Finding an Ally

With the foodservice wars heating up and convenience stores proving themselves to be worthy contenders, popular restaurant chains are increasingly turning to c-stores as partners.

Take Huddle House, the Atlanta-based restaurant franchise with more than 400 locations primarily in the Southeast, Midwest and Southwest. In December 2012, the company signed a multi-unit franchise agreement with Temple, Texas-based CEFCO Convenience Stores, which operates more than 250 c-stores in seven southern states.

That news came on the heels of the April 2012 announcement that the Huddle House restaurant chain had signed a franchise agreement with Pilot Travel Centers LLC to open five new restaurants in Pilot Flying J travel centers within the following eight months.

CEFCO opened its first Huddle House in Mount Vernon, Texas, in May 2013, followed by its second location in Jerrell, Texas, that June. Today, Huddle House has 27 restaurants at convenience stores including CEFCO, and another 36 in travel centers including Pilot, according to Jonathan Benjamin, chief development officer for Huddle House.

?A convenience store location provides travelers with an appealing, family-style, full-service diner option while they are on the road. It?s a real draw for families to be able to fill up the tank and take the kids somewhere else other than a fast-food joint,? Benjamin said.

The practice of c-stores and restaurant companies partnering to introduce fresh food into the c-store environment is certainly not new; it started quite simply several years ago.

?The industry began working with external foodservice concepts many years ago when [restaurants] sought to leverage the industry?s traffic into increased sales without having the capital expense of building their own locations,? explained Steve Montgomery, president of b2b Solutions LLC, a c-store consultancy based in Lake Forest, Ill.

Concurrently, c-stores sought to establish foodservice credibility with customers and ?borrowing? brand equity from quick-service restaurants (QSRs) was the fastest way to do that, he said.

According to Montgomery, c-stores first deployed ?cart? programs from various brands. Those cart programs then blossomed into operations that offered broader foodservice menus at c-store locations, often resulting in a very small c-store becoming part of the branded foodservice operation.

Flash forward to 2014 and the current state-of-the-art branded foodservice partnership is for a full- or nearly full-sized QSR to co-locate on a lot with a full-size convenience store.

DUAL BENEFITS

The appeal of convenience store/chain restaurant partnerships is easy to see from the customer?s perspective. A c-store with an on-site restaurant that offers fresh product attracts customers who want convenience and fresh food, said Darren Tristano, executive vice president of Chicago-based research and consulting firm Technomic Inc.

?All of a sudden, a customer comes in for a Subway sandwich, looks around and sees a Coke product or beer and wine. It creates a tremendous opportunity for c-stores to increase sales of drinks, snacks, candy and desserts, too,? he said.

The partnerships create opportunities for the restaurant concepts as well. Schlotzsky?s discovered this when the Austin, Texas-based sandwich chain began testing a co-branded partnership with Sac N Pac convenience stores.

?You see a lot of fast food-type concepts associated with convenience stores. When we tested it, it actually ended up very successful, much as a freestanding location would,? said David Wheeler, Schlotzsky?s vice president of franchise development.

When asked about the pluses of such partnerships, Huddle House?s Benjamin listed several: ?Coordination of conversion and layouts, development cost efficiencies, expanded consumer appeal, superior training and ongoing operations support, all with a team that understands an effective business relationship between our concept and the convenience store operations.?

TACKLING THE CHALLENGES

While industry experts tout the profit potential of c-store/chain restaurant relationships, the model is not without obstacles to overcome. Each business brings unique strengths and challenges.

As Montgomery stressed, ?Foodservice can produce higher than typical c-store margins. I say ?can? rather than ?does? because it takes a focus that, if not there, can result in poor margins and can also place the entire store in a negative light.? The restaurant brand can take a hit, too.

C-stores are great at retail, but foodservice ?is a beast by itself,? added Tristano of Technomic. ?In foodservice, cleanliness can be a deal-breaker. In a customer satisfaction survey for restaurants, three of the top five things people cited [as important] were a clean bathroom, clean dining room and clean kitchen/food prep area. So if the restaurant space isn?t clean, it will have a negative impact on the rest of the c-store.? The reverse also holds true: If the c-store?s bathroom isn?t clean, shoppers will likely avoid the restaurant area.

Space limitations, employees? skill sets and food safety issues are also concerns that c-stores encounter when embarking on a foodservice path.

?It goes back to the characteristics of restaurants vs. retail stores,? Tristano said. ?If you have a retail person to oversee a foodservice location, you have to make sure they have a hospitality mindset. Employees have to be engaging, you have to have a strong service platform, and you can?t have people running between the cash register and the restaurant. You have to understand the difference between a restaurant and retail, and be able to blend the two so they aren?t operating separately ? that is a strong key to success.?

Schlotzsky?s understands the important role quality and consistency play in the success of convenience store operations. That is why the company focuses on holding its c-store units to the same standards as its standalone locations, according to Wheeler.

The first step, though, is ensuring that the c-store and foodservice concept are a good match. For example, Schlotzsky?s seeks locations in highly visible areas, at great intersections, or with good ingress and egress if a site is off the freeway, Wheeler stated. The chain also wants to see high gasoline and in-store merchandise sales to make sure enough customers will be in and out of the location.

There are important issues for c-stores to consider as well. It is nearly impossible, for example, for a convenience store retailer to have a QSR partner at every location. Montgomery said the reasons for this include physical limitations (insufficient lot and store size); legal ramifications (QSRs are typically franchise organizations with restrictions about how close they can build near an existing location); and economic concerns (they require large capital investments).

To overcome these and other challenges, existing and new c-store/chain restaurant partnerships must keep evolving in ways that will optimize the benefits to all parties involved.