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    The Value of Foodservice

    C-store retailers focus on price, freshness and safety.

    By Linda Lisanti and Mehgan Belanger

    Given the depressed state of the economy, and little improvement expected in the coming months, it was no surprise that value and price were among the most spoken words during the Convenience Store News 2009 Foodservice Roundtable.

    "There is incredible pressure to lower prices," said Gary Wildman, category manager for Petro-Canada's Neighbours division, who joined several other best-in-class convenience retailers including Kwik Trip Inc., Quick Chek Food Stores, Tedeschi Food Shops and Thorntons Inc. for the two-day event, held March 16-17, 2009, in New York.

    Attendees agreed c-store retailers who focus on offering cash-strapped consumers quality food and beverages at value prices will find foodservice to be a resilient -- and growing -- category in these shaky economic times.

    In a new C-store Foodservice Pulse Study, presented by CSNews Editor-in-Chief and roundtable moderator Don Longo, 61 percent of the c-store companies responding said their 2008 foodservice sales increased over the year before.

    The study, conducted in early March and aimed at revealing preliminary 2008 data on c-stores' foodservice results, also found 51 percent of respondents saw their foodservice category outperform all other in-store categories in sales growth last year, and 49 percent said foodservice sales for the first half of 2009 are projected to beat their previous year's by a mean average of 4.9 percent.

    The study, fielded over three days, recorded the responses of 71 convenience store retailers with some type of foodservice program. More than one-third of respondents said they had full-touch (made-to-order) programs; 34 percent described their foodservice as some touch (assembled on-site, thaw and serve, roller grill, etc.); and 29 percent had just no-touch programs (grab and go, prepackaged items for sale).

    Approximately 26 percent of respondents said consumers were purchasing more for take-home consumption -- representing a potential area of untapped opportunity for c-stores.

    Retailers at the Foodservice Roundtable shared several ways they're trying to present greater value to customers to drive up their foodservice sales and market share.

    Kwik Trip and Petro-Canada reengineered menu items to be able to offer lower price points. Kwik Trip now offers a smaller, thin-crust variety of its private label Cheese Mountain Pizza for $5.99. Its original pizza retails for $9.99 to $10.99, said Paul Servais, foodservice zone leader for the La Crosse, Wis.-based chain of more than 350 convenience stores.

    Similarly, beginning this month, Petro-Canada's Neighbours will roll out Grillers, a takeoff of the chain's signature panini sandwiches, but with reduced ingredient portions, with pricing at two for $6, compared to the signature panini sandwiches ranging in price from $4.99 to $6.29 each.

    "We're focused on engineering menu items to get more penny profit," Wildman explained. "With Grillers, we still get the same ring, but we can offer value to our customers."

    Other retailers such as Wilson Farms prefer to maintain their strict product specifications, while remaining competitively priced on comparable menu items. "We have a saying, 'You change product, you change customers,'" said Nick Gallegos, vice president of sales and marketing for Wilson Farms, a chain of 200-plus neighborhood food stores. "This [approach] could lead to lower foodservice margins, which requires increased emphasis on other higher-margin items to 'enrich' the mix."

    Yet another approach is to put forward promotions and deals around foodservice, just as Quick Chek Food Stores and Kwik Trip are doing.

    Quick Chek, based in Whitehouse Station, N.J., is presently advertising bundle deals in one of its districts. One "Value Meal," which sells best at lunch, includes a $2.99 six-inch sub, a 75-cent bag of chips and a 99-cent, 32-ounce fountain drink -- bundled for $4.73.

    "This promotes both value and quality to our customers," said Jerry Hayes, regional director of operations for the chain of more than l00 stores. "We just bundled some of our everyday value items together to show the customers the total value."

    Kwik Trip, meanwhile, is having success with Dollar Days, a promotion it's been running once a week since December. Every Wednesday, the company's stores offer one foodservice item -- be it a cheeseburger, rib sandwich or Tornado (there are 12 items rotated) -- for $1 each. The everyday price of these items ranges from $1.19 to $1.99.

