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Partners in Quality
By Richard Jenkins
Proprietary versus branded foodservice program. It is a decision, with little exception, that most c-store distributors and retailers face at some point in their relationship. What to do? A nationally branded foodservice program can guarantee instant name recognition, a seamless turnkey approach and a proven winner of a menu, while a proprietary program offers strong regional brand loyalties and lower up-front and ongoing costs. The choices can be daunting. For a distributor, foodservice offers the chance to be the designated supplier, as well as a consulting "partner." Yet foodservice is also a sharp reminder that consumers, above all, are at the top of the pyramid with their own demands.
"It makes good business sense for a distributor to get involved in all ancillary details of a proprietary program such as pricing, signage and advertising dollars committed to marketing the program," says Mike Deuser, vice president of foodservice for Tripifoods, Inc., Buffalo, NY, supplier for the SubFARE and PizzaFARE programs of the Country Fair chain of convenience stores in Northeastern Pennsylvania, Western New York and Eastern Ohio.
"All these components reflect on the overall success of the program," he says. "For instance, if a retailer needs to strengthen one of the items on the menu, I’ll work with him, trying to get a better cost structure. It comes down to acting as a kind of consultant and looking at alternatives," he says. In some cases, he adds, "we sometimes help raise advertising dollars for sales programs through vendor support. Are we making guiding decisions for retailers? Of course not. But it is important to have a healthy consultative relationship there."
Tripifoods has been the distributor for Country Fair since 2001 and, according to Deuser, the SubFARE and PizzaFARE programs were already down to a science. "By any measure, including inventory dollars and promotional products, the foodservice programs were demonstrated successes for years by the time we partnered with them," says Deuser. "We spent a great deal of time in the planning stages, looking at and matching the products that the programs needed with what we had in our facilities, so that we didn’t miss a beat."
A Brand of Their Own
Indeed, partnering with a successful program can prove to be a shrewd and profitable decision for distributors--yet creating one’s own program is just as important, according to Brad Duesler, president and CEO of Food Concepts, Inc., a Middleton, WI, company that designs and manufactures foodservice image solutions. "In my view, every distributor should be thinking about developing their own proprietary foodservice brand," he says.
Duesler contends that a portfolio of successfully launched proprietary foodservice programs can swing business the distributor’s way. "If a distributor launches a house brand coffee program that replaces 10 current SKUs and that house brand performs well or becomes a category driver for other areas, that may convince a retailer to partner with that distributor’s program."
Duesler concedes that distributors have to answer some hard questions before committing. "The basic issue is what makes a good proprietary brand," he says. "After that you need to address the issues of merchandising solutions, value in terms of price, and finally, does your product look like a legitimate brand?" There are also the disquieting but necessary questions of royalty fees. Although gauging an industry average is difficult, royalties for regional and local brands can be 6 percent or less, while it is not unheard of for larger national brands to command royalties of 10 percent or higher. "You could speculate that when you align with a franchise you’re paying a fee or percentage to get the market research that’s already been done on solutions, on price, on brand legitimacy," says Duesler. "And certainly royalty fees are a major consideration."
That aside, there is another challenge distributors face in foodservice: the successful c-store retailer who makes the decision to self-distribute. Such is the case with the gold-plated standard for proprietary programs, the Made To Order® program from Sheetz, Inc., in Altoona, PA. The company partnered with Fleming through the 1980s and early 1990s, but change was in the wind shortly thereafter, according to Ray Ryan, vice president of operations. "Fleming did a terrific job for us, but by the mid-1990s we began to look at self-distribution more closely," he says.
How, specifically, has Sheetz benefited? "We focus on several areas that enhance our potential for profitability," Ryan says. "Since we serve our own stores, we focus on achieving efficiencies in procurement, storage and delivery through limited SKU assortment, more effective volume and movement data and less effort on the accounting, or paperless, side."
With self-distributorship firmly in place, Sheetz has established a fiscal benchmark of 1 percent savings overall for the Made To Order® program--a goal they’re well on their way to achieving. "That figure really represents 1 percent of inside store sales as profit going to the bottom line," Ryan explains. "So if the chain realizes $600 million in inside sales, the goal would be to contribute approximately $6 million in additional profits to the Sheetz organization." Ryan points to the fact that the change has made Sheetz more effective competitors at the retail level.
Open Lines of Communication
In point of fact, the issue of competition is one that has humbled many a c-store chain dipping their toe into the foodservice pond for the first time. It can be difficult to build a loyal customer base simply because there are so many variables. Launch a proprietary program too near a major highway--and you risk getting killed by the successful branded programs already in place there. Unveil a program in a region top-heavy with similar programs--and you’re courting failure. Try pricing foodservice items like retail items--without allowing for labor, waste and marketing costs--and you could lose your shirt. All the more reason for good communication between distributor and retailer, according to Mike Deuser.
"Simply put, how a distributor works with a proprietary foodservice program may depend a lot on the size of the program," he notes. "With a small c-store chain that’s investing in, say, a proprietary chicken-and-biscuits program, the first question I would ask is about the chicken--fresh or frozen?" says Deuser. "If it’s fresh, it has a three-day shelf life and can create some special delivery issues that need to be addressed. Will the order be 10 cases a week? 20 cases? How many deliveries a week are needed? A high volume c-store may get two deliveries a week, but this isn’t an industry standard, " he points out. "As a distributor, you have to make a determination if certain proprietary items are worth handling and that you can handle them properly. In many cases, it is proprietary ingredients at wholesale that become proprietary items at retail."
Of course before the register even rings there is the ubiquitous "growing pains" distributor and retailer encounter while experimenting with various programs before settling on a winner. Such was the case with Southco Distributing Co. in North Carolina and its stores, according to the company’s president, Sherwin Herring. "We had a bit of history in other proprietary foodservice programs before we settled on our current program," says Herring. Southco distributes to such c-stores as Sunny Side Market, Beaufort’s General Store, Knight Brothers, Ms. Sudy’s and Best Gas and Grill in both North Carolina and South Carolina.
Herring kicked off some of the programs. "Our customers started with a hot dog program, then experimented with a pizza program, then a doughnut program and finally went to a fried chicken program," he says. "Some customers explored co-branding with McDonalds and Burger King, and then about years ago, Liberty Foods USA approached us about partnering with Omni Food Concepts and incorporating it into c-stores in our trading areas. As a distributor, the beauty of the Omni program is that there are no royalty or advertising fees to worry about, you’re getting a turnkey operation." The program currently runs in 25 stores in both states.
Food-Savvy Consumers
There is an oft-repeated foodservice industry maxim, which says that, with certain exceptions, a proprietary foodservice program will not generate the volume of a nationally branded program. Herring comes down somewhere in the middle on this. "I would say a good proprietary program can compete with a national brand in terms of food quality, but not in terms of name recognition because, after all, McDonald’s and Burger King spend millions on that, and are located nationwide," he says. Furthermore, in his experience, a proprietary program can generate healthier margins than grocery and candy, but tobacco and cigarettes generally outsell foodservice.
So while distributors and retailers close their eyes and dream happy thoughts of long destination-driven lines of customers hungry for their chicken and pizza and subs, the answer to a successful proprietary program, according to Brad Duesler, comes back to two words: the customer. "Keep in mind that everything partners do in a proprietary program is consumer-driven," he says. "The manufacturer, distributor and retailer must react to high expectations for a fresh, quality product every single day."
Richard Jenkins is a freelance writer based in Edison, NJ. He is former senior writer for Convenience Store News.
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