How to Build a Winning Foodservice Program
By Elie Y. Katz || September 27, 2023 || originally published on cstoredecisions.com
Convenience store foodservice sales have boosted in-store sales to $302.8 billion, a 9% increase from the previous year, according to the 2023 NACS State of the Industry Summit. The report also noted that in-store sales accounted for 33.4% of industry sales, totaling $906.1 billion. The competition for food sales is as strong as ever, and it is not slowing down. Post-COVID, customers seem more willing to eat meals not prepared at home. In addition to dining out or picking up a meal on the go, customers have a host of third-party delivery options to have food delivered right to their doorstep virtually 24 hours a day.
While the competition is fierce, it also presents a significant opportunity to grow your business. Foodservice has been increasing since 2021, when sales reached a record high of $43.2 billion, according to the National Association of Convenience Stores (NACS). With the category accounting for 36% of in-store gross margin, store owners have the ability to utilize foodservice to their advantage. In 2022, overall in-store sales surged to $302.8 billion, a 9% increase from the previous year, according to the 2023 NACS State of the Industry Summit. Foodservice was the primary reason for the sales growth.
Developing a winning foodservice strategy requires a radical change in the corporate culture. C-stores can’t just be in the foodservice business, and it has to be their primary mission to be successful. Convenience store customers prioritize convenience and quality, so offering quality food items and healthy options at the right price is the key to setting your store up for success.
If you will be in the foodservice business, you should emphasize the items and dining experience customers want. This includes things like seating, wifi and clean restrooms. Simply put, there is a ton of competition. As more c-store brands increase focus on offering a wider variety of fresh, high-quality foods and competition heats up across the segment, understanding the convenience store foodservice landscape has never been more important.
With food sales growing despite the many operational challenges retailers face — staffing, supplier price increases, shortage of equipment, etc. — store owners should continue to focus on improving foodservice and the in-store experience.
Third-party delivery services present unique challenges, notably their ability to deliver food safely and as intended. If a delivery driver drops an order in the car, customers will tend to blame the store, so retailers are essentially handing over the reins of foodservice brand management to a third-party driver once the order leaves the store. To combat this, consider upgrading packaging to avoid spills. Speak to drivers as often as possible to let them know you appreciate what they are doing and the importance of getting food delivered properly.
Why Foodservice Matters
Many operators have said it often: Foodservice is not a magic bullet for slumping margins or a poorly run store. Simply adding a branded or proprietary concept with multiple items and varying price points is not enough to save a business or help it stay competitive. But a sound program with an emphasis on good food, location and a great dining experience can be the springboard for something special.
When firing on all cylinders, the benefits of foodservice include:
Higher Margins: Gross margins in branded foodservice can run 60% higher than almost any other convenience store product category. Although the labor percentage for a QSR is far higher than the average c-store, the profit after labor and cost of goods sold runs 30-40% versus about 12% for c-store concepts.
Reduced Dependence on Other Categories: Foodservice can reduce reliance on traditional merchandise categories such as alcohol, tobacco and gasoline. Consumers attracted by foodservice may also make other purchases, thereby increasing overall sales.
Image Enhancement: A well-run foodservice operation enhances a store’s overall image and market position.
Brand Equity: Co-branding alliances with strong national QSR chains can enhance the c-store’s marketing positioning by transferring the QSR’s brand equity.
While the upside of a successful food program is high, the risk is great. Common pitfalls include:
Lack of Managerial Experience: Most frontline employees and managers have little or no significant foodservice experience, and some stores have found it difficult to attract qualified foodservice managers. QSRs are complex and may put too big of a workload on a c-store manager.
Management Intensive: Foodservice requires constant management attention, often on a minute-to-minute basis. This is a shift in managerial philosophy and very different from the way most c-store managers traditionally operate. For this reason, many c-store chains are looking to hire managers with a foodservice background because they understand the challenge food presents.
Labor Requirements: Foodservice requires more labor than the typical convenience store, so recruiting, training and employee retention are highly important. Many stores have had tremendous difficulty adapting to foodservice’s labor management philosophies, and the current labor market has been helpful. Keep this in mind as you introduce new foodservice options.
Foodservice Safety Concerns: Following proper food safety procedures is critical. Foodservice safety and sanitation require continuous managerial attention. The consequences of a system breakdown in which consumers become sick are so severe they can threaten the company’s financial viability. In addition, foodservice products are extremely perishable, far more than most typical convenience store products. Understand that waste is part of doing business and discard items that have been sitting.
Capital Requirements and Escalating Food Costs: Developing a proprietary foodservice program requires large amounts of capital that may be needed in other company areas. Developing a single unit of a major brand can be a million-dollar investment decision. Once you get going, the cost of food and investing in new equipment is a constant worry. This underscores the need to operate efficiently to maximize margins and sales dollars.
While the prospect of adding or expanding your foodservice business seems daunting, it is very much within your grasp. Do not overdo it and try to be all things to all people. Create a core menu and do it better than everyone else. Once you begin the journey and do things the right way, there is no stopping how far your business can go. It’s a challenge that will keep you awake at night, but it’s a challenge you can’t afford to ignore.
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