With foodservice taking on a greater role in the industry, retailers find themselves with a tough decision: invest in a commissary, partner with a third party or build an in-house brand of their own.
The battle for share of stomach has taken many twists and turns for convenience stores over the years. What began with roller grill hot dogs has graduated to a delightfully varied array sandwiches, gourmet hot foods and premium ingredients.
To keep up with the competition convenience stores now have some important decisions to make when it comes to expanding their foodservice programs. The stakes are high. Consider that the retail foodservice industry has seen double-digit sales growth in fresh-baked breads, premium luncheon meats, flavored meats and gourmet cheeses. This comes on the heels of increased demand for meals away from home across all three major daypart.
According to the 2017 National Association of Convenience Stores (NACS) State of the Industry Report, foodservice (prepared and commissary food; hot, cold and dispensed beverages) and center store (grab and good foods, packaged snacks) accounted for more than 31% of overall industry sales in convenience stores. About one in every three dollars spent in the store was on a food item. However, the SOI Report found that foodservice contributes a much larger slice of c-stores’ gross profits—a whopping 36% on average.
Simply put, if c-stores are not prioritizing foodservice, they are losing sales dollars and customers to chains who do make it a priority.
From proprietary programs and co-branded QSRs to no-fee, turnkey foodservice solutions, c-stores have a wide variety of program options right at their fingertips. Finding what works best for you requires quite a bit of legwork that starts at the highest level of the company.
Management must determine its commitment to foodservice long before making an initial investment. Once the commitment level has been established, retailers can decide if they want to build a program from scratch or partner with an experienced brand. Each strategy has advantages.
Proprietary Focus
A proprietary brand allows chains to have more control over food quality, freshness and authenticity, and it gives them a clear point of differentiation in the marketplace. Plus, it creates value for the company and enhances your brand equity. This cannot be underestimated.
But building a proprietary program does not come without a price. “It takes time and effort to develop the products, systems and procedures necessary to operate a proprietary-branded foodservice program, plus it costs money to get the brand name out there,” said John Matthews, founder and president of Gray Cat Enterprises consulting firm. “For the risk takers, the entrepreneurs, there is the opportunity to build a mystique around their own brand that virtually no one else can mimic.”
Once initial customer trust has been established, maintaining it and growing the brand requires consistent delivery on the brand promise “or the customer will let you know,” Matthews said.
Furthermore, the road to successful proprietary foodservice is not always smooth. “Be patient as the concept will go through many growing pains until you figure out what works for your customers, demographics and capabilities,” Matthews said.
Brand Partners
As more c-stores recognize foodservice is smart business, many choose to go it alone by establishing proprietary food programs. Like proprietary programs, these also come with challenges, such as high costs to set up and maintain.
There are several matters to address before teaming with a QSR that will allow your foodservice to hit it big with customers. Doing the due diligence up front often pays off in the end.
“Branded food companies can offer a c-store operator an opportunity to get into a foodservice program for far less money,” said Steve Montgomery, president of b2b Solutions. “These require less space, allowing a retailer to retrofit existing locations, meaning they can install the brand in more locations. They offer the retailer training and, depending on the brand selection, may not require franchise and/or advertising fees.”
Before taking the co-branded plunge, c-stores should make a careful assessment of how customers view the current offerings and how new food offerings might fit their current customer base. Figuring out the menu food options customers prefer is an important part of any co-branded business plan
Dana Evaro, Vice President of Marketing for Land Mark Products, knows the hard work it takes to build a fresh sandwich business as “Fresh” both inspires and requires customer confidence.
“We’re competing against stand-alone concepts like Subway and Jimmy John’s and Piccadilly needs to be seen as on-par with quality. However, because of our C-store focus, we add greater convenience to the program!”
Evaro knows the battle for customers is a large one and that’s why Land Mark Products developed Day’ Night Bites. Fresh-made is huge for us in winning and keeping customers. But frankly, there are enough customers for grab’n go that we need to serve them, too.”
Understanding the Customer
The customer value proposition has moved beyond “price.” It’a become more complicated as customers evaluate alternatives from convenience stores, supermarkets and specialty retailers to quick-service restaurants like Subway and Panera Bread, together. It is simply not enough to offer basic sub sandwiches, with everyday ingredients for an everyday low price. Convenience stores need to create outstanding menus, using premium quality ingredients, on fresh-baked breads for a great value.
It takes more than simply sprucing up equipment, a menu and even relying on eye-catching in-store signage to turn a fledgling foodservice program into a star attraction in a convenience store.
Ask any of the retailers who are running profitable proprietary or co-branded programs and they’ll tell you that you that it’s a commitment beyond what even the best operators can provide; it’s about partnering with experts and enjoying shared success.