Burning Issues for 2014

From developing a greater marketing presence with mobile apps and refining your fresh food focus to dealing with Obamacare, c-stores are facing a challenging 12 months.

By Erin Rigik and Marilyn Odesser-Torpey.

The retail market continues evolving at a rapid pace as 2013 proved to be a breakthrough year for the rise of  mobile technology. In 2014, more advanced technology systems could take hold that would make c-store front counters as sophisticated as their back offices.

Mobile payments are becoming as normal for Millennials as credit cards are to their parents. Are you prepared to accept their business?

If that were the only thing you had to worry about, it might not be so bad. But 2014 will bring a host of other challenges. Foodservice continues to be among the most profitable areas of the store. Customers want food. They want it fresh. They want variety. And the competition for their dollars is fierce. C-stores must focus on a fresh foodservice strategy and execute it flawlessly to compete for share of stomach.
Meanwhile, the Affordable Healthcare Act, better known as Obamacare, is barreling ahead, and the parameters continue to change. Industry insiders warned major changes are coming to your expenditures, and you need to be ready.

Going Mobile
isisMobile payment is inching closer to reality in the retail world, and experts agree that now is the time for c-stores to get in the game and test the best options for their business.

During the Retail RAMP Show, held in Chicago in October, Dodd Roberts, executive of the Merchant Customer Exchange, noted the road to mobile commerce, is “a marathon, not a sprint. We have a long way to still go yet. It’s time to make decisions, but we have time still to evaluate,” he said.

There will be 24 million projected mobile devices by 2020. Millennials, who tend to be glued to their smartphones are driving the push for mobile payment. Customers accustomed to paying through an app while at Starbucks and Dunkin’ Donuts are eager to see the technology expanded.

They won’t have to wait long.

Dairy Queen and Jamba Juice are two well-known QSRs trying out vastly different ways to woo customers through mobile payment.

Jamba Juice has rolled out near field communications (NFC) terminals with Isis’ proprietary SmartTap technology at its locations nationwide in order to accept mobile payments.

In November, Isis, the mobile commerce joint venture created by AT&T Mobility, T-Mobile USA Inc. and Verizon Wireless, launched Isis Mobile Wallet nationally. Customers across the country can now download it in the Google Play app store or at thousands of AT&T, T-Mobile and Verizon Wireless retail stores nationally.

Isis uses NFC technology to allow consumers to pay at contactless payment terminals, redeem coupons and present loyalty cards with a single tap of an Isis-ready smartphone at participating merchants. The Isis Mobile Wallet houses virtual credit or prepaid cards, as well as coupons and merchant loyalty cards. When customers are ready to pay, they select the card they wish to use and tap their smartphone on the point-of-sale terminal.

What’s troubling is that these other retail channels are gaining a leg up on convenience stores. Jamba Juice is helping draw attention to the new technology with its Million Free Smoothie or Juice Giveaway, which kicked off on Nov. 14, in conjunction with the Isis rollout. Consumers who downloaded the free Isis Mobile Wallet app— to an NFC-enabled smartphone with enhanced SIM—had the opportunity to receive a small smoothie or 12-ounce juice drink at U.S. Jamba Juice locations, while supplies lasted.

What Works?
But NFC has many retailers turning up their noses, saying the equipment upgrades or retrofits are expensive, especially for c-stores with multiple stations all of which have numerous gas pumps.
Dairy Queen has gone another route entirely on its quest for mobile payment technology. American Dairy Queen Corp. (DQ) partnered with Mozido LLC, a provider of cloud-based, white label integrated mobile solutions, to launch a pilot program using geolocation, and an app experience complete with loyalty rewards, offers and payments.

The DQ FREE mobile app is currently available on iOS and Android smartphones. Much like with the Starbucks app, DQ customers load a prepaid card (which they can reload using a credit card), allowing DQ to bypass costly interchange.  Customers who download the app can then “check-in” using the app when they enter the DQ store.

When they’re ready to pay, they tell the cashier they wish to make a mobile payment, and the cashier processes the payment through a tablet—no swiping necessary. From an infrastructure perspective, the addition is a cost-effective one.

DQ uses a cloud-based server, a tablet and WiFi—no expensive equipment upgrades needed. The system DQ is using is not being integrated with the POS—which is useful for national companies that use several POS systems depending on region. Customers also have the option of ordering from their table using their smartphone and having their order delivered to the table.

Flash Foods, the Waycross, Ga.-based c-store chain with 172 stores in Georgia and Florida, is using yet another way to facilitate mobile payments without costly infrastructure changes or interchange fees. Customers can load their ACH GOBLUE payment card to the new Flash Foods mobile app that debuted this fall. Once the card is loaded and customers are ready to pay for gas, they go to their app to get a seven-digit code they then enter at the gas pump—no swiping needed. For more information on the new app, see the profile story.

