Competition, Discounts Slow Foodservice Growth

Foodservice sales growth continues to outpace merchandise sales growth in the convenience channel, although the gap between the two closed considerably last year, as per-store sales of foodservice grew 5.5 percent vs. 4.3 percent for merchandise — a difference of just 1.2 percentage points. The variance in 2008 was 5.0 percentage points, with foodservice sales increasing 7.7 percent per store vs. 2.7 percent for merchandise.

Last year saw cash-strapped consumers cutting back on eating out and trading down to less-expensive dining options, which forced foodservice operators at every level to focus almost exclusively on value, and heavily discount in order to maintain market share.

Higher-end restaurants tweaked their menus to include cheaper food options; casual-dining chains tried to pump up traffic with special two-for-one entrée deals; and quick-service restaurants (QSRs) went after the fast-casual and casual-dining segments by launching premium products at lower price points, while also putting a bulls-eye on the convenience channel by focusing on coffee, breakfast and snacking.

To combat the heightened competition, c-store operators followed suit in trying to present greater value to customers. Some, such as Kwik Trip and Petro-Canada, reengineered menu items to be able to offer lower price points. Kwik Trip offered a smaller, thin crust variety of its private label Cheese Mountain Pizza for $5.99, while Petro-Canada's Neighbours rolled out Grillers, a takeoff of the chain's signature panini sandwiches, but with reduced ingredient portions and priced at two for $6.

Other retailers preferred to maintain their product specifications and instead put forward promotions and deals around foodservice. For instance, Quick Chek advertised bundle deals in one of its districts. One such "Value Meal" included a $2.99 six-inch sub, a 75-cent bag of chips and a 99-cent, 32-ounce fountain drink — bundled for $4.73.

As a result of these efforts, foodservice sales at c-stores grew in 2009 — a positive given the shaky economy, albeit not as robustly as in previous years. Per-store sales in the category increased 5.5 percent vs. 7.7 percent in 2008 and 10.1 percent in 2007.

Of the category's four segments, prepared food continued to be the top grower, with sales rising 7.3 percent on a per-store basis last year to $95,901 — an additional $6,561 in sales for the average store. Food prepared both on- and off-site accounted for 60.4 percent of total foodservice sales in 2009, up from 59.3 percent the prior year.

Sandwiches and hot dogs again topped the list for generating the largest percentage of prepared food sales, even though each experienced a slight decline in share. Sandwiches accounted for 26.8 percent of prepared food sales, and hot dogs, 17.8 percent.

With regard to dispensed beverages, cold dispensed showed the strongest growth last year with a 5.8-percent increase in average sales per store. Frozen dispensed was not far behind, posting a 4.8-percent increase in per-store sales for the year. Cold dispensed comprised 8.3 percent of overall foodservice sales, while frozen dispensed accounted for 4.7 percent of the total. Both segments' share was unchanged year over year.

The same could not be said for hot dispensed beverages, which took a hit in 2009. Per-store sales grew just 1.5 percent, compared to a 7.0-percent increase in 2008, and the segment's share of total category sales declined 1.1 percent to 26.6 percent.

With unemployment reaching record highs, once-core customers were out of work and no longer making their usual morning commutes — or their daily java stops. Coupled with that, c-stores faced increasing coffee competition from quick-service restaurants, doughnut shops and gourmet coffee houses. One notable entry was McDonald's, which completed its McCafé program rollout to all 6,500 of its domestic units last year.

Across the country, convenience retailers reported many of their competitors selling coffee below 99 cents, some at 79 cents and others just giving it away.

Despite the challenges, though, 2009 saw even more c-stores jumping into foodservice, while those with existing programs stepped up the caliber of their offerings. Retailers are making the category a top priority — if not the most important category in the store.

As one c-store chain retailer told CSNews: "Just to stay competitive, everybody in the industry will have to get into some degree of foodservice. The depth of foodservice will vary depending on each retailer's level of commitment, but some form of foodservice will definitely be part of the business model going forward."

bottom line:

The gap between foodservice and merchandise sales growth closed considerably in 2009.

Foodservice sales at convenience stores grew, but not as robustly as in previous years.

Value was the focal point at c-stores and throughout the entire restaurant industry.
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