Day One Workshop

C-store operators have
moved beyond the question
of whether or not to add
foodservice to grapple with
the choice between
proprietary and franchise
concepts. Here, consultant
Richard Meyer and retailers
Tim Cowsert of Town &
Country Food Stores and
Wayne Trigg of Giant assess
the pros and cons of both...

Table: Characteristics of Successful C-Store Operators
With Successful Proprietary Foodservice Programs


Decisions...
Decisions

By Faye Brookman

One of the most universal themes running through CSP's 3rd annual foodservice conference was that foodservice in convenience stores is much more than fad.

In fact, Richard Meyer of Meyer & Associates told participants in the Case Studies in Foodservice Development workshop, "Foodservice is already the number-two category [in convenience stores], passing beer in 1995."

The burning question for c-store operators is no longer whether or not to add a foodservice operation. Once considered just another selection on the menu of c-store opportunities, foodservice is deemed a necessity today by many in the industry. "Foodservice is needed to shore up against current pressures against the sale of cigarettes," emphasized Meyer. Comparing the advent of foodservice to the introduction of gasoline in the 1970s, Meyer said just as gas became an essential component of the convenience equation, so today has food.

He added that foodservice can help offset other troubling trends in retail to which convenience stores must react. "We have cigarettes-only stores and now HEB supermarkets [are] selling gas. We're going to have dynamic changes on our industry."

Now retailers are asking themselves what kind of foodservice operation to add-- should they build their own proprietary programs or go the franchise route? In response, Meyer suggested convenience store operators closely examine their operations to understand what direction is best for their chains. In fact, he predicted the industry will see more leased foodservice operations. "Many [convenience stores] are seeing they can't be all things to all people and at least with a leased operation you get a rent check. And the names bring in traffic," he added.

"You have to decide who you are and weigh the advantages of burgers, chicken, pizza or a sandwich program," Meyer said. But perhaps even more important than your choice of menu is your orientation. "You need a driven foodservice organization," he stressed. "Wawa is a driven operation."

Another decision Meyer said operators need to make concerns the size and scope of the operation, and the attendant level of funding required. Should you invest limited funds with limited return or increase capital funding and go for the brass ring?

Whichever option you choose, though, Meyer cautioned, "Don't do it halfway-- build for volume or you won't get it. He cited a four-foot deli case at 7-Eleven (a featured stop on the retail store tours that preceded the conference's presentation program) as an example of not getting into foodservice all the way. "No disrespect," said Meyer, "but I think we'll see them revising that."

One important way to signal your commitment to foodservice is through your signage, Meyer said. "Get your egos out of the way and get that foodservice logo up there." Another way is through focusing on customer service.

"Ask yourself what you expect when you pull off the interstate to stop at a national fast feeder-- clean wash rooms, fast and friendly service, consistent food quality and reasonable pricing.

"If these [customer] perceptions are important to your company but you still prefer a proprietary alternative, estimate the initial and ongoing costs [you may have to incur] to replace the inherent advantages of brands. Look at the impact on both volume and cost," encouraged Meyer. One chain he knows of beats industry average profits by four times. In a new store, it plans to double the number of washrooms.

Marketing programs are crucial to foodservice, too. "Ask yourself what the decision is when you're driving along and someone says they want to stop and eat. This is called 'top-of-mind awareness' and it drives volume," Meyer said. In this case, well-known names usually offer a competitive edge, but not always. "If you invest in proprietary choices, you can create names like Hoagies, MTO or Big Gulp."

Menu design is another important consideration driving foodservice decisions. Convenience stores often want to build in another daypart, but you must be ready for the addition and committed to making it work. "You look for something to complement what you have and take advantage of the shared labor costs," he said. "Don't put it in and not have someone behind the counter. Then it looks like a step-child."

Meyer admitted that one of the biggest questions about c-store foodservice is whether any chain is actually making a profit and pricing, of course, plays a major role in the answer. "I want to get away from this value pricing. We've seen studies that pricing is the fourth factor consumers use," said Meyer. "Give me value."

