Convenience store pizza is not what it used to be.

In an environment dominated by sales of cokes, smokes and magazines, made-to-order pies are being sold by the millions in c-stores across the country and served with everything from pepperoni to eggs on top.

In the process, pizza has become a profit center for c-store owners and an affordable, flavorful food option for patrons.

According to the National Association of Convenience Stores' (NACS) 2002 State of the Industry report, sales of c-store pizza in 2001 totaled $518 million, up 16 percent compared to the year prior.

Noble Roman's labor-free Cafe to-go concept.

While that's just 2 percent of the entire $26 billion U.S. ready-to-eat pizza market (and 25 percent of the $3.6 billion in convenience store foodservice sales in 2001), the number is noteworthy as much for its sheer economic weight as the statement it makes:

Consumers are increasingly purchasing products easily consumed on the run, and c-stores are stepping in to meet the need.

The way it was and now is

Over the last 30 years, price competition on gas and soft drinks, as well as increased taxes on cigarettes, have driven c-store operators to cut prices in order to drive volume. The result is wafer-thin margins in a business already burdened by an expensive entry fee.

According to Jeff Lenard, NACS' director of communications, the cost to start a c-store (including land, building, equipment and opening inventory) in a rural area averages $1.5 million; in an urban area it averages $1.8 million.

"That's a lot of money," said Mike McDonough, director of marketing at Piccadilly Circus Pizza in Milford, Iowa. "So how are you going to pay for that? It's got to happen with inside sales. You better be a smart marketer of stuff that the community wants and has a really high profit margin."

Come the late 1970s, foodservice entered the c-store picture in the forms of egg salad sandwiches on white bread and scorched hot dogs. But today it includes easily recognized branded foods such as burgers, chicken, pizza, Mexican, sandwich and seafood concepts. Right down to the wrappers, customers can get branded offerings that mirror those sold at a full-size shop.

Just like c-stores, price wars have squeezed pizza companies' margins and forced shop owners to look for additional but affordable growth opportunities. But their shared strain didn't immediately send operators from both industries running into each other's arms for fiscal comfort.

C-store-focused concepts, such as Orion Food System's Hot Stuff Pizza (founded in 1983, and now has 1,100 outlets) and Piccadilly Circus (founded in 1977 and now has 900 outlets), were started to fill that void. Both since have grown steadily by selling quality baked-to-order pizzas far removed from earlier mushy, microwaved versions. In the decades since, about a dozen other branded and non-branded concepts have followed suit.

Why it works

C-store pizza operations have succeeded for several reasons. Of seven foodservice categories surveyed in the NACS report, pizza has the lowest entry cost. On average, food, furnishings and equipment (FFE) necessary to outfit one unit adds up to $57,000. The average c-store foodservice concept FFE cost is $147,000, nearly triple the cost.

To set up a 150-square-foot Jerry's Subs and Pizza unit, it costs between $40,000 and $70,000, according to Robbin Brinkoff, director of business at the Gaithersburg, Md., company. "That includes everything you need to get started, plus some inventory and the franchise fee."

On the higher end of the scale is the cost of launching one of Dallas-based Pizza Inn's c-store Express units (200 to 400 square feet): nearly $90,000. The bill to start one of its delivery-carryout units (700 square feet) is nearly $110,000. Franchisees also must have a personal net worth of $150,000.

The NACS report also showed that pizza concepts have the highest average sales-per-square-foot -- $794 -- compared to the c-store foodservice industry's average of $454.

Economies of scale help operators achieve this positive sales-to-space relationship. Dry and cold storage areas are shared, as is staff. In peak periods, one to two people are required to run a c-store pizza unit, and often those employees are cross-trained for other duties in the store.

Operations typically are simple: employees thaw and proof the dough, sauce and top the pies and bake them to order. Customer payments are then handled at the c-store's own cash register.

Minimal as it is, concept operators say finding employees for c-stores is just as challenging as finding them for restaurants. And in an attempt to remove that barrier, Indianapolis, Ind.-based Noble Roman's Pizza has developed a labor-free pizza-making kiosk unit. Troy Branson, the company's executive vice president of marketing, said the patent-pending machine "will revolutionize convenience store foodservice."

