AWMA UPDATE
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Foodservice Success

Upscale signature items and more diverse ethnic offerings have become the cornerstones of today’s c-store foodservice programs

by Lisa White

Foodservice has almost become a given for most convenience stores. With the lifestyle trends and demographics supporting increased sales and opportunities, this segment shows no sign of waning.

And this is good news for distributors that venture into the foodservice selling arena. "It is very profitable and very big. Typically, foodservice categories outperform on a gross margin basis nearly every segment in the store, with some categories reaching into the 50 to 60 percent gross margin range," says Doug Eisenhart, convenience channel foodservice manager at Dot Foods. The Mount Sterling, IL-based national redistributor provides the means for its distributor clientele to buy product from manufacturers below published direct shipment minimums.

Eisenhart says foodservice is the second largest gross profit contributor in the store behind cigarettes. "Foodservice is the third largest category in total dollar sales behind cigarettes and packaged beverages," he says.

With the continuous improvement of store conditions, a commitment to enhanced food safety, more dedicated foodservice personnel and an increase in private branding at the c-store level, the national momentum continues.

Proof in point is QuikTrip, a c-store chain with approximately 460 locations that built a multi-million dollar commissary to accommodate its foodservice program. Staffed by 95 employees, with professionally trained chefs and bakers overseeing the kitchen, items are delivered to stores fresh daily in seven refrigerated trucks. Its offerings rival many restaurants and include signature sandwiches and wraps, along with pastries, cookies and muffins.

The QT Kitchens foodservice program, which was rolled out in QuikTrip’s Tulsa, OK, locations last year, will be expanded to the chain’s Kansas City locations this summer. Then it will expand to Des Moines, IA, Wichita, KS, and Omaha, NE, this fall. In the next two years, all locations will be part of the program.

Opportunities for distributors
Most c-store chains, however, are not in the position to invest this heavily in their own foodservice program. Fortunately, there are a number of options that distributors can provide.

Recently, Dot Foods set out to explore foodservice in convenience stores, with the goal of putting together a plan for its more than 400 distributor customers serving these channels. "We
wanted to develop a series of educational modules for distributors who were initially exploring getting into foodservice or those involved in foodservice who were looking to expand their segments," Eisenhart says. This information included what distributors should be looking at, whether it was something as simple as a self-service sandwich program or a more advanced program in a made-to-order or full kitchen environment.

The result is three formal modules geared to build momentum in foodservice amongst distributors’ c-store customers. Eisenhart also has been working on a website that will provide Dot customers with details on how to execute foodservice programs. "The site will be in depth with each type of program for suppliers that compete in these categories," he says. It is expected to be fully operational in June and will only be available to Dot’s distributors.

Franchise challenges
While some c-stores have found success in providing foodservice through national franchise programs like Subway or Burger King, the high franchise fees, equipment costs and other investments make this option prohibitive for retailers with smaller volumes.

Yet, branded foodservice is a growing market that distributors can tap into. Tumwater, WA-based Harbor Wholesale Grocery began focusing on foodservice back in 2004, when it discovered the big foodservice distributors who regularly serviced restaurant operators did not have a good handle on the c-store business. "Our intent is to go into c-stores and capture all of the foodservice business," says Justin Erickson, CEO.

To accomplish this, Harbor Wholesale has a dedicated foodservice sales force of five employees. "Because our retail sales force doesn’t have a background in foodservice, these salespeople can go to stores and talk about these programs," Erickson explains.

This strategy worked with the Walla Walla Farmer’s Coop, a Walla Walla, WA, convenience store that formerly had a franchised pizza program. "We took this program out and replaced it with our Mountain Fresh Deli concept," Erickson says. At first, sales went down. "But overall profitability increased substantially by 15 to 20 percent. After a year with our program, sales went way up and profitability continues to improve at an even greater rate than it did initially." And, with this new program, food costs are more affordable and there are no royalties or franchise fees. Further testament to the store’s success is its recent recognition by a local newspaper as the best Walla Walla c-store.

Harbor Wholesale’s success stems from two of its branded proprietary programs. The above mentioned Mountain Fresh Deli concept includes pizza, sub sandwiches and general deli food items. The second, MexiGo Taco Express, offers tacos, burritos and other Mexican fare. "We are seeing an increased demand for Mexican products [all across the board]," Erickson says.

With both programs, customers purchase their own equipment and Harbor Wholesale provides food items, marketing materials and signage. The company has an in-house graphics department run by Erickson’s brother Adam, who serves as the creative director.

The company also recently acquired Howard’s Meats and Poultry, a foodservice distribution company located in Portland, OR. "Debbie Stoffer, the former owner of Howard’s, is now a Harbor employee, and has been instrumental in our success in building our foodservice programs," Erickson says.

