Taking a Page Out of the QSR Playbook

C-stores are stealing market share from fast feeders using their own tactics

Like a football team in possession of a stronger rival’s playbook, the convenience store industry is looking more nimble and competitive in the foodservice arena as it executes with great success the tried-and-true operating practices of quick-service restaurants (QSRs).

7-Eleven Inc., Rutter’s Farm Stores, Casey’s General Stores Inc., Wawa Inc. and QuickChek Corp. represent just some of the c-store teams that have mastered QSR operating practices so well that they could almost be accused of stealing their trade secrets.

Consider these tactics straight from the restaurant industry handbook that c-stores are applying and profiting from every day:

• Just as restaurants long ago learned the value of regularly remodeling stores (about once every seven years for most fast feeders) to infuse the brand with excitement and energy, c-stores are following suit.
• Coffee, long a traffic driver, has evolved into a proprietary-branded profit center as larger c-store chains in particular develop sophisticated coffee programs with high-quality roast blends and an array of flavored options.
• New menu development is a never-ending process to lure new customers and keep loyalists loyal. C-store menu innovation continues to evolve to include non-traditional c-store foods like barbecue spare ribs and sushi.
• Some c-stores are heavily mining the pizza segment, not only by hand-making their own pies, but providing home delivery, too.

The convenience channel’s mastery of the foodservice playbook couldn’t come at a worse time for QSRs. While the sizzling-hot, fast-casual restaurant segment continues to post double-digit percentage gains year over year, fast food — which makes up as much as 78 percent of the foodservice industry’s volume — is expected to grow just 3 percent in the coming year, according to market researcher The NPD Group.

Baby Boomers who have stopped eating fast food, too much competition in too many overbuilt markets, fewer financially qualified franchisees, health regulators, and consumer concerns about fried foods, sugary drinks and red meat consumption have hurt fast feeders, NPD’s restaurant industry analysis shows. The net effect of all these challenges has cost the industry 1.76 billion visits since 2008.

What’s more, NPD reported that c-store encroachment in fast feeders’ most lucrative daypart, lunch, is surging, while more and more breakfast seekers also see convenience stores as a better alternative to fast feeders. At the same time, c-stores are carving out the snack dayparts between breakfast, lunch and dinner and the overnight meal occasion at locations open 24 hours, a popular practice throughout the business.

C-STORES GO FAST CASUAL

David Bishop, a prominent small-format retailing expert at consulting firm Balvor LLC in Chicago, said c-store customers’ shopping behavior is undergoing a historic adaptation in the way consumers view the purpose of a visit.

“For decades, people went to a convenience store for gasoline as the principal purpose of the visit. A person would buy gasoline and decide almost as an afterthought to pick up a sandwich and get a cup of coffee,” he said. “Today, gasoline is secondary behind purchasing a meal to go or getting a cup of really good coffee. People will get coffee, a sandwich and say, ‘Well, while I’m here, I might as well get some gas.’”

That is not necessarily news to Jerry Weiner, vice president of foodservice for the 58-unit Rutter’s Farm Stores in central Pennsylvania, whose foodservice operations, menu, and related amenities earn high critical and consumer praise.

“Food has become a destination for our customers at Rutter’s,” Weiner said.

Because c-stores are investing in more efficient operations, equipment and technology, they are stocking their inventories with higher quality foods and learning some important foodservice marketing practices, such as combo bundling and value pricing, according to Bishop. The net effect, he said, is that many c-stores are really looking more like fast-casual players than they are mimicking fast feeders.

“C-stores are better [compared to fast feeders] with price value. They are not the cheapest, but by embracing combo deals and limited offerings along with popular chain favorites, they are making themselves better competitors to fast casual,” Bishop argued.

“What the most successful among them is recognizing is that if they have a compelling enough value statement, customers will come for the food specifically, whether they need gasoline or groceries or not,” he continued. “So, the service and the food quality are becoming close to fast casual and the speed and price point is [the same as] QSRs. It’s a blend.”