    "Managers at nearby QSRs (quick-service restaurants) are coming in and asking our store managers, 'what did you do yesterday?' because they were empty," Servais said.

    As consumers trade down from fine dining to casual, casual dining to fast casual, fast casual to QSRs and so on, convenience store operators stand to benefit in the chain if they focus their foodservice offerings on perceived value rather than discounting, said foodservice consultant and guest presenter Dean Dirks, of Dirks & Associates LLC.

    "I've never been a believer in discounting. I am a believer in value or the perception of value," he explained. "C-stores can't compete with QSRs on discounting."

    Dirks offered roundtable attendees these tips for making the most of the trade-down trend:

    -- Experiment with QSR market products since these companies spend millions of dollars in research and development, and test marketing before rolling out a new item;

    -- Focus attention on the "fringe markets" of breakfast, snacks and late night;

    -- Offer home-meal replacement solutions since this is a growing segment;

    -- Create low-calorie items and market them, in advance of a possible nationwide mandate requiring foodservice providers to display calorie counts for every item; and,

    -- With so many people on unemployment, use this time to upgrade to better employees and increase check averages by pushing existing employees to up-sell. Set attainable goals for associates, run contests, offer bonuses, and be sure to post the results.

    Executing Fresh Safely
    Convenience retailers are balancing the need to be perceived as providing fresh foods with also offering a foodservice selection that is profitable, appetizing and safe. It's a balancing act that only the best in class are capable of doing.

    Panelists agreed a made-to-order (MTO) foodservice program, where food is made on demand in front of customers, conveys freshness. Yet, they also said the dedication and labor required of such an operation can put the concept out of reach for many convenience store operators.

    Wildman from Petro-Canada noted, "The best-in-class operators want to control foodservice themselves," as opposed to the alternative, which is having foodservice category management and replenishment handled by a direct-store delivery driver.

    Another option for foodservice operators is to use a commissary where foods are prepared, packaged and then delivered to the stores. This option allows c-stores to own and control the products; however, creating the logistics and volume required to be successful can be challenging. On top of this, pre-packaged food does not have the same perception of freshness as made-to-order food does, the attendees said.

    It is difficult for a customer to define a product as fresh when the packaging contains the phrases "enjoy before" or "best by," Wildman noted.

    "Commissaries have a difficult time overcoming the fresh factor," added Brian Matlock, director of foodservice for Rockland, Mass.-based Tedeschi Food Shops, whose convenience stores include full-service fresh deli counters.

    Thorntons, which operates a commissary offering daily delivery of fresh goods to a group of stores near its base, knows firsthand the logistical prowess needed to supply fresh foods to stores. Logistics of delivering to far-flung locations is the main reason the company has not expanded its commissary to serve additional stores, said Melina Hall, senior foodservice category manager for Thorntons Inc., based in Louisville, Ky.

    If a commissary approach isn't feasible, yet another foodservice option is to create a portfolio of products supplied through a wholesaler. "Fresh is a misnomer," said Wildman. "In our fresh-food oriented Neighbours format, we offer fresh, prepared-with-care foods, but the ingredients used are a combination of fresh and frozen."

    The cheese, deli meats and vegetables are fresh, while the rest of the ingredients come fully cooked frozen. The company offers MTO and fresh-to-go foods packaged, labeled and UPC-coded on site. MTO sandwich breads arrive frozen/fully baked and are then toasted or grilled when a guest orders a sandwich to maintain consistency and quality. (There's nothing worse than a sandwich on soggy bread, the retailers agreed.)

    Foodservice of any type requires dedication, roundtable attendees agreed.

    "If you want to get into foodservice and be successful, you need to clearly understand that you must make a strategic, long-term, company financial and cultural commitment," Matlock concluded. "C-store operators who try to get into foodservice without the proper vision, knowledge and support infrastructure hurt us all."

    An element of foodservice that goes hand-in-hand with freshness is food safety. See what roundtable participants had to say about food safety.

    The 2009 CSNews Foodservice Roundtable was sponsored by Boyd Coffee Co., Eby-Brown and Merisant Co. Full coverage of the roundtable appears in the April 20, issue of CSNews.

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