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    Fraying Ties

    Branded fast-feeders and their c-store partners are rethinking their traditional bonds

    It's been nearly 20 years since major fast-feeders saw the potential of partnering with convenience store operators. The marriage between the two industries has been, well, taco-like: sometimes satisfying, sometimes fiery, sometimes a crumbling mess.

    Now, as many c-store operators are pouring resources into proprietary foodservice programs, many are questioning the value of partnering with branded quick-service restaurants. While retailers who franchised, licensed or otherwise developed a major fast-food brand early on earned much-needed foodservice credibility, not every retailer or quick-service restaurant (QSR) operator found the partnerships mutually beneficial.

    "Many c-store operators have learned to operate foodservice through their relationships with QSRs," said Joe Pawlak, vice president of Technomic Inc., a consulting company based in Chicago. "We see [many] c-stores focusing on beverages and bakery now. [The question is, 'How many] will we see extend into other foodservice products, which will cause weakening of some of those QSR relationships?'"

    According to the Convenience Store News 2007 Foodservice Study, the percentage of c-stores with branded proprietary foodservice programs rose to 46 percent in 2006, from 37 percent in 2003. Over those three years, the percentage of c-stores with national/branded programs such as established QSRs declined to 23 percent, from 32 percent three years ago.

    Many new c-store food programs are taking off at a time when branded fast-feeders are focused on improving per-store sales, rather than increasing store count, Pawlak noted.

    Since the early frenzy when QSRs aggressively courted c-stores -- a time often marked by haggling over fountain and other product sales and less-than-successful limited menu concepts -- many branded fast- feeders have rethought their c-store strategies. Some have pulled back from the segment, while others are renewing their commitment with convenience store-friendly concepts.

    Picking A Partner

    In either case, c-store operators are finding the search for the perfect QSR partner trying. Andrea Jackson, president of Jacksons Food Stores Inc., based in Meridian, Idaho, said the 100-store chain has had "a spotty record" with QSRs. The retailer, a franchisee of Subway, A&W, Taco Time and regional coffeehouse chain Moxie Java, as well as co-developer of three sites with a local McDonald's franchisee, hasn't completely recovered from Taco Bell's decision not to renew its licensing agreement. (Several calls to Yum! Brands Inc., operator of Taco Bell, KFC, Pizza Hut, A&W and Long John Silver's, were not returned.)

    Jacksons Food Stores had been an area developer for Taco Bell and committed 10 sites to the brand. The c-store operator had a number of licenses with Taco Bell, some for seven years, some for five, depending on when the site was developed.

    "We had some very successful sites with them," Jackson said. "We were very disappointed when they didn't renew. It was kind of an odd deal. We were told they pulled out of the industry."

    While not every Jacksons Food Store/Taco Bell combination was successful, Jackson said many of the co-branded sites were very lucrative for both companies. "The relationship with QSRs has been beneficial in many ways," she said. "But if the brand isn't going to commit to the business, be careful. I'd advise other retailers to be very cautious."

    Not all franchisors are as helpful with marketing and site selection as retailers may expect, she noted. "I can't say which QSR site will be a hit or a bomb, but we didn't get much support from our partners in evaluating sites either. We had to learn the hard way in some cases."

    Also, some local developers or franchisors may not share the branded fast-feeder's corporate vision of c-store/QSR partnerships, she warned. "We have had instances where the local developer is not really interested in our class of trade, even though the corporate office is. The developer may not want us to build sites, because they may compete with the sites the developer operates personally.

    "But when you have a good local partner, like the McDonald's franchisee we partner with, it's great. We've worked out how to co-exist. We don't steal each others' employees. We work out who is cleaning the lot and bathrooms. If you have two managers working together at the store level, co-developing sites can be awesome."

    At the former Taco Bell locations, Jacksons now teams with Taco Time, a more upscale Mexican food concept. "It's a different menu, a bit more expensive, appealing more to adults," Jackson noted. "It's great food, but everything is made from scratch, so it has higher labor costs. It's different operationally, not as easy to execute. You need very high volume sites to make it work."

    Meanwhile, Jacksons Food Stores is looking to expand its own foodservice operations, which now consist of fountain drinks, frozen carbonated beverages, a coffee program, a roller grill and a hot case of prepared sandwiches.

    "I think we will see fewer QSR partnerships as the c-store industry develops more of its own programs," Jackson said, adding that the greatest benefits to the c-store were gaining an understanding of the QSRs' systems and learning about accounting, product quality and safety issues for foodservice.

    "But, we pay a lot of money for the national advertising," she said. "Taco Bell did a fabulous job of using the money wisely and giving us in-store signage, and keeping the consumer message consistent down to the store level. But not all brands do that."

    At Town & Country Food Stores, based in San Angelo, Texas, some 100 of the chain's 169 locations offer the retailer's proprietary Country Cookin' menu. Still, the chain has had good success with Godfather's Pizza (a partnership that goes back nearly 15 years, now in four locations) and Subway (now in 22 stores).

    "Some franchisors are focused on doing good things with c-store partners," said Brian Donoghue, Town & Country's senior director of merchandising and foodservice. "Others aren't."

    The best QSR partners are those that have evolved their c-store offer as the c-store industry's foodservice experience and business has grown, he said.