In addition, Scott Erickson, the company’s COO and Erickson’s cousin, pioneered Harbor Wholesale’s successful Java Classics Coffee program, which distributes coffee supplies to roughly 500 convenience stores.

Foodservice roadblocks
Competition isn’t the only challenge distributors face in the foodservice arena. One of the most formidable is freezer and refrigeration space for the many perishable products.

Erickson says space requirements depend on the volume. "[For distributors just getting into foodservice], I’d guess 5,000 square feet of freezer space and 3,000 square feet of refrigeration would be adequate," he notes.

Foodservice requires a commitment level that DOT Foods addresses in its educational plans. "There are many things to consider with food safety when receiving frozen or refrigerated product. This includes how long it takes for receiving, storing, prep, thawing time and hot holding. Equipment to haul product on also needs consideration. Foodservice takes a higher skill set, more training in every step of the process in terms of food safety and an additional space commitment than packaged retail goods," Eisenhart says. Most importantly, distributors need to recover enough margin in selling foodservice products to compensate for additional operational costs in handling product.

"Distributors need to come up with a budget for anticipated foodservice sales, set expectations for margins on these sales and come up with a reasonable timeline to get the return on investment for the program’s infrastructure," Erickson says.

Also, foodservice purchasing can be a challenge. Erickson says the market is competitive on foodservice items. "A lot of negotiating goes on to get the right pricing on foodservice items. In addition, a good fill rate on foodservice items is critical. You can’t have out of stocks," he says. From a retailer perspective, commitment is key. "It takes extended hours with dedicated personnel to run a deli and do it right."

Harbor Wholesale provides retailers with training, menu development, a food cost analysis, menu ideas and suggested retail pricing. "We work with them from start to finish, helping them develop a successful, profitable foodservice program. Because, if a store is profitable and successful with foodservice, then they are loyal to us as their supplier," Erickson says.

The company also has developed a profitability analysis for its c-store customers. "If they set goals and have the right expectations up front, retailers are more likely to be successful. We tell them to shoot for daily foodservice sales of between $700 and $800 a day, with a profit margin of 60 percent on deli items, and dedicate people to the deli area. We can show them how much money they will make if they can accomplish this," Erickson says.

What’s out there
Offering a complete selection of foodservice items is essential for distributors, and there are many programs and options to choose from.

According to Todd Ginley, account executive at Arlington, TX-based TNT Marketing, foodservice in c-stores can be broken down into four categories. "First is the rollergrill, which is a large growth area. This has become a vehicle for more than just hot dogs. Another category is the hot case, either open air or closed. This is geared toward consumers who want something hot and fresh that they don’t need to microwave. The traditional cold case is another area and one offered by nearly all c-stores. This holds items like sandwiches or burritos that customers can heat up in the microwave. The final area is real foodservice, where product is shipped in bulk and prepared at the store level. This type of foodservice is not a high percentage at the c-store level," Ginley says.

Don Miguel, a supplier based in Anaheim, CA, offers high-volume programs where product is heated in the store. Mike Elliott, vice president of sales and marketing, says the company provides warming cases to its c-store customers at cost.

Grab and go foods are a key trend, especially for upscale products. "Hot-to-go foods are better sellers than items customers have to heat up. For this reason, we are starting to see larger chains rethinking their equipment at the store level. Stores will put in more than one rollergrill so they can handle a variety of products and make labor as easy as possible," Elliott notes.

Don Miguel furnishes a variety of point-of-sale materials, including rollergrill markers and static clings that coincide with its products.

Sandwiches make up more than 25 percent of U.S. foodservice sales, according to Tom Parr, central region manager for Cincinnati, OH-based Pierre Foods’ convenience store division. As a result, the company has focused on this area for expansion.

Pierre Foods sells its products through different vehicles, including both the hot and cold case. "The hot case is the largest growth area for us, and the products in this arena are becoming more upscale," Parr says. For example, the company’s Signatures sandwich line features artisan bread and higher quality meats.

Breakfast sandwiches are another growing trend and a large sales contributor. Consequently, Pierre Foods offers the Grabwich, a pancake, sausage and syrup sandwich that is microwavable.

Co-branding, too, has become big in c-store foodservice. "Don Miguel has partnered with Pierre Foods, offering a burrito and breakfast sandwich program," Elliott says.

Suppliers like Don Miguel and Pierre Foods can provide distributors with information on necessary freezer capacity and food preparation that they can pass on to their c-store clientele. Retailers also need to be aware of the different delivery methods. For instance, with traditional c-store distribution, foodservice items are delivered frozen in case quantities for stores to break down. With DSD, product arrives fresh at the stores. "Most chains have this information, but it is important for distributors to explain the advantages, disadvantages and equipment requirements for their programs," Elliott says.

According to Jess Nepstad, division vice president of sales for alternative channels at Nestle USA, based in Glendale, CA, "Foodservice is a nice part of a c-store’s business where they enjoy healthy margins. However, stores have to overcome the hurdle of labor."

