High Expectations

Foodservice sales in the convenience store industry continue to grow and show no signs of slowing down any time soon. Three-quarters of c-stores opt for proprietary programs vs. branded, and with this comes challenges including the rising cost of food, the issue of food safety and the struggle to maintain a consistent program customers can rely on.

However, c-store retailers are taking on these challenges and reaping the rewards. As reported in the Convenience Store News 2014 Industry Report, foodservice accounted for 14.95 percent of in-store sales last year, up from the previous year?s 14.32 percent, and the category saw a 5.5-percent increase in average sales per store year over year.

CSNews fielded its annual Foodservice Study in June to collect in-depth data on foodservice and build upon the category data collected for its annual Industry Report. The Foodservice Study asks c-store retailers ? both chains and single stores ? to report their sales and profits from the previous year, as well as expectations for the current year.

In the last two years of CSNews? annual Foodservice Study, reported sales have been on an uptick and retailers indicate they expect nothing less from 2014. More than three-quarters (81 percent) of the convenience store operators that participated in this year?s study predict an increase in foodservice sales this year, with 84.8 percent of chains projecting a rise. The same is true for profit, with 63.5 percent of all respondents and 66.7 percent of chains anticipating that their foodservice profits will grow in 2014 compared to 2013.

When breaking down sales per subcategory, prepared food leads the way with the most sales and a 9.5-percent increase in average sales per store in 2013, followed in sales by hot dispensed and cold dispensed beverages respectively.

Sandwiches remain the top seller in prepared food, along with hot dogs, pizza, chicken and bakery items. However, salads saw the largest growth year over year, up 12.6 percent in per-store sales. Also registering double-digit growth were pizza (11.5 percent) and sandwiches (10.3 percent).

Hot dispensed beverages are offered by 100 percent of the c-store retailers surveyed this year, but saw a decline over the past year in sales with the exception of hot tea, which was up 1.1 percent in sales per store. Coffee is still the top seller despite a 2.5-percent per store sales decline and 1.6-percent industrywide sales decline, followed by cappuccino/specialty and hot chocolate, both down more than 1 percent each.

Sales of cold dispensed beverages increased slightly at 0.5 percent per store and 1.5 percent industrywide. Carbonated is the No. 1 seller in this segment, but non-carbonated saw the biggest increase of 3 percent year over year, compared to only 0.3 percent in carbonated. The biggest decline (5.4 percent) was in fountain sports drinks. A total of 91 percent of retailers offer cold or frozen dispensed options at their stores.

PROMOTIONS & SERVICES

Foodservice promotions, via coupons, social media, loyalty programs and more, increased among a third of retailers over the past year ? and among more than 50 percent of chains alone.

The majority of retailers are tying foodservice category promotions into their loyalty programs, yet paper coupons, social media and billboards are still popular marketing vehicles, and 21.4 percent are offering mobile coupons and mobile app offers as well.

Nearly two-thirds of responding operators said they offer customer seating in-store alongside their foodservice selection, and approximately one-quarter provide outdoor seating.

In terms of other complementary services, order ahead is popular, with the majority of those offering it (60.3 percent) taking orders by phone. In addition, more than three-quarters of respondents have a microwave on-site. Take-home, heat-and-eat dinner menu solutions are also available from 30.5 percent of c-store retailers, and slightly more than one-quarter provide party platters and catering options for customers.

For those who prepare foodservice items on-site (92.2 percent), these respondents report three-quarters of their offering is prepared at store level. Meanwhile, 60 percent of total respondents have their food items prepared off-site. Only 15.7 percent report having a company-owned commissary, while more than half rely on a third party.

It?s also a common practice to use more than one commissary vendor, with a mean number of 3.7 vendors per store reported. Deliveries occur 2.9 times per week, and the number of commissary items or SKUs per store is 263.5.

DAYPART SALES

While the lunch daypart ? between 11 a.m. and 1:59 p.m. ? is still bringing in the largest share of foodservice sales for convenience store operators (30.3 percent), the breakfast daypart ? between 6 a.m. and 8:59 a.m. ? is not far behind (26.4 percent).

Dinner is also contributing to the overall foodservice sales picture, accounting for 14.7 percent.

In terms of growth, increases in breakfast sales were reported by 57 percent of operators, the largest of any daypart. Increases in lunchtime sales were reported by one-quarter of operators.

Of the three snack categories ? morning, afternoon and evening ? the afternoon snack segment grew the most in the past year.

When it comes to foodservice competition, c-stores view other c-stores as their biggest threat (62.5 percent), followed by sandwich shops, including Subway and Quiznos (50 percent), and McDonald?s (48.3 percent). Coffee shops rank fourth on the list and fast-casual players, such as Panera Bread and Chipotle Mexican Grill, round out the top five.