Convenience store retailers posted strong across-the-board sales gains in 2010 and expressed optimism for an even more robust 2011.

1. at Craver
By John Lofstock, Editor
HANKS TO AN INCREASINGLY busy lifestyle, today's
T convenience store customers regard food prepared
away from home as a necessity, and the industry's
top-quartile retailers have benefited handsomely
from meeting the growing demand for fresh foods.
For the past decade, the convenience store industry
has consistently posted yearly sales gains in foodservice.
Retailers are to be commended for the work they have done
cultivating the demand for foodservice by enhancing their
focus on quality, consistency, freshness and value.
While the industry has made strides, this isn't to suggest
that 2011 and beyond will be easier as foodservice is a very
complex and competitive business. As part of the fourth
annual Convenience Store Decisions /Balvor 2011Foodservice
Outlook Survey retailers demonstrated how they are taking
advantage of opp.ortunities while attempting to minimize
the threats.
"Foodservice sales grew in absolute value and contri-
bution to overall sales in 2010 and the retailers' forecast
indicates it will continue to do so in 2011," said David
Bishop, managing partner of Balvor LLC. "Although it's
easy to focus on a small set of retailers that do an excep-
tional job with food prepared on site, it's important to
recognize that there is value and profitability in other pro-
grams. The key is finding the right foodservice solution for
your stores and doing an outstanding job every day."
That solution could be proprietary brands, a commissary
program that delivers fresh food to stores more frequently
or an enhanced heat-and-eat offering. Each has a place in
today's market, depending on the capabilities and commit-
ment of the retailer.
"Convenience retailers are employing a wide-array of
strategies and each can be effective within an organiza-
tion," Bishop said. "Successful retailers build foodservice
programs they can effectively and consistently execute
and employ strategies to reinforce the value related to that
offering."
A total of 67 convenience retailers representing 2,082
stores shared their views in an online survey between Jan.
11-21, 2011 on a variety of topics, including foodservice
branding strategy, dollar sales, product mix, distribution
and daypart marketing for the coming year.
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Convenience store retailers
posted strong across-the-
board sales gains in 2010
and expressed optimism for
an even more robust 2011 .
POSITIVE OUTLOOK for a long time are fueling the virtuous cycle of
The one consistent theme throughout the sur- strong sales and growth that accompanies excel-
vey is that convenience store retailers remain ling at and reinvesting in foodservice."
bullish on all foodservice segments. Many other retailers have only recently
The sales forecast for 2011 is ranging between realized that foodservice is vital to their
the mid- to high-single digits, depending on the future. And, while they are starting to
foodservice category. For example, top-quartile invest, consumers at those stores are
retailers believe food prepared onsite will grow hesitant as the retailer still needs to dem-
11.7% in 2011,while bottom-quartile operators are onstrate a consistent ability to execute a
expecting a more moderate 4.2% growth. Other program that consumers can come to trust,
growth projections, comparing top- and bottom- depend on and value.
quartile retailers are: .. 'Time, commitment, and consistency
• Hot Dispensed Beverages, 10% to 8.3% are ultimately what these chains need to
• Commissary/Packaged Products, 10% to build consumer confidence and improved
4.2% results," Bishop said.
• Cold Dispensed Beverages, 7.9% to 2.5%
• Frozen Dispensed Beverages, 5.4% to 0.1% DAYPART MARKETING
"Retailers are more optimistic about their food- The strongest consensus retailers have
service prospects in 2011 versus last year, partially regarding daypart opportunities is with
because of expected retail price inflation, easier hot dispensed beverages. Interestingly, 85%
comparables versus last year, and because con- believe their best opportunity in this area
tinued reinvestment into growing this business is during 2011 relates to the morning daypart,
paying dividends," Bishop said. "The top-quartile even though this is generally when most sales of
segment appears positioned to widen their lead hot beverages already occur.
with even more robust growth this year." "The morning daypart is clearly
One of the key findings-in the 2011 CSD /Balvor where retailers are dig-
survey is that there remains a performance gap ging in to win
between convenience retailers relative to foodser- a larger
vice. For example, although the average sales per
day is just under $700, 40% of the retailers gener-
ate $499 or less each day in foodservice while 13%
drive $1,500 or more.
"The difference among convenience
retailers' performance in foodservice
can be staggering when you realize
that top-quartile retailers generate
nearly seven times the sales per
store as compared to the bottom-
quartile," Bishop said. "The
numbers illustrate and rein-
force that the retailers who
have been doing this well
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share of the foodservice dollars," Bishop thrusts convenience stores in a precarious others, including proprietary brands. The
said. "While there are opportunities dur- position. C-store operators must have a brand equity manufacturer brands pos-
ing other parts of the day, morning is still well-defined foodservice strategy so they sess is evident with roller grill, as over
where most convenience retailers are are catering to their core customers and half of the retailers surveyed leverage
best positioned to win the food fight in ahead of the trends, not chasing them. these in what is typically the largest food
the near-term." prepared on site subcategory.