Beyond pricing, Meyer emphasized the importance of establishing controls. Take your cue from fast feeders, who have sophisticated point-of-sale systems that help them manage production and control their costs. A good example is Mrs. Fields, Meyer said. "If you ever look in the back of a Mrs. Fields, there is a computer that [tells employees] how many chocolate chips to use," he revealed.

Sophisticated systems are a new frontier for convenience stores, but Meyer says "smart convenience store operators are embracing them and demanding more from their non-foodservice POS systems."

No matter which option-- or combination of options-- they choose, said Meyer, retailers should make themselves aware of the execution requirements and operating procedures that go along with them. To help conference attendees make the proprietary versus franchise decision, Meyer showed examples of both, mentioning national foodservice brands, like Burger King, and regional foodservice brands like Churchs chicken and Bullets.

First, why franchise brands? "Proven systems and proven customer 'top-of-mind,'" responded Meyer. "And with the number of outlets [they have], they can buy more cheaply. Don't invent your own P&L-- get that from NACS. Take it all down the bottom line and see what you get."

But Meyer also admitted proprietary brands can prosper. He presented an outline illustrating the chief characteristics of successful in-house brands from Quick Chek, Sheetz, Wawa and Casey's. While the menu and the concepts may differ, there are certain recurring traits that are reliable indicators of a winning proprietary food program. "Sheetz with MTO...Casey's with pizza," he said. "Usually it has something to do with maturity...[and] it seems there are more people east of the Mississippi that can make sandwiches." He's also observed that proprietary food concepts offered in small towns or in high-traffic stores are more successful than others. One digression, however, was for sites on major highways: "...then you need the name recognition of a franchise name," Meyer believes.

Stepping in to delve deeper into the issues surrounding proprietary and national brands was Tim Cowsert, director of foodservice for Town & Country Food Stores, Inc., who began by explaining that foodservice has been part of his chain's business for more than 20 years. "Naturally, we draw on our own experience and knowledge-- we have 60 delis offering breakfast burritos and fried chicken, corn dogs, burritos and hamburgers for lunch. Our reason for seeking a national brand was for our evening business and for c-stores off highways," he said.

"Just two years ago we were learning all we could about national brands. We experienced the difficulties in handling a successful national brand. It forced us to better our own offer to serve customer needs," he recalled. How? By taking advantage of the sophistication of a national chain while expanding the chain's equity brand.

"We learned it [proprietary foodservice] runs 50-50 to a national brand in the same store and we learned it complements a national brand."

Currently Town & Country has 38 proprietary delis, 45 Country Kitchens, six Sub Citys, five Taco Bells, four Godfathers, 15 Subways and is currently developing its own Mexican concept.

And the chain is still growing and tweaking its foodservice operation, said Cowsert. "We revamped our deli in 1994 and added side dishes for take-home and a logo design. Country Kitchen was created," and many Town & Country stores received the full Country Kitchen package. "Today, it operates alongside many branded concepts. We found that one plus one is more than two. Customers make multiple purchases," he said.

That occasioned the chain's "golf bag theory," in which menu choices are likened to golf clubs. Town & Country analyzes each location's demographics and competition to decide what concept(s) will work best. "As a convenience store operator, we have access to demographics from suppliers which we use to help decide. We have used Spectra (a marketing research firm) data provided by one of our beer vendors. In choosing our 'clubs,' we study everything available. We also look at chip and sandwich sales."

Adequately advertising the proprietary brand is important, too, he said. At Town & Country, the foodservice offer is advertised on handouts, menus and even billboards. "Our plan is to grow proprietary and add branded where applicable," he noted. Right now, for example, Cowsert says he sees the potential for seven to 10 more Godfather's and 38 more Country Kitchen delis.

The third workshop speaker, Giant Industries' director of retail operations Wayne Trigg, continued the discussion of proprietary brands. The upscale chain's foodservice program, which consists of fresh pastry, made-to-order sandwiches, pre-sliced meats and even holiday platters, has strong support from senior management and all the other tools a proprietary program needs to succeed.

