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State of the Foodservice Industry
By Richard Jenkin
Foodservice. It’s a word that begins and ends the day for wholesalers and retailers who supply and market programs to feed hungry consumers desiring a tasty experience–quickly. The success of any program, whether branded or proprietary, is the direct result of one fundamental foundation: the synergy created between both sides. The goal is not to create a program with economies of scale–although that can occur–but to create a program that is convenient for the consumer and cost-effective for both parties.
For Greg Carew, vice president of Peosta, IA-based Myers-Cox Company, that means hundreds of small challenges because his customer base is just that – independents. "We service urban areas in Iowa, and carry a lot of quick-prep type items," says Carew. Myers’ proprietary foodservice program consists of prepared pizzas, sandwich components and several deluxe hot dog programs. The programs may be modest, but Carew is still confident he can compete for his share of the business with the larger distributors in his neck of the woods.
How so? "Pricing and service are two of the ways we can compete because some of the larger distributors have a tendency to lowball on price," he points out. "A large distributor may shift from one brand to their house brand, for instance, and sometimes this causes displeasure with the buyer. Also, a lot of bigger foodservice houses will not break open cases on certain items and we will. We carry a line of items truly tailored to what c-stores want. Many larger distributors tend to have house brands, or private label, so if you want a hamburger you’re going to get a house brand hamburger."
Pushing and Pulling
Resistance to new foodservice products can be a dilemma as well. "Occasionally, there can be difficulty with smaller independents being receptive to new products," says Carew. "The first question is where do I store it, followed by where do I prep it? If I have a product that has done very well regionally I try to convince my stores to give it a try, but I can’t afford to alienate my customers by pushing too hard for it. Retailers know what works in their stores."
Increasingly, c-stores want to know what works in foodservice right now. "C-store companies are looking at their stores harder than ever now that gas margins are getting thin, and if foodservice programs can boost gross margin dollars then it is probably on the table for consideration," says Dave Benish, a consultant for Columbia, MO-based Gerke & Associates, Inc., a consulting firm that has been actively involved in all aspects of the convenience store industry for over 25 years.
"In my opinion, foodservice is holding its own, representing 12 percent of in-store sales and around 20 percent of gross margin dollars based on the latest NACS industry figures in 2003," says Benish. "These figures are similar to 2002, and include food prepared onsite, packaged sandwiches and all dispensed beverages."
However, Benish is quick to point out that branded foodservice programs are not necessarily the answer to dollars lost on gasoline and cigarettes. "The c-store industry went through a period where branded programs were very popular, and now many chains are taking a closer look at proprietary brands," says Benish. "Retailers need to sharpen their pencils and do their market research to see which approach, if either, may work the best for them for a given location."
He adds, "It all starts with the end consumer. The foodservice industry has shifted away from a ‘supplier push’ of their foodservice products to a ‘consumer pull’ situation wherein consumers now drive demand for the foodservice product. It is critical to understand what consumers want in foodservice, and if there is a program forced on them, they may reject it."
Low Carb Nation
Mostly what consumers seem to want is a meal in a hurry, judging in part by recent market research on meal preparation from New York, NY-based Packaged Facts. A survey found that while approximately 44 percent of meals eaten during the week are pulled together in a half-hour (or less), those consumers polled would like to reduce that time even more. Small wonder that ready-meal and side dish categories had total sales of $19.6 billion in 2003, which represents a 7.4 percent increase from the previous year, and a growth rate of 39 percent for the last five years ending in 2003.
Then there is the burgeoning "low carb revolution," with diet-conscious consumers eliminating carbohydrates from their meals. It remains to be seen whether this "revolution" will have staying power for that portion of the nation’s 220 million adult consumers looking for new meal solutions. Still, in a poll commissioned by the Cambridge, MA-based Opinion Dynamics Corporation, it was found that close to 60 percent of respondents already on a low carb diet make an effort to follow it when dining out. While the survey measured QSR customers, these trends are being watched closely by multiple branded foodservice companies including Sioux Falls, SD-based Orion Food Systems, Inc.
"We are attentive to industry preferences that may or may not be long-term trends, but are certainly having an immediate impact on foodservice buying patterns," says Orion company spokesperson, Rachel Ambrose. "One example is the current high protein/low-carb phenomena. This year Orion launched ‘Carb-Reduced Menu Solutions’ which is a line of high protein/reduced carb products to coincide with our various brands’ current offerings. To that end, we view the wholesale distributor’s role as one in which the distributor works closely with Orion to ensure timely and accurate delivery of products to c-stores for our programs."
