Still Cooking

8/3/2015

By now, every convenience store retailer knows that foodservice is a primary driver of success in the channel, and 2014 turned out to be a good year for the category.

In the new Convenience Store News Foodservice Study, 83 percent of c-store chains reported their foodservice sales increased last year and the same number said they expect 2015 to be another improved year for sales. Conversely, only 2.1 percent of c-store chains indicated their foodservice sales decreased in 2014, with the same expecting similar results this year.

The majority — roughly three-quarters of chain retailers — saw their foodservice profits grow as well in 2014 and expect to see a profit increase this year, too. On the other end of the scale are the 4.3 percent of chain retailers who saw foodservice profits dip last year. However, a smaller number — 2.1 percent — are bracing for another decrease this year.

The amount of space c-store retailers are devoting to foodservice in the store highlights its importance. The allotted space — including selling/preparation space, dry/storage space and refrigeration/freezer space — averages 912 square feet per store when factoring in both chains and single stores, or 33.1 percent of the total store. For c-store chains alone, the numbers come in at an average of 985 square feet per store, or 29.9 percent of the total store.

As with all product categories, foodservice comes with a set of challenges operators must work to overcome. In the latest CSNews Foodservice Study, when asked what the biggest challenge to running a foodservice program is, retailers hit on several common elements: competition, food costs, personnel issues and labor costs.

With a total of 6.4 employees working in the foodservice program per store, the mean percentage of labor costs as a percentage of foodservice sales is 24.5 percent for the total industry, and a little less for chains at 21.9 percent. That’s no surprise. The average hourly wage for these employees was $9.34 for the total industry and a slightly higher $9.46 for chains — $2 more than the federal minimum wage of $7.25 per hour.

With increasing competition in the foodservice business, c-stores may feel the need to up the ante when it comes to employee pay. The biggest competitors, the survey found, are still other c-stores (cited by 68.2 percent of all retailers and 76.2 percent of chains). However, this year’s tally puts McDonald’s in the No. 2 spot with chain sandwich shops (previously No. 2), other national/regional quick-service restaurants and coffee shops rounding out the top five.

McDonald’s recently announced starting wages at its company-owned restaurants in the United States will be $1 over the locally-mandated minimum wage. The wages of all employees up to restaurant manager will be adjusted accordingly based on tenure and job performance. By the end of 2016, McDonald’s projects that the average hourly wage rate for employees at its company-owned restaurants will be in excess of $10.

MAKING AN IMPACT

Yes, there are challenges, but there are also opportunities. Retailers participating in this year’s study indicated that adding new food items like pizza and chicken, installing new equipment and putting more emphasis on targeted dayparts has positively impacted the category.

Beefing up food menus is a smart move on the part of c-store operators, as average sales per store of prepared food reached $140,754 in 2014, a 7.2-percent increase over 2013. Leading the pack were sandwiches, with $36,202 in average sales per store (up 7.8 percent). Other top-selling segments were hot dogs ($23,901), pizza ($23,320) and chicken ($17,296).

Of course, success can only come with the right equipment to prepare the items. The most ubiquitous piece of foodservice equipment found in c-stores is a coffeemaker (92.3 percent of all c-store retailers and 93.1 percent of chains have them). Other dispensed beverage equipment — for hot chocolate, fountain drinks and frozen drinks — are also widely found in c-stores, as are microwave ovens for food preparation; ovens including conventional, convection, impinger and speed-cook; roller grills; and pizza-making equipment.

Strength in different dayparts can influence the equipment needs of retailers. Tackling dayparts has been an increasing focus for c-stores, and that focus is reflected in the 2015 study results. According to the CSNews Foodservice Study, 38 percent of all industry retailers (and nearly half of chains) report the biggest sales growth in lunch (between the hours of 11 a.m. and 1:59 p.m.). That’s compared to 22.6 percent who reported the biggest bump in this daypart in 2013.

This is not to say the other dayparts are waning. A nearly similar number of retailers — 37 percent of the total and 44.2 percent of chains — said their biggest sales growth in the past year has been in breakfast (from 6 a.m. to 8:59 a.m.). However, dinner (from 4 p.m. to 6:59 p.m.) is still slow to gain traction — 10 percent of all retailers and a mere 2.3 percent of chains report dinner as the daypart with the biggest growth in the last year.

