A Grocery or Foodservice future?

Jeff Rogut

It was interesting to read in the press about one of our major supermarket groups reducing selected grocery products in their convenience stores to the same levels as in their supermarkets. This category last year represented 1.2% of total merchandise sales in our channel (source: AACS SOI Report 2012). Given the fact that they already promote confectionery at heavily discounted prices and the prices of milk and bread are already at supermarket prices, I do not believe that this move will have a major impact on non supermarket convenience stores. What it does show however that our calls to be able to compete with them in areas such as alcohol have even greater relevance.

Some prices quoted in the media [Herald Sun 03/10] were Coles Balsamic Vinegar 500ml was $4.19, now $3.29 – save 22%, Dolmio Pasta Sauce 500gm was $2.20, now $2 – save 10%, Handee Twin Paper Towels 2 pack was $3.95, now $3.50 – save 12% etc. This is not where the convenience industry will dramatically grow sales or margin. We need to be competitive in this category, but our future is not tied to cheap groceries.

The article below again reinforces the overseas direction for the industry and areas where we need to make major moves forward.

Milford Prewitt
October 2nd 2013
CSNEWS

Forget QSRs, C-stores Ready to Take on Fast Casual

NATIONAL REPORT — Like a football team in possession of a stronger rival’s playbook, the convenience store industry is looking more nimble and competitive in the foodservice arena as it executes with great success the tried-and-true operating practices of quick-service restaurants (QSRs).

7-Eleven Inc., Rutter’s Farm Stores, Casey’s General Stores Inc., Wawa Inc. and QuickChek Corp. represent just some of the c-store teams that have mastered QSR operating practices so well that they could almost be accused of stealing their trade secrets.

Consider these tactics straight from the restaurant industry handbook that c-stores are applying and profiting from every day:

Just as restaurants long ago learned the value of regularly remodeling stores (about once every seven years for most fast feeders) to infuse the brand with excitement and energy, c-stores are following suit.

Coffee, long a traffic driver, has evolved into a proprietary-branded profit center as larger c-store chains in particular develop sophisticated coffee programs with high-quality roast blends and an array of flavored options.

New menu development is a never-ending process to lure new customers and keep loyalists loyal. C-store menu innovation continues to evolve to include non-traditional c-store foods like barbecue spare ribs and sushi.

Some c-stores are heavily mining the pizza segment, not only by hand-making their own pies, but providing home delivery, too.

The convenience channel’s mastery of the foodservice playbook couldn’t come at a worse time for QSRs. While the sizzling-hot, fast-casual restaurant segment continues to post double-digit percentage gains year over year, fast food — which makes up as much as 78 percent of the foodservice industry’s volume — is expected to grow just 3 percent in the coming year, according to market researcher The NPD Group.

Baby Boomers who have stopped eating fast food, too much competition in too many overbuilt markets, fewer financially qualified franchisees, health regulators, and consumer concerns about fried foods, sugary drinks and red meat consumption have hurt fast feeders, NPD’s restaurant industry analysis shows. The net effect of all these challenges has cost the industry 1.76 billion visits since 2008.

What’s more, NPD reported that c-store encroachment in fast feeders’ most lucrative daypart, lunch, is surging, while more and more breakfast seekers also see convenience stores as a better alternative to fast feeders. At the same time, c-stores are carving out the snack dayparts between breakfast, lunch and dinner and the overnight meal occasion at locations open 24 hours, a popular practice throughout the business.

David Bishop, a prominent small-format retailing expert at consulting firm Balvor LLC in Chicago, said c-store customers’ shopping behavior is undergoing a historic adaptation in the way consumers view the purpose of a visit.

“For decades, people went to a convenience store for gasoline as the principal purpose of the visit. A person would buy gasoline and decide almost as an afterthought to pick up a sandwich and get a cup of coffee,” he said. “Today, gasoline is secondary behind purchasing a meal to go or getting a cup of what is really good coffee out there. People will get coffee, a sandwich and say, ‘Well, while I’m here I might as well get some gas.’”

Because c-stores are investing in more efficient operations, equipment and technology, they are stocking their inventories with higher quality foods and learning some important foodservice marketing practices, such as combo bundling and value pricing, according to Bishop. The net effect, he said, is that many c-stores are really looking more like fast-casual players than they are mimicking fast feeders.

“C-stores are better [compared to fast feeders] with price value. They are not the cheapest, but by embracing combo deals and limited offerings along with popular chain favorites, they are making themselves better competitors to fast casual,” he argued.

“What the most successful among them is recognizing is that if they have a compelling enough value statement, customers will come for the food specifically, whether they need gasoline or groceries or not,” Bishop continued. “So, the service and the food quality are becoming close to fast casual and the speed and price point is [the same as] QSRs. It’s a blend.”

This is not necessarily news to Jerry Weiner, vice president of foodservice for the 58-unit Rutter’s Farm Stores in central Pennsylvania, whose foodservice operations, menu and related amenities earn high critical and consumer praise.

“Food has become a destination for our customers at Rutter’s,” Weiner said.

He believes the whole convenience store industry prospers over fast feeders when industry players invest in quality foods, especially coffee.

“Today, I say when a consumer thinks of getting coffee on the road, they think [of] c-stores before they think [of] a fast-food operation,” he boasted. “We’ve come a long way since the days they didn’t want to eat here because we sold gasoline.”