A Matter Of Location

10/3/2011

Sales of frozen entrees at convenience stores depend largely on region

Busy moms, dads and young professionals have too many questions to answer in the typical day, which makes "what's for dinner?" a recurring dilemma. When coupled with shopping and preparation time, cooking can become a daunting prospect. As a result, many on-the-go consumers are opting for frozen foods they can quickly pick up on the way home and prepare within minutes. For many c-stores this presents a win-win scenario, but not all reap the rewards.

According to industry data reported by NACS, frozen foods sales have declined 37 percent over the last four years. This drop equates to an average loss of $2,350 per store (based on same-store sales data). Steven Montgomery, president of b2b Solutions Inc., explained that while the gross margin percent has remained relatively stable, the gross margin dollars have declined by $1,210, or 42 percent, over that same period.

"As the c-store industry continues its march from being a source of replenishment goods to refreshment, this decline is likely to continue to occur," said Montgomery. "This does not mean that there are not c-store companies and sites doing well with frozen foods, but they are more likely to be neighborhood or rural sites than the typical highway site."

The NPD Group, a consumer and retail market research firm, reported that 16 percent of all American dinners now come from the freezer aisle; in 1990, it was just 11 percent. While this is an encouraging statistic, c-stores have tough competition from grocery stores.

"In the convenience store industry, frozen foods are very limited," said Rich Alheidt, president of C-store Design and Consulting. "Pizza and ice cream are probably the only consistent frozen food products within the industry."

He noted that the average supermarket may have up to 400 feet of cooler space dedicated to frozen foods, far more than a c-store can afford.

At Tedeschi Food Shops, frozen food shares a cooler display with take-home ice cream in all of its locations. "The amount of doors that the case has varies by location, but about 70 percent of our locations have five doors of frozen and ice cream combined," said Michael Turco, category manager for the Rockland, Mass.based chain, operating 188 convenience stores throughout New England. "Some others have more — six to nine doors — and some have less with four doors. The amount of frozen space depends on the store demographic."

GOBBLING UP MARKET SHARE

One segment experiencing success in certain markets is frozen entrees. Products such as Lean Cuisine, Smart Ones and Marie Callendar are among entrees popping up in c-stores and doing well.

"Sites that we would typically recommend carry a broader selection of frozen foods would include neighborhood sites and any stores that strategically position themselves as a source of replacement goods, or those stores whose customers use the stores for that purpose regardless of the companies' positioning," said Montgomery.

Allen Brothers Wholesale Distributors has been in the business for 100 years and serves c-store customers in Pennsylvania, New Jersey, Delaware and New York. Sales Manager John Quisito said in these markets, there has been an uptick in sales and interest. "Over the last one to two years, this aspect of the business has expanded and we are seeing tremendous growth," he explained, adding that the company is new to this segment of the industry.

Among c-stores capitalizing on the frozen entrée segment is Tedeschi Food Shops. "The consumer for these products is primarily female or someone who is diet conscious. Most people who want a healthy option when eating a frozen entree in our locations will reach for the Lean Cuisine," said Turco. "The Marie Callendar/ Healthy Choice Steamer consumer could be anyone in a hurry that is looking for a quick meal alternative with a healthy appeal."

Turco is correct that the demographic for these products are usually women between 30 to 50 years of age with an annual household income of $40,000 or more. And while there is a push for healthier products, another leading demographic is younger males who are not looking for healthy meals, but a standard offering such as chicken, pizza and burritos at a good value.

"Our strategy for the future in frozen food is simple: stay with the products that do well such as pizza and finger foods because they are comfort food for most people, especially in today's economic environment," Turco said.

Frozen food sales are higher in certain areas. For example, Quisito pointed out that c-stores operating in and around Atlantic City, N.J., are experiencing higher sales volume. Analysts and industry professionals agree that frozen entree sales are higher in urban and suburban settings. But taken individually, certain products have higher success rates regardless of location.

"We are not seeing any uptick in products like Lean Cuisine, but we are selling a ton of Don Miguel Burritos and Hot Pockets. That is where we are seeing the real volume," said Chris Cheever, director of foodservice for Mr. Williams, which serves c-stores operating in North and South Carolina, Virginia and Kentucky. "These sales are through the roof and it's surprising."

STAMPS FOR FOOD

The stagnant economy coupled with high unemployment has impacted consumers' wallets. As of May, the United States Department of Agriculture reported that nearly 15 percent of the U.S. population relied on the Supplemental Nutrition Assistance Program (SNAP), better known as food stamps. This represents a 12-percent increase from a year ago, and 34 percent higher than two years ago.

"In Massachusetts, where we operate most of our stores, we have experienced growth in the food stamp or electronic benefits transfer business," said Turco. "We do not look at the transaction to that detail on frozen food, but I believe it has increased the volume of these benefits and the frozen category growth."

In order to qualify for SNAP benefits, an individual's income must be below $1,174 a month or $14,088 a year. During the month of May, the average food stamp benefit was $133.80 per person and $283.65 per household. California, Florida, New York and Texas had the highest number of recipients, with more than three million residents in each state receiving food stamps.

"The way food stamps are used has changed a lot in the last 30 years," said Quisito. "So people are using them with more frequency in c-stores, not just for food but also for items like cigarettes."

Whether using real dollars or food stamps, frozen foods have to be priced to sell. Figuring out what price point to use requires market research and regional calculations. "Most of our items are line priced and we have found $4 to be the high end of retail," said Turco. "We promote the category several times a year at an aggressive retail [price] to draw customers over to the frozen display case, and increase awareness of our full variety of frozen product offerings."

Cheever said it is important in the frozen food category to stick with brand names. "Because we sell so many Don Miguel's, for example, I have all these copycat companies trying to sell me similar products, but the quality is not as good and the customers know the difference."

When it comes to introducing new products to the market, Cheever said he prefers the food company approach the c-store first to determine if the frozen food product will be a good fit. "This approach works better than me trying to decide for the c-store," he said. "We know if a new product is going to work within 30 to 60 days of the rollout."

Quisito explained that Allen Brothers works closely with its c-store clients to better understand what products should be offered in a specific region and determine what promotional opportunities might be available. "We look at different times of the year to market different items. In the summer, it might be Stouffer's or Lean Cuisine, but we schedule our marketing and advertising on these products based on the season and it has been successful."

Certain c-stores will take a mixed-bag approach to determining what products fit a store in a specific region. Due to the diversity at store level, Tedeschi's store operators have the ability to choose which frozen foods to offer their customers from an approved list of items. The retailer's recommended set focuses on pizza, both take home and personal size, along with other finger foods. The items in that door — positioned as door No. 1 — represent over 50 percent of the store's frozen food sales.

"We devote two shelves to items such as burritos and individual Hot Pockets/White Castle products in the stores that warrant the space-to-sales ratio for that line," Turco said, adding that the TGIF line, along with Totinos pizza rolls, represent 25 percent of the company's top 20 items. "Pizza is our best-selling item and represents six out the top 10 items we sell."

Moving forward, he said the frozen food category will grow. "Now more than ever, these items are an accepted meal replacement option because most items are made to cook in a microwave, making them a portable alternative at work or at home."

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