Full Touch Prepared Foods Dominate Sales

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Full Touch Prepared Foods Dominate Sales

Foodservice sales rose 7.7 percent on a per store basis in 2008, and prepared foods led the way with a 9.1-percent sales gain per store, according to the 2009 Convenience Store News Foodservice Study.

The fastest-growing prepared food items were soup and salads (up 22.4 percent and 13.8 percent, respectively), followed by chicken (up 13.3 percent), sandwiches (up 11 percent) and pizza (up 10.6 percent). Sandwiches by far are the most popular prepared food item at c-stores, followed by hot dogs, pizza, chicken and baked goods. Although soup and salads had the biggest percentage gains, they were also the two smallest categories.

Hot dispensed beverages were up 7 percent on a per store basis last year, and the fastest-growing beverage was hot tea (up 11.6 percent), followed by coffee (up 7.4 percent). Coffee, of course, is the largest subcategory in hot dispensed beverages -- generating four times as many sales as the next best-selling category, cappuccino and specialty beverages.

Cold dispensed beverages were up 3.2 percent last year. Fountain carbonated dominates the category and was up 3.3 percent, the same increase that all in-store merchandise categories averaged last year. Fountain noncarbonated was up 5.4 percent, while sports fountain drinks were flat.

In terms of gross margins, frozen dispensed beverages, with an average gross margin of 68.63 percent, surpassed cold dispensed (67.32 percent) as the most profitable category on a percentage basis. Margins in prepared foods rose from 43.85 percent in 2007 to 45.17 percent, despite increases in food costs. Hot dispensed beverage margins also rose.

However, in terms of total gross margin dollars per store, prepared food again led the way. Prepared foods generated $40,350 in gross margin dollars per store last year, a 12.4 percent increase from the previous year. Hot dispensed beverages were up 8.4 percent in average gross margin dollars per store in 2008.

This year's CSNews Foodservice Study also polled retailers on how their foodservice sales were shaping up this year. With the country in recession, nearly four out of 10 retailers reported their foodservice sales for the first half of 2009 were higher than they were during the first half of 2008. However, more than a third felt the pinch of the recession -- with 35.0 percent reporting lower foodservice sales compared to the first half of last year.

On a brighter note, more than half of c-store retailers surveyed last month said their foodservice profits increased this year compared to the first half of 2008. Only 20.1 percent said foodservice profits were down in the first half of this year compared to the first half of 2008, and 28.6 percent said foodservice profits have held steady this year vs. the comparable period of 2008.

For the full year 2009, 44.2 percent of c-store retailers expect to report increases in foodservice sales compared to last year, while 26.3 percent expect to see a decrease in their foodservice sales this year.

Different c-store retailers employ a wide range of foodservice programs, each featuring different menus, methods of preparation, sourcing and labor and equipment requirements. This year, for the first time, the CSNews Foodservice Study breaks down all those methods to essentially three major types: Full Touch, Some Touch and No Touch.

Full Touch describes the complete made-to-order type programs offered by c-store retailers such as Wawa, Sheetz and Rutter's. Forty-three percent of foodservice sales in the c-store industry last year were generated by Full Touch programs.

Some Touch refers to operations that send fresh, refrigerated or frozen ingredients to be assembled, thawed or heated at the store. These operations usually require more labor, training and foodservice equipment than No Touch, but not as much as Full Touch. Companies including Speedway SuperAmerica and the Neighbours division of Petro-Canada (now Suncor Energy) utilize this method. Twenty-three percent of the industry's foodservice sales last year came from Some Touch operations.

Finally, No Touch involves pre-packaged commissary, warehouse or vendor-delivered product, often placed in an open refrigerated case, for grab-and-go diners. Thirty-three percent of c-stores' foodservice business came from No Touch last year.

Interestingly, about two-thirds of the industry's retailers that sell prepared foods employ some facet of all three types of these foodservice methods in stores.

Retailers operating Full Touch foodservice programs were also more likely to expect increases in foodservice sales and profits compared to those c-store retailers operating No Touch programs.

Among Full Touch operators, a solid half said their foodservice profits were higher in 2008 than 2007, compared to 44.8 percent of No Touch operators. In 2009, 42.5 percent of operators with Full Touch programs expect to see a sales gain vs. only 31 percent of No Touch operators.

On average, retailers who sell food prepared off site use 4.2 different commissary vendors per store. Food is delivered to each store at an average of 3.7 deliveries per week, and they sell an average of 43.4 commissary-prepared items per store.

In terms of labor, the average number of employees working in a store's foodservice program is 4.7. For Full Touch programs, it's 5.1, but for Some Touch, the average number of workers is 4.5 and for No Touch, the average is 3.3.

Less than 20 percent of the industry's retailers utilize fully dedicated foodservice employees. More than 80 percent employ foodservice workers in other parts of the store as well. The average hourly wage for c-store foodservice workers is $8.49, and they worked an average 33.9 hours per week in 2008.

Retailers also reported foodservice labor costs last year represented 19 percent of total in-store sales and 27 percent of foodservice sales (compared to 17.7 percent and 24.1 percent, respectively, reported for 2007).

In allocating space for foodservice within the store, the average retailer devoted 41.5 percent of foodservice square footage to selling/preparation area, 31.8 percent to dry/storage space and 26.7 percent to refrigeration/freezer space.