One of Orion’s clients is Texarkana, TX-based E-Z Mart, Inc., with 356 store locations in Arkansas, Louisiana, Missouri, Oklahoma and Texas. "Currently, we have 36 stores with food programs in them. Orion’s program is in 18 stores with the Hot Stuff pizza program and in five stores with Smash Hit Subs," says David Hall, foodservice category manager. "We do well in towns with small populations of around 1,100, in part because of low competition from big fast feeders. In towns with a population of 60,000 to 80,000, our numbers are a little leaner."
In It To Win It
When it comes to foodservice opportunities, however, E-Z Mart’s Hall believes many wholesalers should reconsider learning the business. "Foodservice is not necessarily a priority with many wholesalers and they’re missing out on a growing market segment because they aren’t prepared for the demands foodservice makes," he says. Hall also maintains that smaller wholesalers need to have their operations in order before they can compete with larger distributors who are already well-organized.
He continues, "It’s critical to have management people in place with a foodservice background. When a category buyer suddenly gets thrust into the role of foodservice buyer–and I’ve seen it happen–he’ll quickly fall behind if he hasn’t been trained in basic warehouse requirements and refrigeration issues, to name just a few."
In the end, Hall believes it comes down to good communication between the wholesaler and retailer in foodservice. "Wholesalers see vendors before I do, and as a store retailer timing is critical because I need to see new items before my competition does," claims Hall.
For Dwayne Poteet, a purchaser for Lubbock, TX-based McCarty-Hull, Inc., the line of vendors he sees are too numerous to count, but the number of c-stores in his territory measures between 600 to 700. This includes single establishments, small chains of two or three stores and the Amarillo, TX-based Toot’n Totum chain, with 69 stores all in Texas. The alliance has been a profitable one for McCarty, with foodservice programs up 26 percent from 2003, notes Poteet, who adds that McCarty has made a concerted effort to get better at foodservice in the last five years. However, one of the biggest impediments to successful foodservice programs in small independents is size–specifically the lack of it.
Of Size and Fries
"We’ve been trying to bring foodservice to small independents for several years but when you have a 1,500-sq.-ft. store, size is critical. Small stores need small equipment, it’s as simple as that," he says. To that end, he has been working with the Dallas, TX-based Quik n’ Crispy company which manufactures brands of greaseless fryers whose dimensions measure out at a compact 25" x 29" x 21" and can handle staple foodservice items such as jalapeno poppers, buffalo wings and fries. "As a wholesaler, my job is to convince my customers, concerned about space, to see that with products like this available on the market, they do have foodservice options," he says.
Poteet points out that larger foodservice companies can buy at multi-truck and truckload prices, but because McCarty-Hull doesn’t generate the volume to buy, say a truckload of fries, they work with a redistributor (Mt. Sterling, IL-based Dot Foods, Inc.) instead and buy at their prices.
As to why some wholesalers may avoid foodservice, Poteet says the answer is simple. "They won’t take the plunge because they don’t understand it," he says. "The tendency may be to stick with candy and snack categories, for instance, but in my view those two areas are loaded with competition and you can’t make nearly the healthy margins you can with foodservice–if its done right."
Indeed with the recent ominous rumblings from political lawmakers in nearly a dozen states about raising sales taxes on candy, sodas, chips and snacks–the margins from a successful foodservice program, which is convenient and cost-efficient, could look quite healthy indeed.
Richard Jenkins is a freelance writer based in Edison, NJ. He is former senior writer with Convenience Store News.
A Changing Landscape
As chain accounts grow in size, independent operators in foodservice must strive to hold on to market share. Will the divide between the two continue and to what extent? According to J. Michael Roach, president of Fort Worth, TX-based Ben E. Keith Foods, and vice chairman of the Falls Church, VA-based International Foodservice Distributors Association (IFDA), the independent operator’s share of the market is decreasing. "Recent studies have indicated that national accounts growth is going to slow in coming years and regional chain growth in absolute dollars is going to be greater, while the national chains will gain in market share," he said at a recent roundtable discussion at IFDA headquarters. "They have greater access to capital, knowledge on new trends and what the consumer wants and the end result is that the independent operator is definitely going to be challenged," says Roach.
Still, the distributor is the crucial piece in the process, according to Daniel A Gordon, president and CEO of Grand Rapids, MI-based, Gordon Food Service, Inc. "The role of the distributor is critical because we touch the operator very directly, dozens of times every week, through the normal course of doing business with them," points out Gordon. "We are the direct link for most operators to source a wide range of products that are needed to run their businesses. Most operator surveys that we’ve done indicate that they really rely on the distributor as an important part of helping them to be successful and that they depend on us in a variety of ways."--RJ
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