These growth statistics are reflected in the overall percentage of foodservice sales by daypart as well. Breakfast accounted for 27.6 percent of 2014 foodservice category sales (30.5 percent for chains), lunch accounted for 33 percent (29.6 percent for chains) and dinner accounted for 13.1 percent (11.8 percent for chains). Both breakfast and lunch ticked up from 2013, taking share from dinner, which dropped from 14.7-percent share the previous year.

And c-store customers are not just eating during the traditional meal times. All snacking dayparts saw share growth in 2014. The morning snack (9 a.m. to 10:59 a.m.) accounted for 10.3 percent of foodservice category sales (11 percent for chains), afternoon snack (2 p.m. to 3:59 p.m.) accounted for 8.8 percent (9.3 percent for chains), and evening snack (7 p.m. to 9:59 p.m.) accounted for 4.9 percent of sales (4.7 percent for chains). Only late night saw no share growth year over year, according to the study.

BACK TO BASICS?

As convenience store retailers hone in on expanding their foodservice offerings and boosting traffic across the various dayparts via new items, some of the basics are taking a hit. Hot dispensed beverages and cold dispensed beverages are two such examples.

Hot dispensed beverages remained relatively flat in 2014 vs. 2013, with average sales per store dipping 0.6 percent. All segments hovered around a hardly noticeable dip — hot chocolate and coffee — or a hardly noticeable increase — cappuccino/specialty and hot tea.

The cold dispensed beverages segment told a similar story, with average sales per store remaining pretty much flat at a 0.7-percent decrease.

According to the study, 100 percent of c-store chains offer hot beverages and 93.8 percent offer cold or frozen dispensed beverages; each accounts for less than a quarter of retailers’ foodservice sales. Prepared food, which all chains offer, makes up 55.4 percent of sales.

HAVE IT YOUR WAY, OR NOT

The past year saw convenience store retailers switch up the types of prepared food programs they offer. A little more than half of all retailers said they operate full-touch or made-to-order programs, which equaled 32.6 percent of foodservice sales. By comparison, 62.9 percent of all retailers offered full-touch in 2013, which equaled 42 percent of foodservice sales.

This year’s research also found that less retailers are operating some-touch programs, including assembled on-site, thaw-and-serve and roller grill. Notably, 62.6 percent said they offer this type of program compared to 66 percent last year. As for percentage of foodservice sales, some-touch accounted for 22.3 percent vs. 25.9 percent in 2013.

That leaves the lion’s share of retailers (80.4 percent) offering no-touch programs like grab-and-go and prepackaged items. This is a boost from 68.8 percent the previous year.

Of those retailers that do offer full-touch programs, 82.8 percent operate a proprietary program, 24.1 percent operate through a branded provider, and 6.9 percent offer a combination of both. The numbers for chains are in line with the total industry.

As for where food is prepared, 88.7 percent of all retailers prepare 74.6 percent of items at the store (85.9 percent of chains prepare 63.3 percent of items). Nearly half of all retailers prepare a quarter of their food items off-site (62 percent and 36.7 percent, respectively, for chains).

When it comes to foodservice beverages, only 12.6 percent of all c-store retailers (11.6 percent of chains) currently offer made-to-order beverages.

UP FOR PROMOTION

Having a foodservice program, though, is not enough to spell success. Customers need to know what each store has to offer. To that end, 36.6 percent of all retailers increased their foodservice promotions in the past year. That number is closer to half for chain stores. Conversely, only 4 percent of the total and 7 percent of chains decreased their promotional activity.

Overall, 93 percent of all chains offered some type of foodservice promotion in the last year. The top activities ranged from social media (53.5 percent), to loyalty programs (46.5 percent) to paper coupons (27.9 percent). At the bottom of the list are billboard and text messaging (both at 25.6 percent), and television and email (both at 18.6 percent). Some retailers also employ handouts, in-store specials, store signage and pumptoppers.

In addition to promotions, convenience stores feature other related services to boost their foodservice programs. For example, 79.4 percent of all retailers (85 percent of chains) have microwave ovens for customers to use. In addition, 61.8 percent of all retailers (62.5 percent of chains) allow customers to order ahead — by phone being the most offered, at just about two-thirds.

Seating is also key, with 61.7 percent of all retailers (63.3 percent of chains) offering in-store seating and 27.5 percent of the total (28.3 percent of chains) offering outdoor seating.

Surprisingly, despite consumers being touchscreen addicted, mainly because of their smartphones, only 3.6 percent of all c-store retailers offer some form of touchscreen foodservice ordering. This number increases a bit to 6.9 percent for c-store chains.

53.5% Percent of c-store chains that promoted foodservice via social media last year

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