The c-store industry’s Bill Deichler of Murphy USA, noted he suspects that the technologies still standing at the end of the mobile payments war will be cloud based because EMV remains a sore spot for retailers and one they are not looking to embrace.

More Ways To Interface
But payment isn’t the only trend in mobility. Phones can also use mobile wallets to store coupons and loyalty cards. “Mobile wallet is like an app light. Think of the app as something that includes loyalty and store locators, and maybe payment. In addition or in place of that you can launch mobile payment or just a loyalty card through a mobile wallet,” said Jack Philbin, co-founder, president and CEO of Vibes, during the Retail RAMP Show.

Mobile technology is also being used to give customers more information about products—such as through QR codes on banners or products. Meanwhile, Digimarc, a digital watermarking technology provider, is taking watermark technology to a new level.

Costco, beginning last April, partnered with Digimarc to add digital watermarks on print pages of The Costco Connection magazine, which goes to the company’s club members each month. Readers can download the Digimarc Discover app free from Apple’s App Store or Google Play, and use it to scan a given page. The app recognizes the invisible watermarks, which then brings up extra content, from information to videos, right on the app.

Digimarc has tested watermarks on product packaging as well. During lab work, the company found watermarked products could be scanned 30-50% faster than products featuring a barcode, which can take time to locate. What’s more, sound can be watermarked too, allowing retailers to potentially play music at certain in-store locations. The music could be scanned by the app to bring up further product information or to push promotions and couponing in real time.

Dealing with Obamacare
Although it has been plagued from the beginning by controversies and major glitches in its HealthCare.gov Website—that have been confounding citizens who are scrambling to get insurance plans in place by the Jan. 1 deadline—President Obama’s Patient Protection and Affordable Care Act (ACA) remains a force with which every American has to reckon.

“We fumbled the rollout on this new health care law,” the president admitted during a November press conference. But the rollout is still moving full steam ahead.

Under the ACA, retailers with 50 or more full-time employees are struggling with the mandate that will require them to provide full health insurance coverage for individuals who work 30 hours or more a week.

“Many retail and restaurant employees do not fit neatly into full and part-time categories and compliance with the unprecedented levels of change under the ACA will be particularly challenging,” said E. Neil Trautwein, vice president and employee benefits policy counsel of the National Retail Federation (NRF). NRF is one of the trade organizations closely engaged in the regulatory process ever since the ACA was signed into law.

“At store level, people work more or less hours for some periods and they may work seasonally, coming in and out of the workforce, making it difficult for us to measure for the purposes of coverage and potential penalty exposure,” he said.  “The administration knows we have the most difficult population to cover.  We’re the canary in the coal mine.”

In July, the Obama administration responded to employers’ concerns by pushing the deadline for some provisions of the ACA, including the 30-hour full-time work week, back one year to January 2015.  But retailers cannot take this temporary reprieve as an opportunity to relax, Trautwein cautioned. He equated the delay with an “advance storm warning.”

“For retailers, this is the time to test their systems and reevaluate their workforces,” he said.

By “testing the systems,” Trautwein was referring to the mechanisms retailers must have in place to report who works for them, how much they work, their health insurance eligibility and other required information to the IRS, the Department of Health and Human Services, insurance exchanges in 30 states, and the federal fall-back exchange. “There is a tremendous amount of reporting required under the ACA,” he said.

Failure to report this information accurately or to comply with the mandate to insure employees working 30 hours per week can lead to substantial fines ($2,000-per-person penalty beyond the first 30 employees).  In addition to protecting against penalty liability exposure, accurate reporting is also necessary to challenge penalties that might be unfairly levied.

Trautwein also urged retailers to continue the battle to revise some of the more untenable provisions of the ACA along with their trade associations and the newly formed Affordable Health Benefits Coalition (AHBC), which he chairs.  “The AHBC  promotes regulations and non-partisan policies that improve the affordability of coverage and care,” Trautwein said.

Trautwein pointed out that there is still continuing dialogue on Capitol Hill about the 30-hour full-time work week, and there is bi-partisan interest in returning it to 40 hours.  There is also an effort to change the definition of a “large” company from 50 employees (one that would have to provide full-time healthcare coverage to 30-hour-per-week workers) to at least 100. “This is not a time to suffer in silence,” he said.  “Write to your representatives in Congress and the Senate to support these initiatives—it’s important that we have strength in numbers behind us.”

In the meantime, many retailers are trying to find ways to adjust their workforce to balance the requirements of the ACA and their bottom line. Employees of Baltimore-based Royal Farms told the Huffington Post it would make almost its entire workforce part-time as a result of Obamacare.

racetracAtlanta-based RaceTrac conducted an experiment to see how many full-time employees it needed to adequately operate its c-stores. The survey was chronicled by the Athens (Ga.) Banner-Herald newspaper. The study cited Whitney Woodward, RaceTrac’s vice president of human resources, who noted the company could effectively operate with three of every 10 workers being full-time, and the other seven being part-timers. Woodward also noted ending the company’s healthcare plan and giving full-timers additional money, so they could buy their own insurance was “absolutely something we would consider.”

