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By Linda Lisanti
Walk through Kwik Trip Inc.'s new $14 million food commissary and research facility, and one thing is clear -- this company is serious about its foodservice business.
Inside the 60,000-square-foot building, situated on the chain's sprawling corporate campus in southwestern Wisconsin, nearly 100 employees man production lines, turning out more than a dozen sandwich varieties, five types of fresh pizza and four kinds of salads -- just to name a few of the products that are shipped fresh and delivered daily to each of Kwik Trip's 330 stores.
The new facility is both a reflection of how far Kwik Trip has come in upholding its promise to customers of "Making It Fresh for You," and an assurance of greater sales and profits in the future. The company's first foodservice commissary, which opened 22 years ago, was a 2,000-square-foot operation that produced a limited variety of sandwiches, shipped out frozen to stores just once a week.
"Cigarette and gasoline margins are going the wrong way, and you have to have something to replace them," Steve Loehr, vice president of operations support, told Convenience Store News during a recent tour of Kwik Trip's Support Center in La Crosse, Wis. "We're not giving up on gasoline. We're not giving up on cigarettes. But it's pretty obvious what the future holds."
The future is foodservice. This year, Kwik Trip will make more gross profit from its sales of foodservice than from selling 1 billion gallons of fuel. Foodservice currently accounts for one third of the retailer's annual profit, but company leaders believe the category could generate as much as half or more of its profit in the coming years.
"Five years from now, this will be our greatest return-on-investment," said the Midwest chain's president, Don Zietlow, of the new commissary, which has been in planning since 2004 and opened in May. "It's only going to get better from here."
Scoring with Customers
Since 2000, the emphasis of Kwik Trip's strategic marketing plans has been to position the chain as a destination for food. "We've been doing a lot of advertising around our theme of 'Making It Fresh for You,' " said Gary Gonczy, director of marketing and advertising. In fact, all of the retailer's marketing focus and dollars are centered on what company executives call The Red Zone -- the area of each store that features the products Kwik Trip produces itself.
"The Red Zone is a term we got from a football analogy. When a team gets within the 20-yard line, they call that The Red Zone. That's the area where they have to score," Gonczy explained. "We look at it the same way. We want consumers in our Red Zone. Those are the products we want them to buy because those are the products that we make."
The Red Zone is even more prominent in Kwik Trip's newer stores. While its older models are about 3,500 square feet, its newer models are 5,000 square feet, and much of the additional space is dedicated to foodservice. This year, three stores will be razed and rebuilt per the new design, and eight more will undergo extensive remodeling.
Kwik Trip's efforts have helped it gain consumers' trust when it comes to food. "Our research shows customers have a lot of confidence in us. Now, it's a matter of making them think of us as a destination for more products," Gonczy said. "We think if we slowly move into other areas, we'll get those sales, too."
With less than half of the new commissary's total floor space in use -- and more open land available for future additions to the building -- Kwik Trip certainly has the room to diversify its proprietary foodservice offerings, Loehr noted.
The chain hopes to take a page from British retailer Tesco in developing products that attract all levels of consumers: low-, middle- and high-end. "We want to broaden our appeal going forward. We know who our customers are today, but who do we want to attract in the future?" Kwik Trip's current customer mix is still largely males, ages 28 to 40.
"Obviously, we want to attract more women shoppers, and capture those youth customers early on," Loehr said. "We hope to develop products that will appeal to them."
Having a larger commissary enables Kwik Trip to prepare more of its foodservice offerings rather than purchasing them from an outside vendor, resulting in higher profits, commissary director Jill Thompson said. Last month, the company began making its own soups -- which were previously supplied by a third party -- and will soon prepare its own fruit cups and side salads.
"If we can do it ourselves, we do it ourselves," Loehr explained. "There are always more opportunities to do it yourself. The more profitable we can be, the better."
Kwik Trip's commissary approach would not be possible without the company's vertical integration system. In addition to the foodservice facility, Kwik Trip operates its own dairy and bakery. All three feed into the retailer's distribution center.