CASEY’S IS CASE IN POINT

Ankeny, Iowa-based Casey’s General Stores Inc., the 1,700-plus-unit chain that operates its own proprietary foodservice program, exemplifies much of what Bishop is talking about. With its broad menu of sandwiches, soups and salads, Casey’s is a big hit in small, rural markets. It commands with its fresh, handmade pizza, which is not only available for home delivery, but also recently got its own inline prototype designed for shopping malls.

For its 2013 fiscal year ended in April, the company was rewarded with the kind of foodservice and beverage sales and profit gains the giant fast feeders used to boast about maybe 30 years ago. For the 12-month period, prepared food and fountain beverage transactions were up 11 percent on a same-store basis and accounted for a 61.1-percent average margin. For the fourth quarter, same-store category sales increased 4.4 percent.

“Looking ahead to fiscal 2014, we will continue to grow this category by implementing major remodels, acquisitions, 24-hour conversions and pizza delivery where market conditions allow,” said Bill Walljasper, Casey’s chief financial officer.

Of the $7.25 billion in annual sales Casey’s reported for fiscal 2013, $564.9 million was in prepared food and fountain. Gross profit in the category was up 15.1 percent, to $349 million.

Unlike some large c-store chains that formerly co-branded with major fast-food brands and learned their partners’ operations, Casey’s never developed such relationships, Walljasper noted. Except for a couple dozen Casey’s units that franchise with the Blimpie’s sandwich chain (which was the non-imperative byproduct of an acquisition years ago), Walljasper stressed that Casey’s has earned its foodservice expertise the hard way. “We learned it by working hard over a long period of time,” he said.

Moreover, where it makes sense, Casey’s has begun operating its stores 24/7. Walljasper said this immediately resulted in a 25-percent to 30-percent sales lift. The chain also has an aggressive remodeling plan, mainly to make the footprint more spacious, but also to accommodate Casey’s pizza with dedicated preparation and service areas.

Just for the month of July, Walljasper said same-store sales were up 14.1 percent thanks to the 24-hour format, remodels and pizza. In the coming year, the company intends to acquire 70 to 105 stores and grow same-store sales 9 percent with a 64-percent foodservice margin.

While he could not cite a specific metric, Walljasper insisted that it’s pretty clear many of the chain’s patrons are visiting its stores with gasoline not at the top of their shopping list.

7-ELEVEN TAKES MANHATTAN

Few markets offer a richer look at the execution of the foodservice playbook than New York City, where industry giant 7-Eleven Inc. is eyeing a big expansion drive, especially in Manhattan.

As just a bit player on an island of bodegas, delis and Korean-owned salad bars for many years with a few stores, Dallas-based 7-Eleven currently has 40 franchised units in the five boroughs and is looking to open approximately 150 more in the next five years.

A reporter who visited two of the 11 franchised outlets the chain currently identifies on its website — both smack dab in the Theater District and spanning approximately 1,200 to 1,500 square feet — found stores that were nothing less than food emporiums.

One of the 7-Eleven stores on 42nd Street between 8th and 9th avenues relegated traditional packaged goods, groceries and toiletries to a rear-wall gondola, while dominating the floor space upfront was an island of 7-Eleven’s Fresh To Go proprietary sandwich line, packaged salads, yogurt and other healthy, fresh fare.

RUTTER’S SIGNATURE STYLE

One of the most aggressive c-store chains when it comes to the development of new menu items is Rutter’s. Just in the past year, the chain has hit the jackpot with two new items Weiner already considers house signatures: a Pastrami Melt sandwich and a “Walking Taco,” which is a bag of Doritos or Fritos brand corn chips stuffed with popular taco fixings that customers can eat while they walk.

Weiner believes the whole convenience store industry prospers over fast feeders when industry players invest in quality foods, especially coffee.

“Today, I say when a consumer thinks of getting coffee on the road, they think [of] c-stores before they think [of] a fast-food operation,” he boasted. “We’ve come a long way since the days they didn’t want to eat here because we sold gasoline.”

“Today, gasoline is secondary behind purchasing a meal to go or getting a cup of really good coffee.”
–David Bishop, Balvor LLC