According to NACS 1998 State of the Industry Report, Foodservice generates almost as many gross profit dollars as cigarettes ($4.5 billion for the industry). On average, it accounts for 12.1% of merchandise sales and 20.6% of gross margin dollars. Bottom line, Meyer & Associates believes that there are many reasons why c-stores can continue to enjoy benefits from foodservice, provided they understand what they do best and what they do not.
When it comes to foodservice, M&A offers these foodservice "best practices" ideas for retailers' consideration:
- Go Branded - For the same reasons that many consumers search for a certain brand of gas or drink Pepsi and Coke or wear Levi's or look for Oscar Mayer hot dogs, they're quicker to stop for fast foods when they see a Subway, Burger King, Pizza Hut, Taco Bell, KFC or TCBY. National advertising and perceived brand confidence prejudice consumers' habits.
- Stay Focused - Whether a traditional c-store operator or petroleum marketer, most c-store retailers are comfortable selling gasoline, cigarettes and other merchandise. However, this foodservice business, once you get past fountain and coffee programs, is quite demanding. Know what you're willing to do right and what doesn't really turn you on.
- Proprietary Option - If your Company genuinely has the commitment and execution characteristics found in very few chains (e.g. Casey's, Quick Chek, Sheetz, Wawa), then proprietary foodservice programs may work. Before doing so, we suggest you print the Success Characteristics of Proprietary Foodservice in CSP's March 1997 publication and assure that your complete management team is on board with your decision.
- Measuring Profits - Don't kill foodservice programs because of someone's full-allocation accounting. Chart the store's total customer counts, average selling price and aggregate inside sales and gross profit dollars before and after adding a foodservice concept. Deduct only incremental expenses from adding foodservice, not expenses that would remain if you abandoned a particular foodservice component.
- Evaluate Leasing - Many operators choose to lease to a Subway or Burger King franchisee. The issue of who owns or operates the foodservice component is transparent to the consumer. Meanwhile, the c-store retailer gains direct rental income plus, typically, peripheral sales increases as a result of new traffic coming to their shared-use facility. The leasing option also shifts most of the investment dollars to the foodservice franchisee/tenant.
- Which Brand to Choose - Look for help from the branded companies to identify criteria for success in a particular site. Small towns seems to work great for Subways where hot/cold and low fat/your way varieties are popular. Where no national pizza outlet exists in a small community, a national pizza concept can be a good opportunity. In high population rural locations, many more concepts (e.g. tacos, chicken) can work, depending on existing competition.
- International Foodservice - Because we live in a global economy, Meyer & Associates believes that international franchised concepts will prove to be popular "partners" with major oil, as they have been in North America. In different parts of the world, we see a few major oil companies experimenting with developing proprietary brands. We think those efforts will be short-lived. We predict they won't achieve the volume levels that retailers expect or desire, while their overall costs of execution and program/product development could prove horrific.
- Don't Re-invent Wheel - The Information and Speaking sections of this web site provide research results from M&A. The NACS Reference Library (703-684-3600) has multiple handouts from past foodservice seminars on issues encompassing food safety and sanitation, measuring profitability, design considerations, etc. Finally, all of the branded foodservice concepts should be willing to provide you with names of other retailers working with them. Make sure to do your homework up front!
The "best practices" expressed above are primarily sourced to feedback from a multitude of retailers and suppliers, plus a study of what has worked and has not. The value of our web site is enhanced when we receive comments that we're on target or when we may not have addressed dynamics that may not have been evaluated to date. Your e-mail opinions are welcome.