With all the stores on an automatic replenishment system -- whereby the product they sell today is replaced tomorrow -- the first shift at the commissary begins at 5:30 a.m. and the last shift ends whenever the orders are complete. The commissary receives a worksheet each night, showing how many of each product must be prepared to replenish the stores for the following day.
All commissary-made items are transported to the attached distribution center, where they are loaded along with fresh produce, bakery goods and dairy products onto one of Kwik Trip's 40 "fresh trucks." By 5 p.m. every day, the trucks are on their way to the stores. Each truck delivers to approximately eight sites, but some service as many as 10 to 12.
"Every store in the company now gets a fresh delivery by 7 a.m.," said Bob Thorud, vice president of operations. "Our goal is to get the trucks there by 5 a.m. Every day, when a store opens, it should have all its perishables for that day." Eighteen months ago, the chain switched to this seven-day-a-week fresh delivery schedule. Under the previous schedule, fresh product was delivered on grocery trucks five days a week.
"We're probably the only retailer in the industry that delivers daily," Thorud said.
Aside from eliminating out-of-stocks, fresh delivery has improved product quality by shortening the lead time from when the product is made to when it is shipped. Availability of fresh product is a huge advantage, Thorud said, and with the new commissary online and the fresh delivery trucks, he sees no limit to the types of foodservice items the retailer can sell in its stores.
Kwik Trip also believes there are profits to be made by selling product produced in its commissary to other entities -- such as noncompeting convenience stores or school districts -- for resale. The retailer's plans are to hire a salesman to go after such opportunities. Contract packaging, whereby Kwik Trip would manufacture a product for a company to its specifications, is also a possibility due to the new capabilities.
"There are a lot of product categories we're not in today that we could be," Thorud said. "We are going to concentrate on growing our own food business, but we are open to other opportunities that present themselves."
Blue Sky Ideas
Kwik Trip recently hired Jim Bressi as director of research and development -- a newly-created position -- to spearhead the foray into more proprietary foods. The new commissary houses a discovery kitchen with equipment mirroring that of the stores. The former Kwik Trip test kitchen was simply an area with an oven.
Since joining the company in January, Bressi has been working to standardize the R&D process through a program he calls G-Star. The acronym stands for Generate a star, Select, Test, Analyze, and Roll out and review.
The process mandates that all ideas be filtered through a 13-member review board that includes Loehr, Gonczy and Thompson, and the chain's retail director, director of foodservice operations, pricing analyst, dairy manager and bakery manager.
"We're still encouraging the free flow of ideas, but now when they come in, there's a set group of people who evaluate and prioritize them," said Bressi, adding that the review board goes through the process using "verbal product modeling," in which each idea is talked through rather than physically mocked up. Selection is based on such criteria as packaging, pricing, promotions, placement and purchasing.
Only after the board endorses an idea will Bressi create a test product in the discovery kitchen -- Blue Sky Ideas, as he refers to it -- before it goes into the testing phase.
Right now, he has 28 pages of ideas, and said each one will get a fair shake. Kwik Trip encourages its employees at all levels to come forward with suggestions, and awards a $100 gift certificate to any employee whose idea is implemented.
Since design and development can be very costly, verbal modeling removes much of the risk, Bressi told CSNews. "The G-Star process encompasses a lot of pitfalls, and so, by working this process, we're not scattered. Our thoughts are collected, our focus is narrow and in the end, we save money, are more productive and make less mistakes."
Being a leading retailer, Kwik Trip knows that staying ahead of the competition means having a few missteps along the way. As Zietlow pointed out, "We've failed many times. If we don't have failures, we're not trying hard enough."
Given the current state of affairs, though, Zietlow and the rest of the chain's leadership team don't have any reason to not feel good about what lies ahead for Kwik Trip.
"The potential is unlimited," Bressi said. "Five years from now, you'll see a completely different commissary than the one here today in terms of expansion, and all this open land will be filled. We may just have the Blue Sky discovery wing."