“At RaceTrac, we are committed to putting people first. Implementing a consistent standard for staffing our stores allows us to continue offering our team members competitive compensation and advancement opportunities while accommodating the new health care laws and the growing needs of the company,” Woodward told Convenience Store Decisions. “Through extensive testing, RaceTrac was able to identify the best combination of full-time and part-time team members to ensure the labor model could meet the needs and goals of our people and the business. RaceTrac has multiple members of management in all of our stores, all of which are full-time roles with a current plan to remain as full-time positions. For all other positions, the number of full-time team members in each store will depend on the store’s authorized hours, but in general, will operate with a breakdown of 70% part-time and 30% full-time team members.”

Other chains are weighing a wide range of options, from hiring doctors and opening medical clinics for employees to pondering if it would be less expensive to pay the ACA penalty fines than to pay full-timer coverage costs.

On the other hand, Framingham, Mass.-based Cumberland Farms announced in June that it would be expanding its ranks of full-timers to make more of its employees eligible for health care coverage. As of Oct.1, about 1,500 additional employees became eligible for the employer-provided coverage.  “We are a people-focused company and we fundamentally believe it is our serious commitment to our people that will set us apart in the marketplace,” said Ari Haseotes, president and chief operating officer of Cumberland Farms in a press release issued by the company.  “Investing in our employees is not just a smart thing to do—it is the right thing to do.”

chickenFocusing on Food
With foodservice dollars becoming crucial, c-stores must start playing on the leading edge of foodservice trends. Foodservice research firm Technomic has identified trends that may significantly impact the foodservice industry in 2014:

1. Convince me it’s real: Consumers want assurances that they’re eating real food. Today’s menus describe not only the ingredients, but also where they came from and how they were prepared. Local sourcing is vital.
2. Pushing the parameters of proteins: Rising commodity costs for beef mean chicken will be big again in 2014. However, the latest protein star is pork—appearing in regional barbecue items, in Hispanic and other ethnic fare, in charcuterie and as pulled-pork sandwiches. Also in the spotlight are lamb and game meats, from duck to bison.
3. Return of the carbs: Starches are staging a comeback—from ramen to buckwheat to pasta made with unusual ingredients. Rice bowls (and jasmine rice, basmati rice, brown rice) will be big, in part because of continued fascination with Asian fare and an association with healthfulness. Look for flatbreads, wraps and all kinds of artisan breads, including healthy whole-grain varieties. Waffles as a base or side make traditional savory items like chicken seem edgy.
4. Creamy, cheesy, high-fat goodness: The demand for healthier eating is real, but so is the backlash. We’ll see more cheese melts, pasta with creamy sauces, fried appetizers and sides, plus oddities like doughnut-based sandwiches. Don’t take super-indulgent items too seriously, though; outrageous LTOs like Wendy’s nine-patty burger are crafted more for social-media buzz than eating.
5. Pucker up: Forays into less-familiar ethnic cuisines, from Korean to Scandinavian, are partly responsible for growing interest in pickled, fermented and sour foods. Korean kimchi, pickled onion, jalapeño, ginger, radish and more are showing up everywhere. On the beverage menu, the trend is seen in sour cocktails and as new flavor combinations with sour notes—a reaction to last year’s candy-sweet drinks.
6. Day for night: Consumers are less likely to eat on a three-square-meals schedule; they nosh, skip meals, eat breakfast for dinner and vice versa. Restaurants are introducing innovative breakfast items—like chicken, turkey or steak breakfast sandwiches—often available all day. While breakfast-and-lunch-only concepts are building a niche, other operators are promoting late-night breakfast menus, often in conjunction with 24-hour drive-through service.
7. Every daypart is a snack daypart: As the snacking lifestyle goes mainstream, diners are paradoxically less interested in snack menus per se. Millennials see dollar and dollar-plus menus as the snack menu.
8. For fast service, bring your own device: The fast-casual service model has hit a hiccup: customers specifying every ingredient make for a slow service line. Operators are finding new ways to use technology for faster, more accurate ordering, like iPad orders placed tableside. But we’ll primarily see a bring-your-own-device system of advance and inside-the-restaurant ordering.
9. Everything is political:  Restaurant operators got caught up in political controversy as never before in 2013. Some suffered customer backlash after expressing views related to Obamacare, “family values” or other topics, but others saw increased traffic. Consumers are increasingly aware that the personal is political—that their choices and those of the restaurants they patronize regarding food, treatment of employees and suppliers, sustainability and the environment have real consequences. Customers will gravitate to concepts that share their worldview, and some restaurants will promote this cultural identification.

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