Upward And Higher


C-store retailers predict even better foodservice performance in 2011, following a strong 2010

After reporting a 6.1-percent sales increase in 2010, convenience store retailers expect to generate increased sales and profits from their foodservice operations this year.

Nearly three-quarters (71 percent) of retailers polled in the Convenience Store News 2011 Foodservice Study said they expect 2011 foodservice sales to be higher than they were in 2010. In addition, more than half (57 percent) said they expect foodservice profits to be higher as well.

Such optimism bodes well — even in the face of increased food costs and pressure on gross margin percentages — as most convenience retailers continue to focus on improving their foodservice operations. Chains were more upbeat than single-store owners about their foodservice prospects this year, with 85 percent of chain respondents saying they expect higher sales this year and 70 percent predicting higher profits.

Overall, in 2010, convenience store retailers reported a 6.1-percent increase in foodservice sales to a record-high $23.8 billion. On a per-store basis, that translates to $166,483 per store, also a record.

Prepared food is the largest category within retailers' foodservice operations. Industry-wide, prepared food sales were up 6 percent to $14.4 billion last year. Sandwiches was the largest subcategory within prepared food, scoring a 3.8-percent increase to $3.8 billion in sales at c-stores last year.

However, more impressive sales gains were racked up by hot dogs (up 7.4 percent to $2.6 billion), pizza (up 6.9 percent to $2.2 billion), chicken (up 7.8 percent to $1.7 billion), and bakery (up 9.2 percent to $978 million). Last year was a good year for soup, too, as sales rose 11 percent to $345 million at c-stores. Ninety-five percent of convenience store retailers who offer foodservice of any kind sell prepared food.

The hot dispensed beverages category was up 6.3 percent last year to $6.4 billion. Convenience store retailers saw their coffee (including flavored coffee) sales rise 7.2 percent to $4.8 billion. That increase was likely driven by a combination of higher prices and successful efforts to fend off competition from the coffee shop and quick-service restaurant sectors.

In contrast, cappuccino and hot chocolate sales didn't fare as well. Cappuccino was up 3.9 percent to $1.1 billion in the c-store industry, while hot chocolate sales rose only 1.8 percent to $280 million. Hot tea grew a resounding 15.7 percent, but the category remains small at just $153 million in sales overall at c-stores. About 96 percent of c-store retailers sell hot dispensed beverages. That figure climbs above 98 percent among chain respondents.

Cold dispensed beverages slightly outperformed the total foodservice category in sales growth. Cold dispensed beverage sales rose 6.5 percent last year to almost $2 billion. Carbonated fountain drinks, by far the biggest portion of that total, were up 6.8 percent to $1.7 billion. Noncarbonated fountain drinks rose 9.3 percent to $138 million, while fountain sports drinks were off by 10 percent to $46 million. About 83 percent of convenience stores with food-service programs offer cold or frozen dispensed beverages. Among chains, that figure is almost 97 percent.

Breaking foodservice sales down by daypart, the study reveals that lunch (11 a.m. to 1:59 p.m.) and breakfast (6 a.m. to 8:59 p.m.) continue to generate the lion's share of sales — a combined 56.1 percent of foodservice revenue. Dinner generated just 15.8 percent of c-store retailers' foodservice sales. Despite the efforts of several convenience store retailers to expand their menus at supper time, breakfast and lunch were the two dayparts that experienced the biggest sales growth last year, according to the study.

"Our biggest problem is finding foods that sell after 2 p.m.," said one retailer in an anonymous verbatim response to the study. Retailers reported that the afternoon snack daypart (2 p.m. to 3:59 p.m.) generated about 10 percent of their foodservice sales.

The foodservice category experienced a decline in average gross margin percent from 45.65 percent in 2009 to 45.07 percent last year. However, due to the increased sales, gross margin dollars per store rose 3.5 percent to $75,041.

The squeeze on gross margin percent is not surprising, considering that 94 percent of retailers said their food costs increased over the past year. Just 3.4 percent said their food costs stayed the same, and 2.3 percent said costs declined. One hundred percent of chain retailers responding to the survey said their food costs went up, leaving one to wonder about the single-store owners who said their food costs stayed the same or went down in 2010.

Competitive pressures also squeezed margins. Forty-five percent of c-store industry respondents said they increased foodservice promotions last year, compared with only 5.5 percent who said they decreased the amount of promotional activity they conducted. Among chains, the percentage that increased foodservice promotions was even higher — nearly 60 percent ran more promos for foodservice last year than the year before.

Retailers generated their highest margins from frozen dispensed beverages, which came in at 64.47 percent, up from 64.16 percent in 2009. Frozen beverages generated $4,992 per store in gross margin dollars, up 5.1 percent from the year before.

