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In the wake of a disappointing 2001, the convenience store industry has been trying to shake off the blues with innovative marketing and cheaper prices. But they continue to have their backs to the wall in terms of profitability.
It's likely to remain that way for some time, according to Dave Williamson, vice president of retail operations for Jubilee Food Stores, a 40-store chain operated by Vicksburg, Miss.-based Hill City Oil Co. Inc., who said the squeeze faced by retailers is going to continue for the foreseeable future. So to overcome economic hardship, he said, chains need to place an emphasis on increasing same-store sales and doubling their efforts to boost sales in slumping categories.
Williamson sees a big opportunity in salty snacks, specifically healthier reduced-fat items. "We're not in a position to say 'Okay, sales are down, let's do nothing,'" he said. "When the economy is down, we have to look extra hard at the products that are moving in and out of our stores and come up with better ways to sell more."
According to the 2002 Convenience Store News Industry Report, the salty-snack category posted a 30-percent decline, dropping almost $9,000 in sales per store. As with the candy segment, gross profit margins increased for snack items, perhaps at the expense of sales volume.
Chips — potato, tortilla and corn — make up 70 percent of category sales. Though this group lost some sales (potato chips were down by 27.7 percent, tortilla/corn chips dropped 4.1 percent), they managed to gain about 7 points of segment share. This gain was due to losses of more than 30 percent each reported by pretzels, nuts/seeds and other salty snacks (including ready-to-eat popcorn and crackers).
Two key factors help drive salty-snack sales: following the trends and keeping the products on the shelves.
Despite last year's drop in sales, industry analyst Bill Bishop, president of Willard Bishop Consulting Ltd., Barrington, Ill., agreed with Williamson that there's lots of potential in the category. "The way to get the maximum performance from your
assortment is to continually review item performance at store level and to quickly eliminate underperforming products.
"But we encourage you to remerchandise the assortment decisions within a category framework so that it's consistent with the overall strategy of the store."
This takes work, but top performers have shown that it pays off. Marginally speaking, the healthy snacks are also a success because loyal customers have shown a willingness to pay more for the perceived healthier benefits.
At the head of the charge of better-for-you salty snacks is industry leader Frito-Lay, which in September announced plans to eliminate artery-clogging trans fats in its Doritos, Tostitos and Cheetos lines this year. Items like Doritos and Tostitos are also available in baked varieties, which have virtually no oils.
"We're taking several steps that will change the way America snacks," Al Bru, president and CEO of Plano, Texas-based Frito-Lay, recently said. That includes changing from hydrogenated oils to corn oil, which is trans fat-free. "The great news is that there is no compromise in taste. We will also introduce Lay's Reduced Fat chips and Cheetos Reduced Fat snacks that offer our consumers better-tasting, better-for-you snacks."
Companies have been embracing the healthy trends with traditional favorites. Elmhurst, Ill.-based Keebler Co., which manufactures Cheez-It baked snacks, is targeting the c-store channel with reduced-fat Cheez-It crackers. Minneapolis-based General Mills Inc., manufacturer of popular products such as Bugles and Chex Mix, have introduced Gardetto's reduced fat snacks and Pop Secret 94 percent fat-free popcorn.
Part of the reason snack manufacturers are making the switch to healthier oils is that, effective in 2005, the government will require trans fats to be listed in the nutrition facts on the ingredient panel.
"That seems like a long way away, but it will be here before you know it," said Coleman Caldwell, vice president of sales and marketing at Shearer's Foods, a regional salty-snack manufacturer based in Brewster, Ohio. "We're doing some analysis and testing [regarding trans fats] right now," he added, equating Frito-Lay's move to General Motors saying that its 2003 cars meet 2008 safety standards.
Regardless of the reason manufacturers are changing, customers have an appetite for change if it is good. Plus, the addition of healthier snacks isn't cannibalizing traditional salty-snack fare — it's complementing it.
"Some customers want regular snack items and others want low-fat or fat-free. It doesn't matter. The goal is to have all of the items there so the customer can choose what they want at the time they want it," said Bryan Monkhouse, chief operating officer of Canadian c-store/petroleum marketer Irving Oil Ltd. Based in St. John, New Brunswick, Irving operates some 600 convenience stores in Canada and New England.
Snack manufacturers are excellent sources for the latest trends, said Kevin Croen, product manager of related brands for Kennesaw, Ga.-based Wise Foods. As the numbers come in on different items, the company goes to work looking to develop products that will meet customers' needs.
"We have a number of items in our R&D pipeline that have been developed that address consumer concerns. We don't just look at fat as the only issue, but it is a major one," Croen said. "We're not taking steps necessarily in reaction to Frito-Lay. Eliminating trans fat is a trend. We're following the trends closely, and we're looking in terms of a proactive approach to meeting the needs of the consumer."
At Wise, that approach includes a reduced-fat buttered popcorn with 50-percent less fat than regular buttered popcorn, and new White Cheddar Cheez Doodles, Croen noted.
Frito-Lay's move can only bode well for the healthy snack section of the aisle, said Mark Andrus, co-owner of Stacy's Pita Chip Co. in Randolph, Mass. "We're happy Frito-Lay is doing this," he said. "It is nice when a mainstream product draws attention to the natural-foods segment, because that just draws more attention to us. We don't see it as a bad thing, and we don't feel threatened."
That's partly because Stacy's has carved out a niche for itself in the natural food and deli sections for its Pita Chips, Thin Crisps Baked Soy Chips and Pasta Twists snacks. "A pita chip is a unique item. Although we are competing with Frito-Lay in that we are both snacks, we offer the consumer something different, and stores usually have a spot reserved for something like that," Andrus said.
Irving Oil's Monkhouse said his company is complementing the healthy-snack trend by merchandising some of the items near energy bars and other nutraceuticals.
The company's Mainway convenience stores have embraced energy bars and grown the category into one of the most successful categories in the store. Low-fat or baked salty-snack items, Monkhouse said, are viewed by some customers in the same light as meal-replacement bars and energy bars that are consumed as snacks.
"Customers want these items regardless of the higher price," he said. "In today's uncertain economic climate, categories that have profit potential and strong margin contributions are a welcome addition for any store."