"We have a commitment to foodservice right from our CEO," Trigg said, and that commitment is demonstrated inside and outside the store. "We use external signage to create our own franchise...our areas are tiled and very professional...There is also a 20-head fountain to complement foodservice. We determined what food we wanted to serve, then we went to find the equipment," which includes flash-bake ovens, proofers and conventional ovens, said Trigg. The amount of floor space in the stores is, in itself, an indication of the chain's commitment to foodservice.

The result is a program called The Deli-- a name that's emblazoned on everything, including coffee cups.

Recognizing that training is an integral part of foodservice, Trigg designed a program called "Passport to Success." As employees become proficient in all areas, they get that icon checked off on their passport. "We have an exam and it really helps create consistency among our people," he added.

Finally, with all of these programs in place, Giant's Trigg created a ledger to assess net profit which takes all factors into consideration...menu mix, menu gross profit, staffing levels and spoilage to derive foodservice's true profit. Whether you choose a branded or a proprietary concept-- or a combination of both-- the bottom line is the bottom line.

Characteristics of Successful C-Store Operators
With Successful Proprietary Foodservice Programs

Company Data Quick Chek Sheetz Wawa Casey's Meyer's Comments
Year company founded 1967 1952 1803/1964 1968 Maturity of management and consistent track record of growth are key success attributes
States where operating-primary stores NJ PA NJ, PA IA, MO, KS, MN
 
States where operating-fewer locations
 
MD, VA, WV DE, MD NE, SD, WI
 
No. of locations-total 98 187 500 1,000 Density and demographics can translate into market dominance in many instances
No. of locations-franchised 0 0 0 180
 
No. of locations-with gas none all 2 all
 
No. of employees reported 1,500 4,600 18,000 9,000
 
Est'd annual sales-total $165 million $850 million $950 million $1 billion As reported in trades or at open seminars
Est'd total customer count per day NA 2,400 1,700 NA How big is your existing captive audience?
Est'd turnover/year-store personnel 80% 55% 65% NA High turnover kills in-house foodservice programs
Major merchandies categories:
 
 
 
 
 
Cigarettes-rank in total merchandise sales #1 #1 #1 #1 Rankings may be different if % of total gross profit $
Beer not sold sold in stores in all states except PA not sold sold NJ and PA don't allow beer sales in c-stores
Gasoline as a % of total sales NA 60% NA 58% Key issue: How to complement fuel traffic
Foodservice importance:
 
 
 
 
 
Commitment from top management? yes yes yes yes All four chains have ZERO turnover at top management level
Market dominance? neighborhoods major factor-small towns neighborhoods within 90 miles of Philadelphia small towns with population of less than 5,000 Modus operandi publicized and/or observed
Consistent execution? yes yes yes yes Industry and personal perceptions
Est'd % merchandise sales 25% 25% 40% 23% NACS Top 25% Profit Performers reported higher foodservice % than the SOI 1995 average of 13.7%
A. Proprietary offerings:
 
 
 
 
 
1. Sandwiches Submakers MTO Hoagies Fresh Made See notes 1 and 2 below
2. Breakfast specialty Jersey Bagels Shmuffin Sizzli donuts See notes 1 and 2 below
3. Burgers no no no yes See notes 1 and 2 below
4. Pizza no Sheetza Pizza (18) testing "from scratch" See notes 1 and 2 below
B. Proprietary partnerships:
 
 
 
 
 
1. Taco Bell Express 19 4 28 NA
 
2. Pizza Hut 2 NA NA NA
 
3. Nathan's Hot Dogs 6 NA NA NA
 
4. Bullets NA 1 NA NA New regional concept: Burgers, chicken
Notes:
1. The coffee and fountain drink programs of these companies are very significant contributors toward their successful foodservice programs.
2. 'Be prepared to "invest" in building your brand names' was a common suggestion of chains electing proprietary foodservice programs.
3. Quick Chek, Sheetz and Wawa advised that their above data are reasonable. Casey's data extracted from trade articles.
Reprinted by permission of Meyer & Associates

Article orginally appeared in Convenience Store People, vol 8 no.3, March, 1997