Roughly 78 percent of c-stores with foodservice provide microwave ovens in-store for customers' use. A little less than 60 percent provide some kind of in-store seating and roughly one-third provide outdoor seating.

Only 12.8 percent provide either delivery services or a drive-thru, while 21 percent sell party platters and/or offer catering services.

Customers can order ahead by phone with 63 percent of c-stores and by fax to almost 18 percent, but only 2.6 percent of retailers handle orders via the Internet.

The availability of touchscreen electronic ordering increased slightly in the past year, with 3.4 percent of c-store retailers now offering this option inside the store. Less than 1 percent currently offer touchscreen ordering at the gas pumps for foodservice items.

Food Costs
Nearly three-quarters of c-store retailers said their food costs increased in the past 12 months, and the most common reaction to those increases was to raise retail prices -- which was the route taken by 60 percent of c-stores last year. Approximately 35 percent said they held the line on prices; nearly 26 percent said they changed vendors to get lower prices; 22 percent deleted certain high-cost items from their menus, and 20 percent reduced sizes or portions of items. Here are a few verbatim comments from retailers on their reaction to rising food costs last year:

-- "We go to Sam's Club now two to three times a week to get stuff cheaper."
-- "We have deli from a local grocer make product for us. It's consistent, we have no labor, inventory or waste, and the retail price is still reasonable."
-- "We negotiated better prices with our suppliers."

In terms of sales by daypart, c-store retailers saw their greatest percentage of sales growth at lunch time. Looking at dayparts by percent of foodservice sales, lunch (11 a.m. to 2 p.m.) represented 43.2 percent of foodservice sales, compared with 28 percent for breakfast (6 a.m. to 9 a.m.) and 22 percent for dinner (4 p.m. to 7 p.m.).

After coffeemakers, which are in practically every store in the industry, the next most important piece of foodservice equipment appears to be the microwave oven, with 86.4 percent of retailers utilizing this item. Fountain drink dispensers are next, in use at 78.9 percent of retailers overall -- although their penetration is higher within chain store retailers at 92.8 percent.

The next most popular pieces of foodservice equipment are hot chocolate dispensers, in use at 73.5 percent of retailers; food display cases, at 71.4 percent; espresso/cappuccino makers, at 66.7 percent; frozen drink dispensers, 63.3 percent; and roller grills, 51.7 percent. Deep fryers are used by about half of the industry's retailers.

The recession caused most retailers to be more promotional with foodservice items, as almost four out of 10 retailers said they increased promotional activity in foodservice over the past year, while only 9.4 percent said they reduced promotional activity. Full Touch retailers were the most promotional, with 42.1 percent reporting a step-up in promotional activity at their stores.

In anonymous verbatim comments, retailers told CSNews about some of their most successful promotional activities, as well as some things that didn't work:

-- "One Dollar Wednesday's have been a huge success. We developed a following from customers and the sales numbers have been phenomenal. We started weekend bakery promotions in early spring and this has been a huge success for this category."
-- "$1.00 off coupons, special sandwiches at low prices, giving away free fries with a sandwich."
-- "$5.00 Footlong at Subway; bundles to offer value; reduced prices on monthly promotions at Church's. All work but reduce gross."
-- "Two-fors are doing well."
-- "Three for $1 hot dogs and 99-cent coffee."
-- "A 32-ounce fountain drink, hot dog and kettle chips for $2.49 is a great item and a really popular whole meal for under $3. Tornado's two for $2.22, a slice of pizza and a 32-ounce soda for $1.99 was a short promo to get people to eat our pizza. Now we sell more than ever."
-- "Bundling has worked well to reduce waste and add value.
-- But another said: "Bundling didn't help much."
-- "Coffee club cards ... buy six get one cup free."
-- "Combining entrees and sandwiches with soups, snacks, etc. We have a Thursday 'Recession Special,' which is an entree, two sides and a beverage at half price. Customer Loyalty Program includes a punch card where you buy four 6-inch or four 12-inch sandwiches and get the fifth free. 'Ladies Night' Tuesdays where ladies get a free beverage with the purchase of any sandwich. All of these have been successful promos."
-- Another respondent was frustrated by the lack of success with promotions: "coupons, two-fers, etc. ... nothing seems to work. Customers don't even use the coupons. Clerks are doing a good job suggestive selling -- but no one bites. [They] seem to be in too much of a hurry most of the time that they don't want to hear what we have to offer."
-- "Loyalty cards seem to work the best for us."

When it comes to identifying their toughest competitor in foodservice, convenience stores still view other convenience stores as their biggest direct threat. Six out of 10 c-stores said another c-store was their biggest competitive threat. Almost half, 48.1 percent, said a sandwich chain, such as Subway or Quiznos, is their biggest competitor, and 40.5 percent said their toughest competitor is McDonald's. As might be expected, Full Touch retailers identified sandwich shops (56.8 percent) as their biggest competitor at a higher rate than Some Touch (46.2 percent) or No Touch (44.4 percent) retailers.

Other national or regional quick-service restaurants were mentioned by 19.8 percent of retailers as their biggest competitor for foodservice sales, while 13 percent said Starbucks and 10.7 percent said Dunkin' Donuts.