Dynamics For Global Fast Food Penetration

DYNAMICS FOR GLOBAL FAST FOOD PENETRATION
by Dick Meyer
October, 1996

At NACS 1996 Annual Meeting and Exposition in Las Vegas, Dick Meyer presented convenience store operators with his "Six C's to Success" relative to fast food penetration. He also highlighted important "Operational and Economic Considerations" related to their decisions related to fast food alternatives that might be best for them.

Six C’s to Success!

Consumer Driven - families continue to eat more and more meals away from home and/or desire prepared take-home meals for immediate consumption; driven by dual wage earners. Trends are likely to continue.

Customer Count - all marketers share common need to increase customer traffic. Maximizing valuable real estate with new products and services.

- Exxonsafeway - Forbes March 11, 1996 article: (a) Star Mart - "we’re not trying to be just a gasoline retailer anymore"; (b) Diamond Shamrock - "we’re going after two different types of customers."

- Major oil companies - cover of 1995 Exxon Annual report shows Subway with Tony the Tiger, inside story speaks of other fast foods concepts designed to attract new consumers.

Competition - most US major oil companies initiated branded fast food programs. Int’l development appears as North America (NA) 2 years ago.

- traffic counts are increasing where branded fast foods exists; or

- traffic counts may decrease if a competitor innovates first.

Consumer Trust - customers that "trust" long term gasoline brands will likewise "trust" NA national branded fast food names, especially as travel between continents continues to expand, including via Internet!

Categories Needed - increasing pressures on the sales of tobacco and beer have sparked NA proactive marketers to take a fresh look at all aspects of their business and find new categories (and services) to offer.

- Fast foods passed beer as the # 2 category in 1995 according to NACS 1996 State of the Industry report.

Cost sharing - "A way to get double duty from the expensive locations that gas stations generally occupy" - Forbes. This is a global opportunity!

Operational Considerations

Past experiences - study trends of what has worked, what didn’t. Read trade magazines, utilize NACS Research Center/CSTORCENTRAL. Other ideas:

- Focused education - purchase tapes from NACS 1995 Annual Meeting: Fast Foods 101; Designing it Right 3rd Time; Are we Making Money? Attend 1996 sessions: Basics of Fast Foods; An Honest Look at Branded Fast Foods; Designing the Organizational Structure for a C-Store Fast Food Operation; and Developing Your Own Brand. See Ideas to Go film Tuesday morning.

- International - National Petroleum News International is a new trade publication focusing on the c-store global market. Review their July/August 1996 cover story "Global Fast-Food Dynamics."

Franchise or proprietary? - post-research, weigh advantages of each alternative, especially ability to attract more new customers to the site.

Which location? Which concept? - pizza, burgers, subs, chicken, etc? Evaluate immediate market competition (within proximity) and expected customer likes. Minimum considerations: space availability; urban or rural; need for seating and/or drive through; parking; product portability.

Operate or lease? - this third business carries significant ongoing demands, for specialized training and consistent attention to food quality, sanitation and customer service issues. Be honest about your Company’s commitment level!

ROI analysis - carefully project estimated revenues and direct and indirect expenses. Talk with existing franchisees or landlords to avoid errors of omission. Caution: study peripheral sales potential of each concept.

Pitfalls to avoid - a few cardinal "rules" related to real estate decisions in the c-store industry have equal relevance for fast foods. As example:

- No such thing as a "cheap" site - if the location can’t support existing activity, most likely it will not be saved by adding fast foods.

- Don’t compromise on signage - promote your branded fast food business the same as your petroleum and convenience retailing. Limited signage will equal limited sales! Remember that your motivation is providing another reason to visit your shop!

Economic Considerations

Revenue - build it right "the first time." Designing for volume means planning for traffic flow, not frustrating customer service and sales. Get ideas from Main Street Concepts and Spectrum Stores modes of operations.

Gross margin - investigate expected gross profit; buying power is critical. Also, assure a good system exists to control food and supplies costs.

Labor issues - look for labor productivity standards and weigh alternatives for potential added workers compensation risks (e.g. from cooking, slicing). Some concepts allow hiring of minors for basic functions.

Franchise costs - amortize initial franchise fee over, say 5 years, for measuring profits. If franchise fees are lower after the first site, consider an average amount for a by-store review. Factor in royalty & advertising fees.

Other costs - consider estimated incremental costs of utilities, other general expenses (rubbish, supplies, etc.). "Invest" the required organizational support to maximize success potential.

Capital investment - amortize expected leasehold improvements, signage and required equipment.

Other net revenue - based upon your research from other operators, factor in estimated gross profit from incremental merchandise sales, less added variable expenses and added overhead costs related to the new concept.

Landlord alternative - project minimum or percentage rental income, plus bottom line profit of any estimated incremental convenience sales anticipated. Deduct indirect (incremental) costs possibly absorbed to create win/win.

Sanity check - go back to research, check that all operational and economic issues considered, assure Company commitment to decision, check with other retailers/jobbers doing business with concepts considered. Review NACS 1995 handout "Are We Making Any Money?" Go for it!