Meyer & Associates - Foodservice Automation
                     
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    Foodservice AutomationóIt's Not Negotiable
  by Richard A. Meyer


                     Petroleum marketers would never risk not knowing their gas margins daily. And, traditional convenience store retailers have clung to retail accounting, even expanding their thirst to scanning, in hopes of becoming better marketers by understanding each categoryís true movement with meaningful information. Accordingly, when Pinnacle asked me to write my opinions on the need for automating fast foods, it was a no-brainer. You either automate to know your food cost and labor for this "3rd business" or file Chapter XI for this segment. Itís simple logic, if you donít require a pulse on the cost and income components of that business, itís forecast to fail!


What Are The Stakes?

The State of the Industry issued by NACS last Spring reported that foodservice replaced beer as the industryís # 2 merchandise category for the first time, climbing to 13.7% of merchandise sales in 1995. With the continued proliferation of franchised branded foods concepts this past year, accompanied by some operators introduction or expansion of manufacturer-brands and/or proprietary foodservice offerings, chances are this percentage will increase for 1996. Companies taking the higher road with foodservice may see the category approach 25% of merchandise sales but, more importantly, itís probably a higher proportion of gross profit dollars.

For a recent speech on Franchised vs Proprietary Foodservice concepts for c-stores, I completed an analysis of Characteristics of Successful C-Store Operators with Successful Proprietary Foodservice Programs. In each of the chainsí reviewed (Quick Check, Sheetz, Wawa and Caseyís) foodservice accounts for 25% - 40% of merchandise sales. And, one of the chainís indicated that coffee generated the storeís highest amount of gross profit dollars; thatís a nice hedge against some of todayís pressures on tobacco sales!


What's The Issue?

I donít really know the arguments why retailers wouldnít automate foodservice except if they think itís a passing fad and theyíd like to avoid a sunk investment. If they maintain that attitude, their doom prophecy about foodserviceís role in their operation will come true. Meanwhile, they could lose some serious foot traffic to competitors. A second reason why some may have shunned automation in this arena could be that the levels of details requiring accountability seem overwhelming. However, therein lies one of the primary reasons for automating the process.

Any accounting or MIS people believing this area is too confusing to address should be assigned to do the manual reporting at store level, most likely currently dictated by operations to maintain some semblance of inventory control. After one day of drowning in that mire of data, the need for a "system" will be evident for two reasons: (a) accounting will see that profits are being forfeited by imprecise methods for tallying costs and gross margins; and (b) chances are that the direct labor and indirect costs of this new "profit center" may not be readily apparent to the Company.


Cautions On Accounting

As a CPA myself, I quickly warn chains to avoid over-allocating G&A and/or other indirect "costs" to this profit center, to the point that foodservice looks like a big loser. I viewed that kind of mentality when self serve gas took off about 20 years ago for traditional marketers. If some of those analyses were relied upon then, many c-store locations would be boarded up with a sign saying "the business case gave way to the accounting analysis." I support two approaches for viewing your foodservice returns:

(a) Profit center approach - utilizing Pinnacleís storesí reporting, you can readily segregate the direct income and costs (labor dollars, food and supplies costs) related to foodservice. Further, if your point of sale terminal provides the potential, Iíd capture a separate tally of total foodservice customers which youíll find use for down the road. At host level, you can allocate incremental costs, such as depreciation on foodservice equipment and leasehold improvements, higher utility expenses, and royalty and advertising fees if applicable. Look at your return on investment from this analysis, but also complete the next exercise.

(b) Before and after scenarios - measuring this profit centerís contribution to the locationís overall profitability can be a little bit easier and, in my opinion, provide more definite interpretations, An approach I like the best is charting weekly percentage changes this year versus last, for key barometers such as: total customers count, merchandise sales and gallons sold. The real value of foodservice is then measurable when the total customer counts increase and, hopefully, the merchandise sales trends begin to grow stronger than pre-foodservice.


Provide The "Tools"

Most operators already appreciate the complexity of managing a c-store with gas. The addition of foodservice to this environment adds new sanitation and food preparation regulations, and mandates ever-changing templates to schedule labor efficiently among an increased number of employees. Thereís nothing to debate about the need for automating this area, if you donít, something will suffer and your customer may taste the difference.

Finding the right foodservice automation solution for your company isnít rocket science, but itís not simple neither. Bottom line, you should address your automation needs for this business with the same level of importance you give to your merchandise and/or gas profit centers. If you have the infrastructure of a store automation system like Pinnacle already in place, then youíre ahead of the game. You should implement your incremental system requirements related to foodservice (albeit software and/or hardware) near term, to allow this business to grow without the system's constraints. Then go about earning customer traffic from your competitors before they take business from you!

         
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Article orginally appeared in The Perspective, vol 7 no.1, Spring, 1997, a publication of The Pinnacle Corporation
Copyright © 1997 Meyer & Associates All Rights Reserved