A Retailer's Guide to Future-Proofing Foodservice
NATIONAL REPORT — Convenience store foodservice has come a long way since its days of roller grill basics. Whether today's retailers focus on made-to-order or grab-and-go, menus now increasingly feature a wide variety of more sophisticated and higher-quality items.
Yet there is still a ways to go as the convenience channel's journey to foodservice success has also resulted in increased competition and program complexity.
No two foodservice programs are exactly the same, but they share common challenges. As c-store operators grow their collective reputation as foodservice destinations, they must think outside the channel and be prepared to compete with quick-service restaurants, fast-casual outlets and other non-c-store competitors for share of stomach.
Additionally, as foodservice solidifies its position as a major profit driver, it's critical that operators think tactically when it comes to managing the category. Improvement is a never-ending journey, particularly when the 2025 outlook for foodservice is more complex than just "good" or "bad."
"I think on the surface, the category will look better. Meaning sales will continue to grow year over year as retailers make more investments and expand their foodservice programs," Liza Salaria, senior vice president, merchandising and foodservice practice lead at Lexington, Ky.-based Impact 21, said about the coming year. "There also could be some residual inflation, which would push retails even higher — making the year-over-year comp sales positive."
A lack of significant improvements being made from a net operating profit perspective for the category, however, could be a problem, Salaria cautioned. "In fact, foodservice operators are at risk of having the category perform worse from a net profit perspective. Increasing food and labor costs have expedited the need to have better tools and systems that help retailers understand and fix margin leakage," she said.
Guide to Foodservice
One challenge for c-stores is that while improving foodservice profitability must continue to be a key focus, operators lack visibility into the true profitability of the category. This would require them to run a separate, full-burdened foodservice operating P&L to capture all the cost components in a single place, Salaria noted. Investments in recipe management and production planning tools can help by providing insights into ingredient management and minimizing waste.
Despite the challenges, retailers are largely bullish on the category's prospects. According to the 2024 Convenience Store News Foodservice Study, fielded earlier this year, nearly all retailers offer some kind of prepared food. Of these retailers, 79% said they anticipated their foodservice sales would increase during full-year 2024, and 72% said the same for foodservice profits.
[Industry Report 2024 Deep Dive: Foodservice]
Operators' top foodservice priorities include increasing customer counts, using loyalty programs to drive sales, and menu innovation. Their biggest reported obstacles are difficulty in hiring and retaining employees, supplier price increases, and consumers having less disposable income.
For retailers looking to future-proof their foodservice programs, labor and the work environment for employees should be a priority, according to Salaria. The better-designed a kitchen area is, the better it will be able to adjust to future menu changes.
"Operators need to ensure that food production areas are efficiently designed to minimize motion (steps) and make work easier for team members," she said. "Every aspect of the foodservice model needs to be dissected and engineered to be more efficient and intuitive for their people."
Building Something Better
As c-store operators work to strengthen their competitive advantage, they should consider the idea that innovation is "evolutionary, not necessarily revolutionary," Ben Lucky, senior director of fresh food development at Irving, Texas-based 7-Eleven Inc., said during the 2024 NACS Show.
While retailers should be able to stand out by offering something more or better than their competitors, that doesn't mean novelty for novelty's sake, particularly in an industry where customers want ubiquitous offerings that are already well-loved, such as chicken tenders, pizza and breakfast sandwiches. New offerings must have a purpose beyond simply being different.
At the same time, it is possible to be too cautious and lose out on what could be a winning new product. Unsuccessful trials need to be baked into the process of menu iteration, Lucky said.
"If you haven't failed, you're not trying hard enough," he pointed out.
Retailers should think strategically while prioritizing innovation. Lucky encouraged operators to consider what the foodservice landscape looks like to them, their staff and their guests.
"Why did they come to your store instead of somebody else's? And then when they're done with you, what's their satisfaction level? Are they thinking that that was a mistake?" he posed.
Quality food, an inviting environment and stellar operations are the three key elements to success in c-store foodservice, Lucky noted, and all three must be constantly maintained. Otherwise, a customer who believes they will have a good experience when ordering food from a particular store will feel lied to and once trust is lost, it is not easily gained back.