Piccadilly Circus Pizza marketring.

"It's called Café to Go," said Branson, whose company has 700 c-store units throughout the U.S. (Founded as a traditional dine-in pizzeria company, Noble Roman's once had 134 stores in the U.S. It now has about 30, and company officials say that number will not increase.) To use the machine, "a customer takes a pre-topped pizza out of a cooler that's part of the whole kiosk, and then puts it into a chute that actually delivers the pizza down to a conveyor oven. It's then comes out another chute completely cooked."

The unit, which is six feet wide and 26 inches deep, costs $12,249, and also can cook wings, pasta dishes and calzone-style pizzas. Currently, one is operating in Birmingham, Ala., while another is making the rounds at trade shows.

Like some other c-store concepts, Noble Roman's larger Grab-N-Go kiosk units serve a broader menu, including sandwiches, breadsticks, a hot dessert and breakfast pizzas topped with eggs and ham. This, said Branson, takes full advantage of every day part, which traditional pizzerias can't do.

"Most of their sales are generated at night," he said. "We can capture additional business with our model."

Delivery does it

In the past few years, c-store operators have gone head-to-head with traditional pizzeria operations by adding delivery. According to Piccadilly's McDonough, the additional and largely minimal costs of labor and hot bags make the venture well worth it, especially in rural markets that lack a traditional pizzeria.

C-store slices...

* Pizza revenue in c-stores rose 16 percent in 2001 to $518 million.
* Pizza concepts have the smallest average footprint at 494 square feet
* Pizza concepts have the highest dollar-per-square-foot yield at $747, 60 percent higher than all other concepts.

* At $9,700, pizza concepts have the lowest average franchise fee of c-store foodservice concepts.

Source: National Association of Convenience Stores' 2002 State of the Industry report.

And even in those markets that do have pizza restaurants, he added, c-store operators still retain a unique edge by being able to deliver nearly anything else in the store.

"Some of our most successful c-stores deliver," said McDonough, adding that some top performers log $500,000 in pizza sales annually. "If you execute it right, you can make a tremendous amount of money delivering out of a c-store."

Four-thousand-unit Buffet Style Pizza, based in Nashville, Tenn., recently began a delivery test, said chief executive officer Rick Pritikin. "It's been very positive, and we're planning on doing it in seven more stores in the next 60 days."

Branson said that only a small percentage of Noble Roman's operators deliver, though all are allowed to.

Last summer, a handful of Hot Stuff Pizza unit operators in San Diego started delivering. Since then, said Mark Elliott, executive vice president of marketing for Orion Food Systems, headquartered in Sioux Falls, S.D, "several have tested it, but our primary business is over-the-counter sales."

Elliott added that most of Orion's Hot Stuff units are delivered as one part of a three-brand package representing a mix of the company's eight total foodservice concepts.

Change, change, change

While industry leaders like Pizza Hut, Domino's Pizza and Little Caesars have tried c-store operations, none, it appears, are growing those concepts aggressively. Of the 2,981 units (this number was disputed by at least one c-store pizza concept operator, who said it wasn't fully inclusive of every branded c-store foodservice concept) recorded in NACS' study, fewer than 9 percent were stores of those three chains' brands.

When contacted, Tim McIntyre, executive vice president of corporate communications at Domino's, declined to speak about the company's c-store initiatives. In an email response, McIntyre said the company is currently determining where it should invest future capital and manpower in the entire chain, and until then, "we honestly don't know if (c-store operations) will play a role in our future plans."

Given the near-saturation of the traditional U.S. pizza market, no one interviewed believed that growth in the c-store pizza market will claim a noticeable share of sales already enjoyed by traditional pizzerias. But Noble Roman's Branson does believe that more pizza overall will be sold to consumers whose dining patterns are changing.

"People are eating pizza now differently than used to," he said. "If you look back 15 to 20 years, the pizza business meant a line out the door for dine-in on Fridays. But it's now really everyday food and much less a special-occasion dinner."

For c-store operators, he added, ready access and convenience is where growth opportunities lie. "We recognize how the industry has changed, and we've adapted to it. And being able to get to people who are on the go or want it at home has placed us on the leading edge."

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