at Craver            By John Lofstock, Editor                    HANKS TO AN INCREASINGLY busy lifestyle, todays          ...
FeatureCover                                                                                         Convenience store ret...
FeatureCovershare of the foodservice dollars," Bishop      thrusts convenience stores in a precarious   others, including ...
FeatureCoverreflect the entry of new product seg-               and wraps in 2010. Thirty-six percent              Primary...
FeatureCover         Daypart Growth Opportunities                       SNACK OCCASIONS                                 Se...
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2011 foodservice report for convenience stores


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Convenience store retailers posted strong across-the-board sales gains in 2010 and expressed optimism for an even more robust 2011.

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2011 foodservice report for convenience stores

  1. 1. at Craver By John Lofstock, Editor HANKS TO AN INCREASINGLY busy lifestyle, todays T convenience store customers regard food prepared away from home as a necessity, and the industrys top-quartile retailers have benefited handsomely from meeting the growing demand for fresh foods. For the past decade, the convenience store industry has consistently posted yearly sales gains in foodservice. Retailers are to be commended for the work they have done cultivating the demand for foodservice by enhancing their focus on quality, consistency, freshness and value. While the industry has made strides, this isnt to suggest that 2011 and beyond will be easier as foodservice is a very complex and competitive business. As part of the fourth annual Convenience Store Decisions /Balvor 2011Foodservice Outlook Survey retailers demonstrated how they are taking advantage of opp.ortunities while attempting to minimize the threats. "Foodservice sales grew in absolute value and contri- bution to overall sales in 2010 and the retailers forecast indicates it will continue to do so in 2011," said David Bishop, managing partner of Balvor LLC. "Although its easy to focus on a small set of retailers that do an excep- tional job with food prepared on site, its important to recognize that there is value and profitability in other pro- grams. The key is finding the right foodservice solution for your stores and doing an outstanding job every day." That solution could be proprietary brands, a commissary program that delivers fresh food to stores more frequently or an enhanced heat-and-eat offering. Each has a place in todays market, depending on the capabilities and commit- ment of the retailer. "Convenience retailers are employing a wide-array of strategies and each can be effective within an organiza- tion," Bishop said. "Successful retailers build foodservice programs they can effectively and consistently execute and employ strategies to reinforce the value related to that offering." A total of 67 convenience retailers representing 2,082 stores shared their views in an online survey between Jan. 11-21, 2011 on a variety of topics, including foodservice branding strategy, dollar sales, product mix, distribution and daypart marketing for the coming year. CSDecisionso
  2. 2. FeatureCover Convenience store retailers posted strong across-the- board sales gains in 2010 and expressed optimism for an even more robust 2011 . POSITIVE OUTLOOK for a long time are fueling the virtuous cycle of The one consistent theme throughout the sur- strong sales and growth that accompanies excel-vey is that convenience store retailers remain ling at and reinvesting in foodservice."bullish on all foodservice segments. Many other retailers have only recently The sales forecast for 2011 is ranging between realized that foodservice is vital to theirthe mid- to high-single digits, depending on the future. And, while they are starting tofoodservice category. For example, top-quartile invest, consumers at those stores areretailers believe food prepared onsite will grow hesitant as the retailer still needs to dem- 11.7% in 2011,while bottom-quartile operators are onstrate a consistent ability to execute aexpecting a more moderate 4.2% growth. Other program that consumers can come to trust,growth projections, comparing top- and bottom- depend on and value.quartile retailers are: .. Time, commitment, and consistency • Hot Dispensed Beverages, 10% to 8.3% are ultimately what these chains need to • Commissary/Packaged Products, 10% to build consumer confidence and improved 4.2% results," Bishop said. • Cold Dispensed Beverages, 7.9% to 2.5% • Frozen Dispensed Beverages, 5.4% to 0.1% DAYPART MARKETING "Retailers are more optimistic about their food- The strongest consensus retailers haveservice prospects in 2011 versus last year, partially regarding daypart opportunities is withbecause of expected retail price inflation, easier hot dispensed beverages. Interestingly, 85%comparables versus last year, and because con- believe their