Branded Vs. Proprietary Foodservice Programs

6/2/2013

It takes patience, dedication and years of hard work to build a proprietary foodservice program that customers can trust, but not all convenience store operators have the patience, desire or aptitude to take on the commitment required.

For that reason, some opt for branded fast-food programs with quick-service restaurants (QSRs), operating the units as franchisees or licensees within their convenience stores and markets. There are certainly pros and cons to each food-service format, and certain types of convenience store operators are better suited for one vs. the other.

How does an operator know the best route to choose? Does it have to be one or the other? Can an operator have a blended offering of branded fast food with a proprietary program?

We've dedicated 90 percent of our How To Do World-Class Foodservice series to proprietary programs because most experts agree they yield more profit and long-term benefits to the store banner and the company as a whole. However, branded QSRs can still play an important role in convenience stores for certain players, depending on their strategic business objectives and time horizon.

Most of our Convenience Store News How To Crew experts agree that branded fast-food development in c-stores remains an area of opportunistic growth. "Look at the Dunkin' Donuts and Subway expansions into c-stores. They are booming right now in a lot of areas," one expert noted. "The easiest to get into seems to be pizza and the most profitable seems to be sandwiches, if you pick the right partner."

Interestingly, operators best suited to QSRs tend to be small chains (less than 10 stores) and larger operators with little to no foodservice experience. However, small operators whose stores are concentrated in only a few markets should carefully select the brand(s) they partner with to ensure there is growth potential with that brand in the geographic areas where they do business. Oversaturation of a fast-food brand can be a big problem for a small operator, especially in a small market.

What ultimately determines if a c-store is suited to branded fast food is the facility (size, volume and location), and the capital to make the franchise investment and the store upgrades required. For operators with little to no foodservice experience, QSRs offer proven systems of operation, and programs and training to get the business up and running.

Some experts, however, caution that QSR franchises are better suited to intermediate foodservice players, not beginners. "I believe it is more appropriate for second- and third-tier convenience retailers to begin with their own foodservice programs that rely extensively on manufacturer branded products," said Maurice Minno, partner with MPM Group and a member of the CSNews How To Crew. "When the foodservice beginner reaches the point of consistently operating their foodservice business at high levels of performance, they should then consider broadening their foodservice business model."

For operators that decide against branded fast food, proprietary programs should always be branded, experts contend. Offering "generic" foodservice is never recommended. "Every c-store operator needs to brand their fast-food program. The brand could be a manufacturer brand, a proprietary company brand or a national QSR, either franchised or licensed," Minno explained. "The brand provides the basis for delivering a unique, compelling, fresh food, customer-centric experience."

The great advantage of a proprietary foodservice offering is control of the brand and the ability to customize it, according to David Bishop, managing partner of Balvor LLC and another CSNews How To Crew member. "The ultimate advantage of a proprietary program is a competitive point of differentiation in that consumers can only get these products at your stores. The reward can be high because a compelling offer will help drive traffic to the store," he said. "However, the risks are also high because there's no guarantee of success. C-store operators should not be under an illusion that this is an easy path to follow if they realize the high rate of failure that traditional foodservice operators experience."

Branded QSRs can certainly minimize the chance of failure, but these programs also require tremendous work and effort. Once an operator teams with a fast feeder such as Subway, Burger King, Pizza Hut or Taco Bell, it doesn't mean the work is all done. The work, in fact, is just beginning.

An operator must still be committed to food safety and sanitation, quality food, customer service and operational excellence. Operators must have the discipline and commitment to execute the branded programs as they are designed in order to leverage the branded image, foodservice systems and infrastructure support, and advertising. If not, "all is for naught. This is usually the biggest hurdle," one expert noted. Another added, "You still have to execute. You can't just lay back."

THE PROS OF BRANDED FAST FOOD

The biggest advantage of partnering with QSRs is the brand recognition, as well as the credibility and trust the brands evoke with customers. The halo effect of the branding can help a c-store quickly establish a food-service image. As a result, QSR franchisees can expect higher sales potential.

This is where the store location comes into play. Transient customers will naturally trust national brands vs. local brands they are unfamiliar with. If your store is on or near a highway, branded fast food might be a better play than proprietary foodservice. For neighborhood stores, proprietary foodservice could be the better long-term play, or perhaps a blended offering of branded fast food and proprietary offerings.

For example, if your stores have a strong breakfast and coffee offering, but you are struggling with lunch and dinner, one option is to keep your breakfast programs and continue to strengthen them, and then select a strong sandwich, burger or pizza branded partner to expand into other dayparts.

"We have multiple stores that have a very strong branded food program, but also have a very strong proprietary food program in the same store," one retailer said. "Where money and space permit, I think this is the best option. Why not give the customer who comes in daily some great choices?"

Of course, with branded programs come marketing, lower-cost equipment, lower food costs, layout and design, uniforms and more advertising outreach that includes television, radio, outdoor advertising and social media engagement.

Branded fast feeders also bring ongoing product development innovation, a tremendous advantage to c-stores that otherwise would not have the resources or know-how to do so on their own, according to Minno of MPM Group. They also get proven fresh food merchandising guidelines and techniques, as well as operating and financial management guidelines and techniques.

THE CONS OF BRANDED FAST FOOD

While there are many advantages of branded QSRs, there are also some disadvantages to be aware of and consider. Our How To Crew experts agree that some of the cons include set and established menus that cannot be adapted to local tastes because they are designed to work everywhere. The costs of getting into branded fast food can also be considerably high, depending on the brand.

"To get into branded fast food is usually double or triple the cost of doing proprietary foodservice due to the franchise fees and scope of what needs to be done," one expert said.

Minno concurred that there are higher management and support costs because franchisees must operate and execute the QSR brand consistently in accordance with all brand standards, which "requires a high degree of managerial oversight and focus on delivering the food brand's standards. Not operating consistently according to standards can result in license/franchise termination."

Another downside, according to Minno, is loss of fountain margins. "The brand agreement could require fountain beverage program sales to be included in the QSR brand sales upon which royalties are to be paid, diminishing the convenience store retailer's current fountain margins."

Market encroachment is yet another risk. "The QSR brand could develop free-standing locations within the convenience store's prime market area," Minno said. "This freestanding QSR store has the high potential to erode the convenience store's QSR business."

And of course, as with any partnership, business conflicts can arise. For example, some of the initiatives of the QSR might be at cross-purposes with the host convenience store in terms of labor usage, uniforms, a new menu item or marketing, for example.

The bottom line is that once retailers sign on as franchisees, they are operating a business within their business, and they relinquish total control.

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