Although retailers expect increases BRINGING FOOD TO MARKET "Among the keys for retailers is under-
in coffee prices in 2011 due to rising More consumers are also becoming standing just which branding approach
commodity costs, fierce competition is value-conscious, a reflection of current will help them the most today," Bishop
forcing a thoughtful response so as to economic conditions. Consumers are now said. "Just as retailers are different, so are
protect volume. According to Balvor's expecting better value in terms of price the reasons for using various branded
2011Convenience Retail Outlook Survey, paid, service consistency and food qual- options. Over time, as their programs
52% of retailers surveyed indicated that ity. Consumers are also more interested evolve, so will their branding strategies'
they'll likely raise retails in 2011; how- in using technology and many would potentially."
ever, only a quarter of these (14%) we're use self-service terminals if available, The CSD /Balvor survey also showed
extremely certain prices will go up. Of according to Eric Giandelone, director it's fairly common to find that retailers
the other retailers that are less likely to be of foodservice research at Chicago-based are adjusting the brands offered in their
considering an increase, 11% already exe- Mintel and author of Mintel Menu stores. More retailers have focused on
cuted price increases during 2010. Insight's Foodservice Trends for 2011. the largest subcategory (sandwiches and
Regardless of price, the ongoing "Fierce competition in the industry roller grill) in each category over the last
growth in fast-casual restaurants and will continue and proper menu, service few years.
coffeehouses will have a significant and concept planning must be ongoing Interestingly, the survey revealed that
impact on the overall breakfast market. to prevent business failure," Giandelone over half of the adjustments during the
Fast-casual restaurants tend to do their said. "Restaurant-goers value menu last three years occurred in 2010, suggest-
highest sales volume during lunch, but transparency, but still want the occa- ing possibly that retailers took the down
the breakfast daypart remains a core sional indulgent dining experience." turn as an opportunity to re-evaluate
focus for these chains, as well as fast- " The complexity of foodservice is their offering in order to improve their
food marketers like McDonald's and evident by the fact that the dominant competitive positioning.
Burger King. branding strategy employed by retail- "Given that consumer taste and needs
Coffee chains like Starbucks and ers varies as much as the subcategories continue to change, it's only natural
Dunkin' Donuts are expanding menus to offered in the store. For instance, pizza that retailers adapt their product mix to
move beyond breakfast to capture more is dominated by franchise or licensed ensure that they stay in step with current
snack and fill-in daypart sales. The result brands, roller grill by manufacturer and emerging trends," Bishop said. "In
is a convergence of menu offerings, which brands and bakery is spread across even some instances, the changes may simply
"JUST 60
~DAYS
~TODOUBLE
~ ~R BUSINESS!"
· "And up 30%
for 2010!"
Tony, Omaha, NE
Circle No. 62 on the Inquiry Card.
26 Convenience Store Decisions I February 2011 CSDecisions.

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reflect the entry of new product seg- and wraps in 2010. Thirty-six percent Primary Supplier of Commissary
ments, such ethnic wraps and egg rolls." maintained their current offering, while
& Other Packaged Products
Packaged sandwiches have long just 12% reduced the offer.
(Percent of Retailers Selling)
been a staple of many c-store foodser- Sandwiches generally drive the com-
vice offerings and the survey confirms missary category, so it's understandable
this is still the case. Bakery goods, while that this is where retailers are most likely
maybe not actually prepared on site, are to invest in branding. However, a pro-
the second most prevalent item offered in prietary approach makes more sense for
convenience stores today, typically con- retailers who've already established a
sisting of bagels, cookies, doughnuts and solid base business as the branding will
muffins. help further differentiate their offering.
"Although retailers have sold pack- Given the infrastructure of most con-
aged sandwiches for a long time, a lot venience retailers currently, the survey
has changed relative to the quality of found wholesalers remain the leading
the ingredients, packaging and labeling source for commissary products (see
available today in convenience stores," chart on right).
