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By Linda Lisanti
Confronted with historically high fuel prices, rising food costs, falling housing and stock values, and tightening credit, consumers are suffering through some tough times lately, and not surprisingly, they're trying to cope by finding ways to save money.
No matter how challenging things get, though, people still have to eat to live, and this mix of conditions is actually helping convenience stores to grow their foodservice sales. Rather than break the bank at upscale, full-service restaurants, more consumers are opting to trade down to less-expensive dining options, including foodservice at convenience stores.
"That's definitely the reality, and I think we're getting some overflow as a result," said Rutter's Farm Stores vice president of foodservice Jerry Weiner, who acknowledged the York, Pa.-based retailer is not doing anything specifically yet to leverage this shift.
The chain, however, did recently introduce a new foodservice model incorporating custom stir-fry, fajitas and fresh-baked bread that is drawing entire families to its stores. "What we're seeing, particularly at our more rural stores, which was a happy surprise for me, is that people are actually coming in with their families and everyone is going to the touch-screens and ordering what they want. They are coming to us to dine as a family," Weiner said.
(For more on Rutter's new foodservice model, see Checking In on page 33.)
As conditions worsen, sensitivity to price points is intensifying. "There are so many economic issues right now. Consumers have a lot more concerns, a lot more fears over the economic climate," said Darren Tristano, executive vice president of Chicago-based consultancy Technomic Inc. "Plus, this recession is the first for the Millennial generation, who normally spend every penny they get. Now, they are having to cut back, too."
Technomic's research shows consumers are doing several things to contend: eating out less often, going to restaurants closer to their homes, and frequenting more quick-service and fast-casual eateries for the value. Retailer meal solutions — a term Technomic uses to describe meals that can be purchased at c-stores, grocers, warehouse clubs, etc. — also are growing in popularity among cash-strapped individuals. "People can go in, buy a good quality meal, not have to tip, and in some cases, eat on site," Tristano noted.
C-stores have the added benefit of having a large customer base already coming to their locations to fill up their gas tanks, he said. Consumers are much more interested in reducing their driving with gas prices as high as they are, and while a trip to the gas station may be unavoidable, now those customers are more likely to also pick up a quick meal or a snack at the c-store to avoid another stop, according to Technomic's findings.
Its study found that when consumers are hungry for a meal, convenience stores typically fall behind restaurants and grocery stores as a top-of-mind food destination, but when asked about snacks, most consumers think of c-stores ahead of all other venues.
Retailers must communicate that their food offers true quality and value compared to quick-serve fare, if they are to make the most of consumers' tendencies to trade down, advised Jim Hertel, managing partner at Willard Bishop LLC in Barrington, Ill.
"You must make sure it is authentically a value," he said, "and make sure your shoppers are aware of it to the point of over-communicating."
He suggested putting signage at fuel dispensers, in windows and throughout the store; offer extra value deals; communicate prices; and openly compare offerings to quick-service restaurants (QSRs).
A Valuable Approach
Village Pantry, an Indianapolis-based chain of 188 c-stores, is doing just this. Sales of sub sandwiches have increased by as much as 50 percent at its stores with Subway restaurants thanks to Subway's $5 Footlongs promotion, which began in mid-May. To capitalize on the promotion at its non-Subway stores that also sell sandwiches, Village Pantry is advertising $5 subs on large window banners, said foodservice director, Chad Prast.
"Let Subway spend their money on marketing, but we'll still benefit," he said, noting that the $5 footlong is now ingrained in consumers' minds. "They've come to expect it."
Another convenience retailer focused on providing consumers with a quality, value offering is Wilson Farms, operator of 195 convenience stores based in Williamsville, N.Y. Its locations offer a selection of deli subs, sandwiches, wraps and pitas — all made fresh daily in each store — and roughly 90 of the company's sites have a pizza program.
To attract the trade-down diner, the chain has started offering more combo meal solutions, and added enhanced in-store visuals and point-of-sale materials to promote the deals to customers, according to Rick Pajak, category manager for perishables. Recent combos have included a soft drink, chips and a sandwich, or a breakfast sandwich and cup of coffee.
In March, Wilson Farms launched a new line of breakfast sandwiches, supplied through a private-label program with Lettieri's, to complement its "very strong" coffee program. "We had been in the breakfast daypart, but not with the quality of product we're offering now," Pajak explained, noting that its stores compete with QSRs, fast-casual eateries, and to an even greater degree, doughnut shops such as Dunkin' Donuts and Tim Hortons.
Both Wilson Farms and Village Pantry said these value-oriented approaches are driving sales increases. At Village Pantry, sandwich sales have broken sales records week after week this summer, and all its foodservice sub-categories are trending higher in sales versus a pretty strong 2007, Prast said. Even as fuel gallons dip, foodservice sales remain strong.
Wilson Farms' foodservice sales, meanwhile, are growing at a double-digit pace, and that's outperforming previous years, Pajak stated. He believes the growth is being driven by the current economic climate, as well as the chain's new foodservice introductions.
However, Pajak is quick to point out that despite this growth, it's still not enough to offset the rising ingredient and distribution costs that are byproducts of the soft economy. "Overall, it's a negative impact. Rising costs have severely challenged us to maintain competitive retails," he said. "It's getting tougher and tougher to stay competitive out there."
Consulting editor Claire Pamplin contributed to this report.