best opportunity in this areatinued reinvestment into growing this business is during 2011 relates to the morning daypart,paying dividends," Bishop said. "The top-quartile even though this is generally when most sales ofsegment appears positioned to widen their lead hot beverages already occur.with even more robust growth this year." "The morning daypart is clearly One of the key findings-in the 2011 CSD /Balvor where retailers are dig-survey is that there remains a performance gap ging in to winbetween convenience retailers relative to foodser- a largervice. For example, although the average sales perday is just under $700, 40% of the retailers gener-ate $499 or less each day in foodservice while 13%drive $1,500 or more. "The difference among convenienceretailers performance in foodservicecan be staggering when you realizethat top-quartile retailers generatenearly seven times the sales perstore as compared to the bottom-quartile," Bishop said. "Thenumbers illustrate and rein-force that the retailers whohave been doing this wellCSDecisionse
  3. 3. FeatureCovershare of the foodservice dollars," Bishop thrusts convenience stores in a precarious others, including proprietary brands. Thesaid. "While there are opportunities dur- position. C-store operators must have a brand equity manufacturer brands pos-ing other parts of the day, morning is still well-defined foodservice strategy so they sess is evident with roller grill, as overwhere most convenience retailers are are catering to their core customers and half of the retailers surveyed leveragebest positioned to win the food fight in ahead of the trends, not chasing them. these in what is typically the largest foodthe near-term." prepared on site subcategory. Although retailers expect increases BRINGING FOOD TO MARKET "Among the keys for retailers is under-in coffee prices in 2011 due to rising More consumers are also becoming standing just which branding approachcommodity costs, fierce competition is value-conscious, a reflection of current will help them the most today," Bishopforcing a thoughtful response so as to economic conditions. Consumers are now said. "Just as retailers are different, so areprotect volume. According to Balvors expecting better value in terms of price the reasons for using various branded2011Convenience Retail Outlook Survey, paid, service consistency and food qual- options. Over time, as their programs52% of retailers surveyed indicated that ity. Consumers are also more interested evolve, so will their branding strategiestheyll likely raise retails in 2011; how- in using technology and many would potentially."ever, only a quarter of these (14%) were use self-service terminals if available, The CSD /Balvor survey also showedextremely certain prices will go up. Of according to Eric Giandelone, director its fairly common to find that retailersthe other retailers that are less likely to be of foodservice research at Chicago-based are adjusting the brands offered in theirconsidering an increase, 11% already exe- Mintel and author of Mintel Menu stores. More retailers have focused oncuted price increases during 2010. Insights Foodservice Trends for 2011. the largest subcategory (sandwiches and Regardless of price, the ongoing "Fierce competition in the industry roller grill) in each category over the lastgrowth in fast-casual restaurants and will continue and proper menu, service few years.coffeehouses will have a significant and concept planning must be ongoing Interestingly, the survey revealed thatimpact on the overall breakfast market. to prevent business failure," Giandelone over half of the adjustments during theFast-casual restaurants tend to do their said. "Restaurant-goers value menu last three years occurred in 2010, suggest-highest sales volume during lunch, but transparency, but still want the occa- ing possibly that retailers took the downthe breakfast daypart remains a core sional indulgent dining experience." turn as an opportunity to re-evaluatefocus for these chains, as well as fast- " The complexity of foodservice is their offering in order to improve theirfood marketers like McDonalds and evident by the fact that the dominant competitive positioning.Burger King. branding strategy employed by retail- "Given that consumer taste and needs Coffee chains like Starbucks and ers varies as much as the subcategories continue to change, its only naturalDunkin Donuts are expanding menus to offered in the store. For instance, pizza that retailers adapt their product mix tomove beyond breakfast to capture more is dominated by franchise or licensed ensure that they stay in step with currentsnack and fill-in daypart sales. The result brands, roller grill by manufacturer and emerging trends," Bishop said. "Inis a convergence of menu offerings, which brands and bakery is spread across even some instances, the changes may simply "JUST 60 ~DAYS ~TODOUBLE ~ ~R BUSINESS!" · "And up 30% for 2010!" Tony, Omaha, NE Circle No. 62 on the Inquiry Card.26 Convenience Store Decisions I February 2011 CSDecisions.