Bishop said. "These improvements According to Bishop, "Top-quartile
Source. CSD;8aivor 20 II Foodservice Outlook Survey
have been driven in part by technol- retailers, in terms of total foodservice
ogy, logistics and a stronger foodservice sales, are more than twice as likely to
mentality." leverage a proprietary branded sandwich
The industry also appears to be see- as compared to bottom-quartile retailers Gus Olympidis, president and CEO
ing an increase in commissary programs. who rely more on manufacturer brands. of Family Express in Valparaiso, Ind.,
The CSD /Balvor study found that 52% In either case, each branding strategy has opened a new distribution center and
of retailers surveyed increased the num- its place, depending on the strengths and commissary at the company's headquar-
ber of commissary-prepared sandwiches capabilities of the retailer." ters in September 2010 to help manage
costs as it boosts its food sales. The center
produces baked goods, sandwiches and
wraps for now, but its potential is seem-
ingly limitless.
"A commissary system gives you the
opportunity to reduce waste, test prod-
ucts and operate much more efficiently
than when food is prepared on site,"
said Olympidis, who operates 52 stores.
''When it's done right, central distribution
is a cost-effective system that puts more
control back in your hands, and that's the
way we want it because no supplier or
foodservice brand can run our stores bet-
ter than we can."
The central distribution model
requires other challenges, such as a truck-
ing fleet, training foodservice employees
Customer Satisfaction and a research and development team to
focus on new items. Still, the upside has
Increases Store Traffic been worth it for Family Express.
and Generates More We are building brand equity,"
Consistent Sales! Olympidis said. "You can't convince me
that flying someone else's banner is good
for my brand. Our customers expect out-
standing quality and great service from
Family Express, and that's what they
get. It's who we are and what we work
at every day. When a customer leaves
our store I want them to remember the
Family Express brand experience, not a
Circle No. 64 on the Inquiry Card. national foodservice chain."
28 Convenience Store Decisions I February 2011 CSDecisionso

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Daypart Growth Opportunities SNACK OCCASIONS Seventy-eight percent of retailer
(Percent of Retailers by Segment) Feeding the human proclivity to respondents to the survey said the big-
indulge in dayparts outside the tradi- gest growth opportunity for frozen
tional breakfast, lunch and dinner hours, beverages lies in the afternoon from 2
retailers are reporting solid sales gains p.m-6 p.m. (see chart on left).
in coffee and frozen beverages. These Loyalty programs and social media
dispensed treats are becoming crucial are natural tie-ins for these snack occa-
drivers at top-quartile chains. Consider sions and fill-in daypart offerings.
Thorntons Inc. The Louisville chain has Facebook, Twitter and YouTube can help
a strong focus on hot and cold dispensed operators mitigate the economic envi-
beverages to improve the offering and ronment as "word of mouth" advertising
meet consumer demand for unique has moved online.
products. Some Thorntons stores have More consumers are also using
as many as 15-20 frozen beverages when the Web to browse menus, make
Food Commissary Cold Frozen Hot you include milkshakes and frozen car- reservations, order ahead and get rec-
Prepared & Other Dispensed Dispensed Dispensed bonated drinks. ommendations from other diners.
On-site Packaged Beverages Beverages Beverages
Products "The demand for all dispensed bever- Restaurants' use of e-mail, Internet and
ages-hot and cold-is overwhelming text messages in marketing efforts is also
• Morning (6am-lOam) in our markets," said John Zikias, a growing trend.
Thorntons' vice president of market-
• Mid-Day (1 Oam-2pm)
ing. "Our customers can't seem to get BEYOND THE MENU
Afternoon (2pm-6pm) enough. That gives us a chance to intro- While meeting the customers'
• Evening ( 6pm-1 Opm) duce new flavors and keep the offering demands for fresh foods is an integral
fresh. The result is that the demand is part of success, 2011 will bring a host
Source. CSO;Balvor 20 II Foodservice Outlook Survey consistently high." of challenges and regulations that go
beyond the kitchen. For example, in light
of the recent healthcare bill that requires
restaurant operators with 20 or more
units to list calorie counts on the menu,
o~e-{"~torsare now tasked with balanc-
ing federal regulations with the differing
demands of their customers.
"Both the government and consum-
ers want healthier menu options, but
restaurant-goers are also very concerned
about value and how their food tastes,"
said Giandelone, of Mintel. "Keeping
both parties satisfied might be a chal-
lenge as we move into 2011."
Giandelone went out of his way to
praise the efforts of convenience stores
when it comes to delivering a quality
food program.
"It's no secret that the industry has
struggled to convert fuel customers to
foodservice customers, but the success
of the market leaders has helped change
the consumers' perception of the indus-
try and its ability to execute a top-notch
food program," he said. "The bar has
been raised very high so now it's up to
convenience store operators to continue
executing at a high level-to diversify
their offerings and drive traffic with-
out sacrificing quality and value. From
everything we've seen, the industry is
Circle No. 66 on the Inquiry Card embracing the challenge." CSD
30 Convenience Store Decisions I February 2011 CSDecisionso