The Ins And Outs Of New Market Development

Now that your foodservice offerings and execution in a handful of stores is perfected, it's time to replicate and expand to maximize the investment and profits. But what's the smartest way to do that? There are several ways to expand, such as adding the foodservice program to existing stores where it makes sense and the facilities are large enough; building brand-new stores to include foodservice; or acquiring stores that will satisfy the space and market requirements of your programs.

Another key ingredient often forgotten in expansion plans is the importance of ongoing menu innovation, which we have discussed in prior articles. Staying on top of trends and offering customers new flavors and innovative menu items will keep them coming back for more and sharing their experiences with others via word-of-mouth marketing and the ever-powerful social media channels.

Before expanding into new markets, however, Convenience Store News' How To Crew experts warn that existing foodservice programs should be humming — in other words, they should meet the goals and financial expectations set forth in the company's original strategic plan and pro forma.

Nothing could be worse than "multiplying a failure," one expert said, noting that the definition of failure is "less than solidly profitable." One expert went further and said foodservice programs should be flawless before new market expansion takes place since the foodservice program is, and will continue to be, a core element of the overall retail brand in every store going forward.

"You should also have had a chance to fully monitor consumer responses and employee implementation plans to ensure you have captured all possible learnings to assist in a successful rollout to additional markets," another expert advised.

THE CHALLENGES

Selecting and developing new markets for expansion is as much a science as it is an art, and one of the biggest challenges is that the business becomes more complex as expansion progresses. For example, you can potentially lose hands-on training and experience that you may have had in the initial rollout, which leaves the success of the program in the hands of individuals who may not have the same buy-in to the program as did you or your direct team.

Another challenge is that you may have made adjustments to the initial program based on customer feedback from the stores you tested in. "Future store rollouts can have slightly different demographics causing different results," one retail expert noted.

There also may be varied competitors from market to market that you need to consider. Seasonality of the launch can pose challenges, too. You may have tested in the summer and are now ready to launch six months later, but winter results can be very different than test results from the summer.

"It is important to have a sound consumer-based business plan before you start. That should guide the process and help manage through the potential challenges you will encounter," this expert advised. "That way, when you encounter obstacles, you can quickly trace them back to your business plan rather than challenge your entire hypothesis."

Ensuring your foodservice program is relevant to consumers in the new market is also vitally important. The area and store you are expanding in should meet all — or at least 95 percent — of your expansion criteria in terms of store size, traffic counts, sales potential, demographics, area/market type, competition, etc.

It's also imperative that sufficient cross-functional resources — human resources, information technology (IT), procurement, operations, marketing and food safety — have been dedicated to support the new market's foodservice programs, said Maurice Minno, partner of consultancy MPM Group and a member of the CSNews How To Crew. Human resources should support the entire new store hiring and operational certification process. IT should procure new equipment, as well as provide specialized training and reporting. Procurement should ensure the supply chain is properly supporting the new store's foodservice program. Operations, among other things, should assure that unit-level execution is consistent and delivers top-tier execution and performance. Marketing should coordinate with operations and develop all in-store and external advertising and communications, and food safety needs to certify the safety of the supply chain and food preparation in the new store, according to Minno.

SELECTING NEW MARKETS

When a convenience store chain enters a new market with a strong foodservice program, it can help build the customer base up very quickly. "It makes building a customer base a lot easier when you get 200 people a day coming in for coffee to start the morning," one retail expert said.

Another expert explained that strong foodservice programs are critical for future store development because the convenience store industry needs to find revenue to compensate for the declines in tobacco, alcohol and other staple categories the industry has relied on for years. "Foodservice is underdeveloped and large enough to bring in the sales and profit dollars. If an owner or chain is committed to using foodservice to help replace and grow the revenue, then foodservice can play a pivotal role in how and where to expand and what that expansion should look like," this expert added.

But selecting the right market and the right location within that market for expansion is no easy task. The store development process is complex and involves detailed work that combines internal staff resources, as well as appropriate and proven external market research resources to identify, screen, rank-order and ultimately shortlist the right markets/ locations for new expansion, Minno said. Then, in-depth research assessments are undertaken to qualify brand and operations alignment and fit opportunities; evaluate competition; identify potential development parcels; and determine the population centers, employment drivers, business linkages and strategic positions, he continued.

"All company-mandated financial modeling, due diligence and risk assessments are made in this end-to-end process to qualify the new market," Minno said. "The end result is a comprehensive package documenting the brand opportunity, market strength, competitive assessment, multi-year financial sales and expense projections, risk modeling assessments and projected market build-out plan — all for senior management review, discussion, questioning, re-study and ultimately approval for go-forward development."

Once all the due diligence for site selection in a new market is complete, the next step is determining the foodservice offering in the new market. Should it be identical to other stores? Can there be some menu variation? Most experts agree that during the launch, the offering should be the same as other stores for ease of rollout and success measurement.

"If you are building a new menu for an expansion market, you are dealing with execution issues and new market issues at the same time. There should be a foundation of success before menu changes are introduced," one How To Crew member said. "There are lots of items that are fairly ubiquitous across markets. Start with those and build from there. If you introduce too many variables at once, the data on performance will confound your vision, and you will not be able to see causes and effects clearly."

Experts agree that some menu variation in the future might be necessary to connect with consumers in the new market area, but initially the program should be uniform store to store. "Once you get some time behind you, check sales and reduce or expand your menu from there," one expert said.

Most experts advise not to fiddle too extensively with menu alterations, though. The 80/20 rule still applies — keep at least 80 percent of your menu items consistent store to store to maximize brand impact and supply chain efficiencies. It's also important to stay within your company's and/or store's production capabilities.

The wisdom of expanding into contiguous markets or leapfrogging into completely new regions/states where your brand is unknown continues to draw divided advice. Several experts recommend expanding only into contiguous markets where your brand will likely be recognized and perhaps tried in the past.

"Unless you are a very strong convenience store, leapfrogging areas is tough," noted one retail expert. "Your customer has to learn [about] you from the ground up, which can take longer than expanding in your local area. If you expand in your local area, a bigger percentage of customers are going to visit you already because of familiarity. Leapfrogging areas can be done, but you must have a lot of drivers to the store that bring in new customers."

Two of the convenience store industry's top performers with the most expertise in foodservice — Sheetz Inc. and Wawa Inc. — are expanding into non-contiguous markets, proving it can be done. However, most experts agree that such a strategy for less expert foodservice players could be very risky.