Average gross margins on cold dispensed beverages also increased, rising to 63.18 percent from 63.02 percent in 2009. Cold dispensed beverages rang up $8,804 per store in gross margin dollars, an increase of 5.5 percent.

Gross margins declined slightly in hot dispensed beverages, falling to 50.09 percent from 50.32 percent in 2009. However, gross margin dollars per store for hot dispensed beverages were up 4.6 percent to $22,244 per unit.

Higher raw ingredient costs also hurt gross margins on prepared food, which declined to 38.85 percent, from 39.76 percent in 2009. Gross margin dollars per store were up only 2.3 percent for prepared food, to $39,001 per unit.


About 85 percent of retailers said they prepare foodservice products right at the store, while about half (53 percent) said their foodservice offerings are prepared off-site, such as at a commissary, and delivered to the store. (Editor's note: the percentages exceed 100 because some retailers do both.) Retailers who have their foodservice items prepared off-site reported receiving deliveries of these products an average of 3.2 times per week.

When asked to more specifically describe the nature of their foodservice program, the largest number of retailers said they offer "No Touch" programs. Nearly eight out of 10 c-store retailers described their program as "No Touch," that is, selling grab-and-go and prepackaged items.

Slightly more than six out of 10 retailers, however, described their foodservice program as "Some Touch," that is, the products' ingredients are delivered and assembled on-site, or they are thawed and served, or consist of roller grill items.

Another 60 percent offer "Full Touch" made-to-order foodservice programs. Of course, the percentages indicate that many retailers offer some combination or all three types of programs.

Interestingly, it appears that Full Touch and No Touch programs generate the highest percentage of foodservice sales. When breaking out sales revenue generated by each type of program, the most popular type, No Touch, generates about 40 percent of foodservice sales.

Full Touch programs, although practiced by fewer retailers, generated almost as much sales at 36.8 percent of foodservice sales. Retailers reported that Some Touch programs generated only 22.7 percent of foodservice sales.


The difficult economy appears to have spurred retailers to tighten their labor expenses in foodservice. The average number of employees working in a store's foodservice program declined slightly from 5.4 to 5.0. Retailers also are demanding more flexibility from their workers. Almost 82 percent expect their foodservice associates to work in all parts of the store. Only 18 percent have employees totally dedicated to foodservice, down from 20 percent a year ago.

The average wage for foodservice store employees last year was $9.68 per hour, up from $8.59 in 2009.

On average, c-stores devote 1,100 square feet of each store to foodservice. That space breaks out to 41.4 percent for selling/preparation space, 30 percent for refrigeration/freezer space, and 28.6 percent for dry storage space.

The types of foodservice services offered by retailers didn't change much from previous years. Microwave ovens for customer use were still the No. 1 service provided, followed by advance ordering, in-store and outdoor seating, and party platters/catering services. Accepting advance orders via the Internet grew in popularity, increasing from 1.1 percent in 2009 to 5.5 percent last year. Drive-thrus increased from being offered by 5.5 percent of retailers to 6.8 percent last year, while party platters and catering services declined slightly and home delivery decreased significantly.


When asked to name their main competitors for foodservice, 65 percent said "other c-stores" — about the same as in 2010. Almost half, 47 percent, said McDonald's is their main foodservice competitor and 41 percent said their main foodservice competitor is a sandwich chain such as Subway or Quiznos.

Less than 20 percent named Starbucks, Dunkin' Donuts or any other fast-food chain as their main foodservice competitor.

The most prevalent foodservice equipment used by retailers are coffeemakers, microwave ovens, fountain drink dispensers, hot chocolate dispensers, food display cases and espresso/cappuccino makers.

Retailers were also asked to name the "one event that had the most impact on their foodservice program in the past year." Some select responses included:

■ "$1.99 Meal Deal (hot dog, bag of chips and can of soda). We had to switch our brand of hot dog from Ball Park to Bar S (grocery store generic). This has been the most positive impact."

■ "We started a dollar menu."

■ "We added a full-size, open merchandiser cooler for cold sandwiches and salads."

■ "We added digital menus that helped increase sales."

■ "We added toasted hot subs."

■ "As many homemade items as possible."

■ "Adding a blue-plate special lunch offering daily."

■ "Breakfast tacos."

■ "Buy one, get two promo."

■ "Expanded commissary distribution."

■ "Expanded coffee and cappuccino line."

■ "Fresh soups at lunch and take-out dinners."

■ "Our new Krispy Krunchy chicken program."

■ "Having daily specials that change all the time. Ample sizes, inexpensive prices to attract blue collar workers."

■ "Our sausage and biscuit program."

■ "Pizza from a local pizzeria."

■ "The launch of our in-house burger program."

■ "We added different sandwiches, added signage and did a radio spot for a couple of weeks."

For comments, please contact Don Longo, Editor-in-Chief, at (201) 855-7606 or [email protected].

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