• C-stores capitalize on foodservice opportunities

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C-stores capitalize on foodservice opportunities
C-stores have long had a leg up on quick-service restaurants in the beverage category with their extensive selection of bottled and canned drinks as well as discount-priced jumbo fountain beverages. Now, the segment is branching into better hot food offerings in an attempt to boost traffic -- and pizza is among the new lineup.
In October, No. 1 c-store chain 7-Eleven announced the beginning of its national rollout of a new hot food menu. While the store has offered self-service hot food heated in microwaves for years, the new menu features quick heat-to-order offerings prepared by staff.
 
The company sees it as an opportunity to compete in the on-the-go foodservice market.
 
"We recognize there is a big appetite for hot foods, and (that) we could deliver it with great convenience and value," said company spokeswoman Margaret Chabris. "It's a natural extension of our existing foods service program."
The chain's new hot food menu includes pre-cooked offerings, such as cheese or pepperoni pizza, available whole or by the slice, all-white-meat chicken tenders and three varieties of chicken wings. For breakfast, the new offerings include Breakfast Sausage, Egg and Cheese Quesadilla and hash browns.
Stores are getting special new ovens for their to-order hot food items: A TurboChef combi-oven that uses radiant, convection and microwave cooking to cook foods 12 times faster than a conventional oven. A whole pizza can be heated in 90 seconds, and a plate of chicken wings in under three minutes.
Kathy Hasty, 7-Eleven senior director, fresh foods, said the new offerings allows the stores to offer heat-on-demand products, including toasted sandwiches. "But also we will have improved our ability to deliver products like breakfast sandwiches that have been in our line up for years but were only available to microwave before."
 
Hasty said the new menu is intended to build traffic in the stores by targeting convenience-minded consumers.
"We can offer a wider selection of beverages with our foods than QSR — more choices and even faster in and out than most QSR experiences," she said.
 
Finding the ROI
 
The completion of the national rollout will take more than two years, as stores install the new ovens as well as other equipment for the food preparation area, including a heated display case, under-counter refrigerator, freezer and storage units. A large freezer also will be installed in the backroom.
The company would not disclose the cost of the equipment but is encouraged by sales results from the new hot food items. About 1,500 of the chain's approximately 6,500 U.S. stores have the new menu. Those stores "are seeing a foodservice sales lift" of about 35 percent, Hasty said.
 
The company plans to expand its hot food menu as early as the beginning of next year, beginning with snack and more breakfast items.
 
A lift in food sales is sorely needed by the c-store category. According to foodservice industry analysts The NPD Group, the economy has been impacting c-store food sales just as it has the restaurant industry. Traffic was up only 1 percent as of the end of August, compared to an increase of 2 percent in the previous year. But those consumers were spending more, with average check size up 3 percent over the previous year.
C-store menu items saw little change in their level of importance for the year ending in August, according to NPD Group CREST data. Breakfast, pizza and egg products at c-stores were flat compared to the prior year. The point change for hot dog/corn products was down slightly — 0.3 percent.
 
Trends in c-store foodservice
Tim Howell, senior manager and c-store foodservice program lead at foodservice industry consultants Technomic Inc., sees the chain's new offerings as part of a growing trend among c-stores.
 
In coming years, more c-stores will be increasing their floor space dedicated to foodservice as they attempt to replace gross margin on tobacco and gas, he said. Like 7-Eleven, they will likely increase their private label offerings in order to differentiate themselves. C-stores also will increase their breakfast offerings as they've watched McDonald's and other chains succeed in the daypart.
For instance, c-store chain ampm, a division of BP America Inc., has an extensive foodservice menu, including chilled, grilled and baked items. Circle K, second to 7-Eleven in number of U.S. stores with 3,000 locations, has not branched into hot foods, focusing on coffee, fountain beverages and snacks. The stores will likely win on price point, with most of their offerings averaging $1 less than QSR items. 7-Eleven's whole pizza is only $9.99, two hash browns are 79 cents, and three chicken wings are $2.99.
 
Darren Tristano, executive vice president at Technomic, said c-stores moving to improve their foodservice offerings will have some impact on QSRs in the coming years. Even at $9.99, however, 7-Eleven's whole pizza likely won't impact pizza delivery.
 
But c-stores' foodservice programs have a number of challenges to overcome before they still too much QSR market share.
First, consumers will have to overcome their distrust of hot foods prepared by c-store employees, many of whom are doing other jobs besides preparing and handling food.
 
"They're not seen as a foodservice operator," he said. "As a result, (consumers tend to not) trust the freshness, the quality and the food safety aspect of what these stores are producing." One way c-stores could overcome that distrust is to brand their foodservice, much like Hunt Brothers Pizza already does. Once consumers see a dedicated staff member handling the food, their trust level likely will rise.
 
Tristano also sees the lack of seating in most c-stores as a deterrent to their foodservice growth since they will have to rely on consumers looking for grab-and-go items. If the stores take a lesson from the numerous Subways in c-stores and gas stations to add small seating sections inside or outside the store, the potential could grow.
7-Eleven already is focusing on improving its in-store experience, adding digital signage to feature its in-store network. That rollout should be complete by the end of 2010.
 
But there's still the issue of food quality — and consumers' perception of it, he said. Only about 40 percent of consumers rate c-stores as high on food quality as QSRs, according to Technomic's latest data.
 
But 7-Eleven's hot food items, for example, are precooked. With many QSRs improving their food quality as they compete with the growing fast casual segment, such c-store offerings will have far to go in order to compete.
 
Still, c-stores' focus on foodservice is something QSRs should keep an eye on.
"Other c-store companies like 7-Eleven are going to continue to get into this type of business because they see this as an opportunity," Tristano said. "I think this is a beginning of a trend that I think will expand. And if 7-Eleven is successful, you'll see it becoming more common, and it could eventually change the mindset of the consumer."

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