Foodservice Not a Panacea, But Still a Necessity

Don Longo
06/03/2019

CSNews

When prepared foods (either commissary-delivered or made fresh in the store) became the fastest-growing product category within convenience stores, it was the perfect antidote to the long-term downward sales and profit trends in motor fuels and cigarettes.

It was a smart move to focus more resources and innovation against growing the seemingly higher margins and accelerating growth trends in foodservice. Retailers like Wawa, Sheetz, Kwik Trip, Rutter’s, Nice N Easy, Stripes and numerous others led the way, becoming some of the most progressive, food-forward convenience store chains in the nation.

However, even then, many of the industry’s smart observers warned that foodservice, while important, wasn’t a panacea or cure-all for everything that might ail a c-store retailer. Foodservice could be lucrative, but it was also fraught with obstacles like higher food waste, more labor, access to trustworthy suppliers, employee training in hospitality culture, etc.

Fast forward to today and if you attended the recent NACS State of the Industry Summit last month, you heard that the c-store industry just completed a record-setting year in sales and profits in 2018. But those results were mainly due to a rebound in fuel prices and margins. Hidden beneath those record-setting figures is the concerning fact that foodservice sales growth has slowed considerably over the past two years.

According to preliminary results from the Convenience Store News Industry Report (set to be unveiled in our June issue), foodservice sales grew a paltry 2.3 percent last year. That’s after a disappointing 3-percent gain in 2017. Both of those figures are significantly lower than the foodservice growth gains of 2016 (up 6.6 percent) and 2015 (up 7.1 percent).

Meanwhile, cigarette sales were down once again last year, this time by 2.9 percent, continuing the long-term trend of volume declines. With drugstore chains Rite Aid recently announcing it is exiting the tobacco business and Walgreens testing tobacco-free stores, there should be a windfall for c-store retailers. But it is really going to reverse long-term negative trends?

What about merchandise sales? Merchandise sales, excluding foodservice, were up less than 2 percent last year, so with the exception of a couple of new potential hot categories (CBD products anyone?), merchandise sales aren’t going to carry your business.

Which brings us back to foodservice. The numbers show that foodservice growth is not easy, but the fact remains that finding a way to increase foodservice sales is critical for the success and growth of nearly all c-store operators, from single-store independents to thousand-store chains.

C-stores just need to get better at it as the competition heats up from other channels