• C-store pizza is changing, but it's still about location

CHICAGO -- The U.S. pizza industry's saturated.

All the good sites are gone.

Convenience store food is just candy bars, chips and scary egg-salad sandwiches.

Wrong.

Not so.

You're way off base.

That's the opinion of multiple pizza concept operators exhibiting at the 2003 National Association of Convenience Stores (NACS) Show, held Oct. 12-14. The annual expo draws about 22,000 attendees and some 1,400 exhibitors.

The $600 million -- and growing -- slice of the c-store pizza business proves, they said, that peddling pizza alongside gas pumps is a burgeoning sales opportunity for both the grab-and-go provider and the traditional pizza operator.

Where the two divide, they say, is in their business models.

Grab-and-go operators, such as Orion Hot Stuff Pizza and Piccadilly Circus typically sell a limited line of pizza products made from frozen dough, but assembled to order in the store in diminutive kiosks. By and large, their traffic comes customers seeking c-store products initially.

Domino's Pizza and Papa John's (a brand-newcomer to the c-store market) on the other hand, want a visually separate but physically conjoined unit -- access to "A" locations on which they can set up full-size, full-service delivery-carryout units. Their customers come not for pizza first and petrol second.

Either way you cut

Michael Iglesias (center), vice president of franchise development for Pizza Inn, explains his company's c-store concept to a potential franchisee.

it, it's all about location, said John Campbell, vice president of North American franchise development for Louisville, Ky.-based Papa John's.

"Traditionally, petroleum marketers have good real estate available," said Campbell, who spent much of the 1970s working for British Petroleum, know now simply as BP. "We're not looking for an under-the-canopy c-store, we're looking for a stand-alone unit which has a section of it identified as a Papa John's. A miniature-footprint model would only downsize the potential of the operation."

Michael Iglesias, vice president of franchise development for The Colony, Texas-based Pizza Inn, agreed that operationally, his company wants only the full treatment, not downsized units.

"The big business is in selling medium and large pizzas," Iglesias said, whose company has about 75 c-store locations. "But since we prefer to go into larger markets where we offer delivery, you've got to have the capacity to meet demand. That requires larger ovens, which require more space. You can't do that in an express unit."

Not that express units are a bad thing either. According to Mark Elliott, executive vice president of marketing for Orion Food Systems, one of the company's 150 square-foot grab-and-go units can generate $3,000 to $5,000 a week in sales in well-trafficked c-stores. Such numbers, he said, make them formidable pizza competitors to traditional operators.

"We like to say we're in the intercept marketing business," Elliott said. "We try to intercept some of those 7,000 customers going into a c-store in a given week before they get pizza elsewhere."

Campbell said that growth in the size of c-stores themselves presents an excellent opportunity for Papa John's.

"They're getting larger and larger; they're not always the 2,000 square-foot sites they were when I got into the business," he said. "I talked to one person today who has a 7,000 square-foot c-store. That's a big c-store."

No labor saviors

For many years, pizza companies' entrance into the c-store market worked on the sharing of space within existing facilities. Iglesias said some Pizza Inn c-store operations do share cooler space, but Campbell said future Papa John's units will be walled off from the c-store side of the building and operate independently.

And while c-store and pizza-store staffs are commonly cross-trained to work both sides of the business, such labor-sharing arrangements appear to be disappearing. Iglesias said operators simply have found it difficult to train c-store staffs to grasp a foodservice mentality.

"Cross training c-store people and food people ... it has been done, but most times it's not done right," he said. "But when we're cobranding with another food vendor, such as an ice cream company, it's much better. That way you have people who are all food oriented and behind the same counter."

Campbell said Papa John's won't even go that far. Using a fully dedicated and well-trained pizza staff is the only option. "You can talk about cross-training all you want, but the more specialized you become, the better you've got to be at it."

Operators: Picky, picky

Both Iglesias and Campbell said the ideal operator is a franchisee who has operations in the same market in which a c-store unit will open. Not only is such a candidate experienced, he can multiple sites allows him to better exploit marketing and advertising opportunities.

But if that perfect pick isn't available, both men said they still want a foodservice veteran, someone who understands what it takes to staff and market an operation.

As Iglesias pointed out, it's the pizza business after all, not the c-store business.

"This is very challenging to a guy with a c-store mentality, so a lot our most successful (c-store operators) go out and hire people with a foodservice background."

Regardless of his experience, a c-store pizza operation could be especially challenging if a sharp Hot Stuff operator is on the opposite corner, Elliott said. According to his research, by as late as 4 p.m. each day, as many as three-fourths of all consumers aren't certain what what's for dinner. That led the company to develop a powerful pizza promotion it calls the Hot Stuff Power Hour.

"From 4:30 to 5:30 at night, we've got large pizzas hot, ready and in the box for consumers," he said, adding that the suggested retail price is $6.99 to $7.99. "And one grassroots thing we've done to help market that in-store is to put a red flashing light on top of the warming merchandiser that goes off when the pizzas are ready. It gets attention."

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