Today, quality foodservice is a key ingredient in profitable convenience store operations.
Just how key?
Foodservice accounted for 18% of total c-store sales in 2013, which also included tobacco; packaged beverages (soda, alternative beverages, sports drinks, juices, water and teas); center of the store (candy; sweet, salty and alternative snacks); and beer, according to an industry survey conducted by the National Association of Convenience Stores (NACS) and New Orleans business analytics firm CSX LLC.
However, the survey indicates that foodservice contributes a much larger slice of c-stores’ gross profits—29.1% on average.
As more c-stores recognize foodservice is smart business, many choose to go it alone by establishing proprietary food programs. However, such programs are costly to set up and even pricier to maintain.
In order to cash in on a solid foodservice program, c-stores have increasingly turned to co-branding with recognized foodservice companies, such as Hunt Brothers Pizza, Subway and White Castle.
Of course, it’s more than just acting on an idea, but committing to a culture change.
“Foodservice is not just another category,” said Steve Montgomery, president of b2b Solutions, a consultancy that specializes in working with retailers and suppliers in the convenience retail/petroleum marketing industry. “To do it right means making some fundamental changes in how business is done at store level.”
Wade Mannino, president and CEO of Fast Stop Patoka in Patoka, Ill., and Stop-N-Go Mart Inc. in the neighboring city of Marine, chose the alternate route of co-branding with a national chain to alleviate some of the start-up costs associated with proprietary programs.
Mannino has partnered with Nashville, Tenn.-based Hunt Brothers Pizza since 1996, when the supplier only offered just one kind of 12-inch pie.
Now both of Mannino’s c-store operations serve a complete array of pizzas, chicken wings, and other items under the Hunt Brothers name.
For 18 years, the foray with Hunt Brothers has proved a delicious relationship, resulting in fresh offerings for customers and healthier profit margins for Mannino.
“The customer service is excellent,” Mannino said. “They will do anything for you to make you happy and some of these other companies will not do that.”
Proclaiming that it works with retailers to keep costs down, Hunt Brothers provides all of the food products, marketing programs, equipment and employee training for convenience stores to operate their own turnkey pizza program.
Every c-store that offers Hunt Brothers Pizza has a dedicated account representative who personally delivers product, rotates inventory, and evaluates opportunities to increase sales. The company also offers free marketing materials, promotional opportunities, and a free ongoing training program for c-store employees.
Just as the fresh food menu has grown at Mannino’s stores, so have sales.
“At (one) Stop and Go Mart we sell 150 pizzas a week and at Fast Stops about 250 a week,” Mannino said. Those 400 pies sold per week account for about 20% of total company sales.
Of course, 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.
“Companies, such as Krispy Krunchy Chicken, Orion and Hunt Brothers, can offer a c-store operator an opportunity to get into a foodservice program for far less money,” Montgomery said. “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, Mannino said. Figuring out the menu food options customers prefer is an important part of any co-branded business plan.
Mannino has stayed with Hunt Brothers all of these years even though he feels his customer base would support a Subway, for example, a national brand that he admires for its marketing approach and one he thinks his customers would readily accept.
Of course, there are other things a c-store should pay heed to, including franchise support, average-unit volume, sales-to-investment ratios and market niches to determine which companies give franchisees the most bang for their buck.
Likewise, the QSR will weigh its prospective returns.
“Regardless of the scope of the brand’s operating geography—local, regional or national—each has a set of qualifications the retailer must meet,” Montgomery said. “These have to do with location, space requirements, image and operating requirements that require certain capital outlays, training and staffing, etc.”
Delivering the Goods
While great gross profits is the tip of the foodservice pyramid that c-store operations strive for, getting there rests with a solid business plan. Part of that foundation is having competent employees in place who are going to deliver the quality the QSR expects, and is going to make your foodservice plan successful.
While some brands like Hunt Brothers and Subway make employee training available, the operating franchisee must plan for hiring potential employees with good foodservice skills, which will include serving customers, preparing food as requested, and maintaining food safety and sanitation standards.
“It’s not about the labor cost, it’s about labor productivity,” said Foodservice and Retail Consultant Joseph Chiovera, who was at the NACS Sate of the Industry Summit to advise attendees on some general best practices when launching a foodservice program.
Before You Sign
Andy Jones, president and CEO of Wrens, Ga.-based Sprint Food Stores Inc. offers some level of foodservice at each of his profitable 15 stores, and three sites have a McDonald’s.
The one consistent finding, according to a Placed Insights’ April 2013 report, is that McDonald’s is the most-visited restaurant brand in every geographic region in the U.S. Of course dealing with McDonald’s is a profitable and educational venture because of the chain’s business acumen.
“Here are some critical pieces when dealing with a big company like McDonald’s,” Jones said. “When you are looking at the overall percentage of rent—or whatever the deal is that you’re cutting—if you are building the building and paying for all of the improvements, and you are getting a percentage of their sales that they cap at a certain point—you need to take into account expenses, such as property taxes, when negotiating payment. “
“If you add on to an existing location—put a McDonald’s there (for example)—city, county, municipalities raise the property taxes,” Jones continued. “Your return can take a major hit if you don’t negotiate that into your rent (agreement) structure somehow.”
Even though the increased property taxes were a lesson learned for Sprint, the c-store’s relationship with the renowned leader of the QSR market has still been profitable, even though the volume of customers that gravitate to the c-store side for fuel and forecourt items outnumber the patrons that frequent the big brand restaurant, Jones said. But in the end, the system works because the two brands have a business plan for quality foodservice that benefits both businesses.
“It’s a nice marriage because we get the convenience customer and they get the destination customer,” Jones said.
Convenience store operations looking to add a co-branded operation should gather as much information beforehand as possible, experts say.
“Talk to an existing co-branded c-store operator,” Montgomery said. “They can tell you what it is like from their perspective. Select those (brands) that you believe you would like to work with. Learn what their requirements are. What do they need to be successful?”