    "We started with Godfather's putting in full-size restaurants and learned that was not the best model for us," he said. "Over the past several years, Godfather's has changed what they're doing to be a better partner with c-stores. They've put actions behind the words 'We'll be supportive' and have designed systems to make things work in a c-store. The QSRs who are really interested in the c-store business have worked the technology hard to make their program work in limited space."

    There are others that seem to have little or no interest in c-stores, Donoghue said. "They seem to want to run their own free freestanding stores and that's OK."

    Making It Work

    A number of QSRs, though, remain committed to the c-store industry and others are recommitting themselves. Milford, Conn.-based Subway's relationship with c-stores is "as strong as ever," said Allison Morrow, the QSR's account manager for convenience stores, truck stops and travel centers. "One of the benefits of our partnerships with c-stores is our increased visibility and recognition because of their good, busy locations. But it's a mutually beneficial relationship because Subway pulls people into the c-store to fill up their car or buy other products."

    Initially when Subway teamed with c-stores, there were a few issues that worked against the partnership, noted Elizabeth Rolfe, director of new business development for Subway. "Some c-store operators tried to make foodservice just one piece of their bigger business, without dedicated personnel. But as we go on, more operators know they need to make it [an independent] division within the store."

    Plus, Subway had its own learning to do. "At first, we agreed to put a Subway in the back of a store," Rolfe said. "Now, we know we need to be in the front of the store. We've found seating is very important to these locations, and we need to work together to promote the Subway."

    The key to Subway's growth in the c-store market -- there are more than 3,000 Subways in c-stores, truck stops and rest areas in the country -- is the QSR's flexibility, the fast-food executives said. "We work with big chains and with independents," Morrow noted. "Some QSRs require retailers to guarantee at least 10 stores."

    Subway has a number of co-branded c-store sites that are similar to standalone units, which average 1,200 square feet, but the fast-feeder requires a minimum of 500 square feet. "C-stores are just a good fit for us -- and maybe we are unique in that regard," Morrow said, noting that less than one-half of 1 percent of all Subway restaurants fail. "We don't need a lot of room because there is no frying, venting systems, meat slicers or elaborate prep areas involved. Some QSRs can't be as flexible in regard to space, equipment, amount of seating and who actually runs the franchise."

    After an initial jump into the c-store market in the late 1980s with an express concept, Arby's stepped back when executives "realized c-store operators weren't committing people and resources to that concept alone and treated Arby's as any other product in the store," said Darin Harris, senior vice president of franchise development for Arby's and T.J. Cinnamons.

    For a time, Arby's focused on developing freestanding locations only. But, with approximately 5 percent of the branded fast-feeders' 3,600 U.S. locations already affiliated with c-stores, the chain is working to aggressively renew growth of the brand -- and c-stores are now a key component of the plan. After a year of research, Atlanta-based Arby's is rolling out a new franchise offering aimed at c-stores.

    "We have had tremendous success with c-stores, but we were not expending a lot of effort there," Harris said. "We realized we had to be more relevant to that marketplace by providing a product to meet c-store operators' needs."

    Arby's c-store prototype is a full-menu concept, but allows for various-sized restaurants, with or without seating, but always with a drive-thru. "In the past decade we learned a lot, and the c-store industry has learned a lot," Harris said. "We don't have to be one large unit. We can still get our brand across and fit in the c-store business to deliver what the consumer expects."

    While c-store operators will continue to venture into their own quality foodservice operations, Harris said some will be successful with proprietary brands while "others will fail and think, 'Hey, it's pretty good to have a branded QSR's resources to build a brand, and we'll just execute it.'"

    Executives at Burger King agree. "Developing a proprietary brand is time-consuming and costly," said Jim Schwandt, director of business development for Burger King Corp., based in Miami. "Working with a QSR brand is a proven model, with a system in place."

    There are approximately 280 U.S. Burger King restaurants co-branded with convenience stores and gas stations. Burger King acts as franchisor, lessee or co-developer, said Schwandt, characterizing the relationship between the QSR and c-stores as "solid and longstanding."

    "We are not looking to pull back. However, we have become more discriminating in how Burger King develops in general," he said. "We explore every partnership opportunity with the same scrutiny as we gauge new sites. We look for the appropriate level of interest, a viable pace, suitable property and land and a good fit for Burger King based on our current restaurant geography and the new location itself."

    C-store operators looking to partner with Burger King should prepare for a long-term business partnership, Schwandt said. "C-store operators frequently don't realize the complexity of a QSR. A franchise like Burger King is much more staff-intensive than many potential operators are used to."

    In the past, when Burger King has closed a location, the stores were not properly selected or built, or the trade area moved, Schwandt said. "In addition, a 'downsized' Burger King has proven to be unsuccessful. The Burger King customer expects the full Burger King experience."

    Moving forward, c-store operators may find there are some locations where QSRs perform better than a proprietary program, no matter how great that program is, said Donoghue of Town & Country.

    "If a store has to compete on Fast-Food Lane, you may need a branded fast-feeder, unless your proprietary operation really carries a lot of impact, is well-known and can be preferred over national feeders," he said. "Not every location is suited to whatever your proprietary operation is -- we found that out. You should have a multiple bag of tricks."

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