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While we expect the general economy and foodservice industry to pick up in early to mid-2010, convenience store foodservice operators will continue to face the same challenges as the overall foodservice industry -- reduced traffic, unit closures, cost management and a focus on promotions/price-cutting.
But from a long-term perspective, I remain positive about the prospects of c-store foodservice. The following trends are what will help bolster the growth of foodservice and cause more c-store operators to embrace it as a critical component for continued business success.
Floor space dedicated to c-store foodservice will become the norm. This can be supported by the fact that gross margins on foodservice are now the highest of all in-store products, surpassing even long-time profit-leader tobacco in 2008. While recent drops in fuel prices have offered consumers some relief, c-store operators are looking to foodservice to replace gross margins lost on tobacco and gasoline.
Breakfast offerings will expand from beverages to hot foods. For breakfast, 44 percent of consumers said they stop at a convenience store. Such purchases can consist of something as simple as coffee or an item more substantive by way of a muffin or breakfast burrito. Moreover, c-store operators have watched limited-service competitors -- McDonald's, Burger King and even Subway -- capitalize on this daypart, as breakfast may result in repeat business and incremental sales growth, with little need for additional equipment or floor space. Look for hot dispensed beverages, particularly those outside of regular hot coffee, to flourish in 2009.
Expanded private label will give operators a basis of foodservice differentiation, exclusivity. The "major" c-stores already have a list of proprietary foodservice brands -- Shadow Hills (ampm), 7-Select (7-Eleven) -- but look for the "mid-tier" c-stores to begin to develop their own brands of prepared foods and dispensed beverages. Rutter's, Thorntons, Certified and Cumberland Farms have all announced plans for proprietary brand expansion.
Commissaries will take on a more critical supply-chain role. Consumers are most influenced by taste, freshness and quality of ingredients and the appearance of the food. As c-store prepared foods programs become more prevalent, look for commissaries (third-party and corporate-owned) to become increasingly important to c-stores. Manufacturer identification and understanding of this critical part of the supply chain will also become important.
C-stores will chip away at the food "quality" gap with limited-service restaurants. Our latest data indicated that nearly 40 percent of consumers rate c-stores as high on food quality as "fast food" restaurants. As more c-store operators place an emphasis on hot food programs (7-Eleven, ampm), the gap between "fast food" and c-store food quality will diminish. And with check averages for c-store foodservice nearly a dollar less than those for limited service, the value of the c-store offering will be more favorable.
In addition to these trends, c-store operators have spent (or are spending) millions of dollars upgrading, outfitting and retrofitting units to enhance foodservice programs -- a strong, lasting investment and a behavior that we expect will continue.
Tim Powell is a senior manager and c-store foodservice program lead at Technomic, a 40-year-old-plus food consulting firm. His focus has been developing insights and growth for suppliers and operators in the c-store foodservice channel. Tim regularly provides expert commentary to industry publications and regularly speaks at industry association and client meetings on the topic. He publishes a bi-monthly periodical Convenience Store Foodservice Monitor that provides in-depth consumer insight, deep dive analyses into specific c-store foodservice categories and programs and exclusive profiles of emerging, successful and little-known c-store foodservice chains. He is currently exploring an industry study on the importance of commissaries to the channel, the role, size and growth of handheld entrees in c-store foodservice as well as exploring a "how to sell to c-store foodservice" operators strategic brief. He can be reached at (312) 876-0004 or email@example.com.