Salty Situation, The Sweets Squeeze

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Salty Situation, The Sweets Squeeze

By Richard Jenkins - 05/28/2001
For many convenience store chains, snacking, of either the sweet or salty variety, represents a huge chunk of in-store business. Not to mention the bundling and cross-merchandising opportunities to be had with other products.

Every red-blooded American snacker knows that a c-store is Nirvana for noontime nibblers. However, the industry's stranglehold on snacking society is loosening and snacks are finding profitable homes in other channels of trade.

While supermarkets and club stores do most of the volume in this category, there is an enemy closer to home grabbing snack dollars — the friendly neighborhood drugstore. That Longs, or CVS, or Walgreens is attractingthe c-store consumer with the promise of lower prices.

"Right now drugstores are beating c-stores on price points and margins because, at least for the time being, drugstores are willing to charge less for snack products to get people to come into their stores," said Dr. John L. Stanton, professor of food marketing at Saint Joseph's University in Philadelphia. "In a sense, they're buying customers, but that may change over time because in the long run they have to make money on snack products they sell. Drugstores are implementing key strategies to increase consumables; as a result, they're giving more attention to snacks.

"Chain drugstores have put most neighborhood pharmacies out of business, so now they're going to work on the food side," he added. "First in the line of sight is c-stores. Drugstores are willing to not make a lot of money on snacks in order to generate food as a tactical vehicle to get people to come into the stores."

The drug channel has seen its share of overall snack sales increase in each of the past four years, going from 3.5 percent in 1989 to 4.2 percent in 2000, according to ACNielsen data.

"Right now the cycle may be against the c-store industry because they are devoting their efforts toward working on other areas of the store like merchandising products out on the gas islands such as beverages," said Stanton.

Just as c-store operators are struggling to maintain margins on the two categories that have been their bread and butter for many years — gasoline and tobacco — so, too, are drugstores losing margins on their biggest moneymaker.

The advent of managed healthcare has all but stripped the margins drugstores were making at the pharmacy counter, so they must find other ways to make up those lost dollars, and consumables are the fastest and easiest way to generate foot traffic and sales. Now, folks go into drugstores for a prescription and walk out with a bag of chips, a Coke, a box of cookies, a bottle of Tums and — oh, yeah — they have their prescription, too.

A Good Defense: Offense

Perhaps the best way for the industry to defend itself is by playing to its strength. Being Nirvana to nibblers has its advantages. Retailers must continue to be ahead of the curve when it comes to variety and selection. Snackers are a fickle bunch, who want a change of pace. One way c-stores can keep them coming back is to offer a deeper selection than the drugstore across the intersection.

According to Ann Wilkes, vice president of communications for the Snack Food Association, that selection includes "new chip products such as those with pepper overlay or taste. Steak and pepper, and salt and pepper are two examples. Including pepper with something else like vinegar is new.

"Now you're seeing a very specific flavor within a flavor," she added. Not just barbecue, but very specific flavors within the barbecue subcategory, such as North Carolina BBQ.

A plain chip is no longer what hard-core snackers want, which allows c-store retailers to keep snackers focused on getting their snack jones filled at a c-store. While drugstores may operate in a bigger box, they are required by their nature to make space for non-food items, whereas a c-store can devote 32 feet of space to salty snacks alone, which is the strategy of Duke and Duchess stores, based in Newark, Ohio, according to John Tomlinson, assistant vice president of purchasing and merchandising with Englefield Oil Co., parent company of the 89-store chain.

"Anything that is new, I try to get it in the stores," said Tomlinson. "Frito-Lay has a new Mystery Color Chee-tos coming out. You eat them and your tongue changes blue or green. Also, the Krave Bar from Kellogg's will do well once it is released."

Tomlinson described in detail the two sections in the stores devoted to sweet and salty snacks. "Our first section has a 16-foot row of salty snacks, single-serve snacks, meat snacks and grab-and-go snacks and it's located back toward the cooler doors," he said.

"The first 8-foot section belongs to single-serve snacks and the next 4-foot section has hanging bags of Planters products. The last 4-foot section is all meat snacks. There are no bags of chips in this aisle. The section has five shelves, and it is six items wide." Tomlinson said the section holds roughly 100 SKUs.

The second 16-foot section contains nothing but bags of chips with Frito-Lay products filling up one 8-foot section. Tomlinson uses a mini maximizer, which is a three-sided front-loading rack, to hold all the 99-cent lines plus cookies and crackers.

Tomlinson said the display is a winner because it's placed near the front counter, so it's visible the moment people enter the store. Customers come in the door ready to pay for their gas, grab their snack and a cooler drink, and then pay at the counter.

George Latella, senior marketing manager for Philadelphia-based Tasty Baking Company Inc., said, "We get placed on full endcaps in some stores, which can range from a 2-foot rack with five shelves all the way to 75 linear feet of inline space, but the important point is that if we're inline on a gondola, they put our products directly across from the coffee counter, which we then bundle."

Latella has high praise for the convenience store industry as a perfect conduit for the company's products. "Over the past five to 10 years we have seen a shift in demand from the grocery channel to the c-store industry. Of our top 10 accounts, three are c-stores. Our percentage of sales has grown — it was a two-to-one ratio 10 years ago; today it's probably closer to 50-50. This includes big and small c-store chains."

According to Steve Guzman, purchasing manager of Fast Fare/Express Mart stores, a 100-store chain, whose parent company is Baltimore-based Crown Central Petroleum Inc., "We devote about 100 to 150 square feet to snack foods. About 70 percent of the category is in the center and 30 percent is on the rear wall."

"We have 48-inch-high gondolas and we stack three rows of chips and run them on two 8-foot gondola runs. We carry a lot of nuts from Barcelona to Planters, on the same run with meat snacks. Nuts and meat snacks make up 30 percent of what we have and chips make up about 60 percent. The other 10 percent is made up of miscellaneous stuff."

Guzman said that although wholesalers tend to do most of the snack planogramming, he does have a say in what the shelves will look like. "I work with the planograms on the stores, but the independent dealer has the final say," said Guzman.

"They will listen to any advice I have. I'm constantly trying to get them to carry more gross-profit items, but they say there is a need for 25-cent Little Debbie snacks, which carry only a 12-cent profit margin."

According to Latella, "We have recommended a Tastykake plano-gram, but it is very much regionalized, even down to a neighborhood basis. You can go a mile away and find a different layout. We don't force a corporate planogram."