  4. 4. FeatureCoverreflect the entry of new product seg- and wraps in 2010. Thirty-six percent Primary Supplier of Commissaryments, such ethnic wraps and egg rolls." maintained their current offering, while & Other Packaged Products Packaged sandwiches have long just 12% reduced the offer. (Percent of Retailers Selling)been a staple of many c-store foodser- Sandwiches generally drive the com-vice offerings and the survey confirms missary category, so its understandablethis is still the case. Bakery goods, while that this is where retailers are most likelymaybe not actually prepared on site, are to invest in branding. However, a pro-the second most prevalent item offered in prietary approach makes more sense forconvenience stores today, typically con- retailers whove already established asisting of bagels, cookies, doughnuts and solid base business as the branding willmuffins. help further differentiate their offering. "Although retailers have sold pack- Given the infrastructure of most con-aged sandwiches for a long time, a lot venience retailers currently, the surveyhas changed relative to the quality of found wholesalers remain the leadingthe ingredients, packaging and labeling source for commissary products (seeavailable today in convenience stores," chart on right).Bishop said. "These improvements According to Bishop, "Top-quartile Source. CSD;8aivor 20 II Foodservice Outlook Surveyhave been driven in part by technol- retailers, in terms of total foodserviceogy, logistics and a stronger foodservice sales, are more than twice as likely tomentality." leverage a proprietary branded sandwich The industry also appears to be see- as compared to bottom-quartile retailers Gus Olympidis, president and CEOing an increase in commissary programs. who rely more on manufacturer brands. of Family Express in Valparaiso, Ind.,The CSD /Balvor study found that 52% In either case, each branding strategy has opened a new distribution center andof retailers surveyed increased the num- its place, depending on the strengths and commissary at the companys headquar-ber of commissary-prepared sandwiches capabilities of the retailer." ters in September 2010 to help manage costs as it boosts its food sales. The center produces baked goods, sandwiches and wraps for now, but its potential is seem- ingly limitless. "A commissary system gives you the opportunity to reduce waste, test prod- ucts and operate much more efficiently than when food is prepared on site," said Olympidis, who operates 52 stores. When its done right, central distribution is a cost-effective system that puts more control back in your hands, and thats the way we want it because no supplier or foodservice brand can run our stores bet- ter than we can." The central distribution model requires other challenges, such as a truck- ing fleet, training foodservice employees Customer Satisfaction and a research and development team to focus on new items. Still, the upside has Increases Store Traffic been worth it for Family Express. and Generates More We are building brand equity," Consistent Sales! Olympidis said. "You cant convince me that flying someone elses banner is good for my brand. Our customers expect out- standing quality and great service from Family Express, and thats what they get. Its who we are and what we work at every day. When a customer leaves our store I want them to remember the Family Express brand experience, not a Circle No. 64 on the Inquiry Card. national foodservice chain."28 Convenience Store Decisions I February 2011 CSDecisionso
  5. 5. FeatureCover Daypart Growth Opportunities SNACK OCCASIONS Seventy-eight percent of retailer (Percent of Retailers by Segment) Feeding the human proclivity to respondents to the survey said the big- indulge in dayparts outside the tradi- gest growth opportunity for frozen tional breakfast, lunch and dinner hours, beverages lies in the afternoon from 2 retailers are reporting solid sales gains p.m-6 p.m. (see chart on left). in coffee and frozen beverages. These Loyalty programs and social media dispensed treats are becoming crucial are natural tie-ins for these snack occa- drivers at top-quartile chains. Consider sions and fill-in daypart offerings. Thorntons Inc. The Louisville chain has Facebook, Twitter and YouTube can help a strong focus on hot and cold dispensed operators mitigate the economic envi- beverages to improve the offering and ronment as "word of mouth" advertising meet consumer demand for unique has moved online. products. Some Thorntons stores have More consumers are also using as many as 15-20 frozen beverages when the Web to browse menus, make Food Commissary Cold Frozen Hot you include milkshakes and frozen car- reservations, order ahead and get rec-Prepared & Other Dispensed Dispensed Dispensed bonated drinks. ommendations from other diners. On-site Packaged Beverages Beverages Beverages Products "The demand for all dispensed bever- Restaurants use of e-mail, Internet and ages-hot and cold-is overwhelming text messages in marketing efforts is also• Morning (6am-lOam) in our markets," said John Zikias, a growing trend. Thorntons vice president of market-• Mid-Day (1 Oam-2pm) ing. "Our customers cant seem to get BEYOND THE MENU Afternoon (2pm-6pm) enough. That gives us a chance to intro- While meeting the customers• Evening ( 6pm-1 Opm) duce new flavors and keep the offering demands for fresh foods is an integral fresh. The result is that the demand is part of success, 2011 will bring a host Source. CSO;Balvor 20 II Foodservice Outlook Survey consistently high." of challenges and regulations that go beyond the kitchen. For example, in light of the recent healthcare bill that requires restaurant operators with 20 or more units to list calorie counts on the menu, o~e-{"~torsare now tasked with balanc- ing federal regulations with the differing demands of their customers. "Both the government and consum- ers want healthier menu options, but restaurant-goers are also very concerned about value and how their food tastes," said Giandelone, of Mintel. "Keeping both parties satisfied might be a chal- lenge as we move into 2011." Giandelone went out of his way to praise the efforts of convenience stores when it comes to delivering a quality food program. "Its no secret that the industry has struggled to convert fuel customers to foodservice customers, but the success of the market leaders has helped change the consumers perception of the indus- try and its ability to execute a top-notch food program," he said. "The bar has been raised very high so now its up to convenience store operators to continue executing at a high level-to diversify their offerings and drive traffic with- out sacrificing quality and value. From everything weve seen, the industry is Circle No. 66 on the Inquiry Card embracing the challenge." CSD30 Convenience Store Decisions I February 2011 CSDecisionso