Deciding which one works best for your chain is half the battle.
Building a proprietary program with specially tailored products can differentiate your brand from the herd of foodservice competitors. The extra work can drive strong profits—if it’s done well. But depending on a chain’s size and resources, building a brand from scratch isn’t always a realistic option.
Co-branding with a QSR brand offers the benefits of a set menu, built-in advertising, brand recognition and employee training. While this model appeals to many operators, others are hesitant to promote another brand on their building.
A third option is leasing space to a QSR that runs the food program independently. This offers a guaranteed rent check every month sans the hassle or liability of training employees.
Regardless of the model chosen, committing to the time and expense from the top down is vital to a successful operation.
Rockland, Mass.-based Tedeschi Food Shops is no stranger to proprietary foodservice. Nearly two years ago, Tedeschi Food Shops brought on DSD1, a local start-up commissary, to develop, produce and distribute its TD’s Deli packaged fresh food line. After a successful pilot program in 25 Tedeschi locations, the chain added the program to 150 of its 188 stores. Twenty-one Tedeschi stores also offer full-service delis.
“We’ve seen a shift overall in the industry to move to fresh foods. We think fresh foods is a core category—it’s one of the areas we’re looking to grow and one that offers the biggest opportunity,” said Joe Hamza, vice president of sales and marketing for Tedeschi, which operates c-stores in Massachusetts, New Hampshire, Rhode Island and Connecticut.
This January, Tedeschi took its proprietary goals a step further by acquiring DSD1, which has been renamed “Tedeschi Fresh Foods” and operates as a subsidiary of Tedeschi. The decision to acquire the commissary was an easy one, Hamza said, because the product line was designed completely by Tedeschi and the commissary was selling exclusively to Tedeschi, making the acquisition a natural progression. The company plans to expand the product line, and will roll out a new healthy kid’s meal that retails for around $3.99.
Having not only its own proprietary line, but also its own commissary comes with advantages for Tedeschi, including control over the entire process. “Now we’re free to design our own products, and we can get any new product literally out to the market in 24-48 hours from production to distribution,” Hamza said. “If tomorrow we want to look at a new sandwich with new ingredients unique to us, we can do that. The commissary gives us that freedom.”
While running the commissary reduces overall pricing there are other costs in which to invest—equipment, training, management software and sanitation, plus the trucking and logistical issues associated with becoming self-distributed. As the company continues its due diligence and works to understand all the new tasks involved in running this new aspect of the business, Hamza is convinced the company is on the right track. “The benefits definitely outweigh the costs,” he said.
Hamza advised other chains considering the commissary route to be honest about their capabilities. “Being in the commissary business is a lot of hard work. There’s a risk it could become a distraction, so people need to ensure they have the infrastructure to support a commissary program and become educated about the whole process. So do your homework and do the due diligence and if it makes business sense, go for it.”
One of the biggest advantages of running a proprietary program is that customers will recognize a food brand in connection with a c-store chain, which helps to drive loyalty and increase brand recognition, said Brian Shutler, Circle K’s category manager for the El Paso, Texas market.
Circle K offers proprietary grab-and-go sandwiches and is rolling out a new hot food program that includes pizzas, chicken and potato wedges that can be cooked in TurboChef ovens, as part of its new Take Away Café line. Some 10 locations in the El Paso market now feature the offering.
“If you’re doing a proprietary brand, you’re betting that you can build that brand and maximize your profits by doing it yourself,” said Shutler, who has experience managing national food brands from his days as a category manager for Southwest Convenience Stores in Dallas. “The advantage of a proprietary food program is the ability to customize the offerings down to the ingredients and tailor them to a particular region or store.”
Not every retail chain wants to deal with the time and expense involved in creating a proprietary foodservice program. In such cases, co-branding with an existing foodservice brand can still drive hungry customers to your property.
“If you co-brand and operate the location yourself, you have that instant brand recognition and you don’t have to go through the process of developing the menu,” said Shutler. “But you’re only as strong as that brand you’re partnered with. In my opinion you want to co-brand with a solid performer because you’re looking for that brand to help elevate your business.”
When reviewing co-branding opportunities, speak with other chains to learn about their experiences to ensure you’re making the best choice for your operation.
Two years ago, Mansfield Oil, which supplies fuel to 500 c-stores in 49 states, began offering a value-added co-branding foodservice option to its dealer-operated stores as part of its preferred vendor program. The program takes the guesswork out of co-branding. To date, Mansfield has helped set up about 85 stores with its preferred foodservice vendors, including coffee and roller grill programs, said Ted Roccagli, retail marketing manager and business coach for Mansfield.
Mansfield’s partners include S&D Coffee, Chester’s Chicken, Champs Chicken, Piccadilly Circus Pizza and Hot Stuff Foods. Mansfield also helps design and set up food courts in new stores and also helps retrofit foodservice counters into existing stores. Each participating brand trains c-store managers and employees, providing a low-cost of entry, turnkey foodservice solution. The program offers an easy way for retailers to jump into foodservice without breaking the bank.
“If the owners of the store run the foodservice operation themselves, it’s much more profitable because they’re realizing all the profit. But the second biggest expense in a c-store is labor, so naturally you have to streamline your expenses and watch your labor,” Roccagli said. “Some operators don’t want to hire the extra help and worry about making sandwiches. So we have some retailers who prefer to partner with a QSR and have the QSR run the food operation.”
When hiring a QSR to run a foodservice operation inside the c-store or in an adjacent building on the property, the QSR inks a lease agreement to use the space, while the operator gains a food program that attracts customers.“The advantage of leasing space to a QSR is that all the operator needs to do is collect rent, so it’s simple,” Shutler said. “On the other hand you have a fixed income, regardless of the success of the QSR.”
Whichever option operators decide, doing due diligence is vital to long-term success. Foodservice comes with high shrink and requires a lot of labor, and if it’s not done well, it can hurt rather than help your chain, meaning a high degree of commitment is required. Retailers succeeding with foodservice agree that you must be prepared to commit to the labor hours and expense to run a clean, quality offering.