Nestle offers Hot Pocket rollergrill items, including sausage and gravy for breakfast and pepperoni pizza for the lunch segment. A new chorizo and egg variety will debut later this year. The company also has a beverage program called Coffee-mate, which includes a free coffee dispensing machine with a two-year contract.

The company’s Minor’s brand of high-end sauces and condiments also are offered, to help distinguish retailers’ foodservice programs. "We have chefs on staff that can help operators prepare specialty sandwiches or meals using our condiments," Nepstad says. A number of new flavors catering to the spicy trend will be debuting this year.

The company offers point-of-sale material through its distribution center. "We try to partner with c-store operators to put together promotional deals with our coffee and food programs. We’ll provide ideas to bundle items to help increase sales," Nepstad says.

Recent research conducted by Dinuba, CA-based Ruiz Foods revealed that c-store programs focusing on hot foods to go not only attracts more customers, but also keeps them coming back, says Bryce Ruiz, president and COO.

The company manufactures products for a c-store’s refrigerated and frozen segments, in addition to eight El Monterey brand lines for the hot-to-go segment. Breakfast, lunch and snacks include tornados, burritos, chimichangas, tacos and quesadillas. The company recently added a meat lovers El Monterey Supreme Omelet Tornado to its regular toronado line and a Chorizo & Egg Burrito to its Butcher Wrapped line.

"All the El Monterey c-store snack and meal items are designed specifically for on-site heating and holding warm for immediate hot-to-go walk-up sales," says Ruiz. "Traditionally, the on-site heating is done in the microwave but, as c-stores purchase convection or impingement ovens, they can also be used for our products. El Monterey Tornados were designed to be heated and remain on the roller grill but can also be heated in a convection or impingement oven and held hot on a roller grill or in a deli case."

The company offers already designed and printed danglers, posters, shelf talkers, pump toppers, etc. In addition, its graphics department will also custom design POP utilizing a customer’s logo.

Pat Kulacki, key account manager for the c-store division at Kunzler & Company in Lancaster, PA, is seeing a growing trend in made-to-order subs and sandwiches, rather than franchised programs, in today’s convenience stores. "C-stores are eliminating these programs because of franchising fees. Instead, they are going the way of Panera Bread, offering more upscale foodservice. This includes combo meals with soup, salad and sandwiches," he says.

Still, the company continues to do a strong business with its hot dogs, sausages and other rollergrill items. Its new Authentic Select line offers a variety of flavored sausages, including jalapeno cheddar, roasted garlic and five pepper and cheese. Pre-sliced, pre-measured and interleaved meats also are popular. "We’ve heard from our customers that sub sandwiches make up about 42 percent of c-store foodservice profits and rollergrill items are at 15 percent. In addition, there are a lot of Hispanic items trending into this channel," Kulacki says.

Although Kunzler does not offer equipment, the company will provide purchasing assistance for distributors. "We have four to five equipment companies that we regularly do business with, and we will offer referrals to distributors to help meet their needs," Kulacki says.

Like most suppliers, the company provides a bevy of point-of-sales materials. "We will co-purchase point of sale material that is individualized for stores," Kulacki says.

Shakopee, MN-based Lettieri’s/Mac’s Market, maker of Hot Stuff Foods, offers a foodservice program that is designed to save labor. "Since all our products are fully baked, all the operator has to do is heat them and serve. Whether the application is frozen, refrigerated or uses a warmer unit, our merchandise-ready packaging is designed for labor savings," says David R. Poplau, director of channel marketing.

The company recently added a line of Ciabatta Squares breakfast sandwiches in three flavor profiles; a Ham, Egg & Double cheese; a Sausage, Egg & Double Cheese; and a Veggie, Egg & Double Cheese. "There is talk now about expanding this line to include several lunch items," Poplau says.

Lettieri’s offers an equipment program to assist c-stores in merchandising its products. Attached to this program are rebates to provide incentives for retailers in creating a successful foodservice program. "We also offer a line of point of sale materials including banners, shelf talkers, static clings, table tents and pump toppers. We are also able to personalize these materials to fit individual stores and markets," Poplau says.

When offering a foodservice program, he says one of the key aspects is understanding the importance and flexibility of a 24/7 program. "This means being able to offer a program that is versatile and allows for merchandising and selling through a host of environments. This includes selling from the refrigerated case during off-peak hours to focusing on a warmer program during the busier selling periods," Poplau says.

Erickson says distributors need to look at their markets and what other retailers are doing to be successful. "It is a long-term investment with increasing profitability opportunities," he says. "With more and more people on the go and eating on the run, c-stores are the perfect vehicle to deliver quick-serve options to consumers."

Lisa White is a food industry writer and regular contributor to Distribution Channels. She is based in Cary, IL.

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