By Jamie Hartford
Your mother was right, breakfast is the most important meal of the day — though not just because it boosts metabolism. It can also build sales. Since 2001, the away-from-home breakfast market has swelled from $57.5 billion to more than $90 billion, according to market research firm Technomic. But in the battle for breakfast dollars, convenience stores are coming up short.
Consumers are frequenting quick-service restaurants more than two to one over convenience stores for their weekday morning meals, according to a Technomic study released in January. Lump in fast-casual restaurants, donut, coffee, bagel and smoothie shops, and convenience stores are getting creamed 20 to three at breakfast time.
Over all dayparts, foodservice traffic at convenience stores has fared better than in restaurants, which have suffered seven consecutive quarters of decline, noted Bonnie Riggs, restaurant industry analyst with market researcher the NPD Group. But convenience store foodservice traffic growth has been driven largely by lunch and snack occasions.
“The morning meal is still weak for convenience stores,” Riggs said. “There’s a definite opportunity there, but they’ve got their work cut out for them against the burger guys who have a lot more marketing clout.”
Declines in restaurant breakfast traffic and sales during the recession have also heated up competition. Restaurants introduced 460 new breakfast offerings in 2009 — more than in either of the two prior years — according to market intelligence firm Mintel.
With most consumers indicating that they don’t expect to buy breakfast more often this year, convenience store operators looking for a bigger slice of the breakfast pie are going to have to steal share, predicts Technomic’s Darren Tristano. “They’re going to have to be competitive and find a way to stand out and drive their share of traffic.”
To stay in the fight, convenience stores must improve their offerings and perhaps lift a page or two from the QSR breakfast battle plan.
Starbucks revolutionized coffee culture in the United States by bringing bolder brews and fancy drinks to nearly every street corner. McDonald’s changed the game again by doing it cheaper. The result: McCafé, where even cost-conscious consumers are now coffee connoisseurs.
“Breakfast is the only daypart where beverage choice drives a lot of the purchase decision on where to get the food,” said Dennis Lombardi, executive vice president of foodservice strategies for retail and foodservice consultancy WD Partners, which counts Wawa and Circle K among its clients. “You have to have an outstanding coffee program; if not, you’re nothing more than second class.”
QSRs like Burger King and Subway have already upgraded their drip-coffee brews to compete with McDonald’s, and some convenience chains have followed suit. To keep their coffee programs competitive, other convenience stores would be wise to do the same, said Andrew Hetzel, a Hawaii-based coffee industry consultant.
“Find a good regional or national roaster that has a better-rated product than the guys who are also selling you your toiletries,” Hetzel said. “Your cost per cup will only increase a few pennies, potentially increasing your selling price, and you’ll be giving customers a cup of coffee they’ll come back for.”
Breakfast sandwiches are a must-have, with more than three-quarters of consumers indicating they purchase the items sometimes or often during the week, according to Technomic. But with nearly all of the major breakfast players serving up this staple, it can be hard to stand out.
To build buzz around their breakfast sandwiches, QSRs are turning to retooled versions of the classic. Last year Burger King made news with its Breakfast Shots, slider-style sandwiches featuring egg, cheese and ham, bacon or sausage. Dunkin’ Donuts brought back the Waffle Breakfast Sandwich it introduced last year as a limited-time offer this past March.
Travis Halvorson, store manager with Cenex Farmers Union Oil Co. in North Dakota, says he’s seen success with unique offerings like breakfast pizza.
Jerry Weiner, vice president of foodservice at York, Pennsylvania-based Rutter’s Farm Stores, says the standard sausage, egg and cheese on an English muffin is still his stores’ best seller — but Rutter’s also offers options like chorizo and Canadian bacon. “Keeping the wide span of offerings attracts a broader consumer base,” he said. “They don’t really get those options at normal QSRs.”
One offering QSRs have that most convenience stores do not is the drive-thru. Instead of ordering from the comfort of their cars, convenience store customers have to park, get out and enter the store to make a purchase. The entire act can be inconvenient. Convenience stores would be wise to entice customers who are filling up at the pump in the morning to come in and make a purchase.
For starters, ensure a high level of customer service and pleasant in-store displays. Offering opportunities for customization is another attraction. “You can offer different creams or flavor shots that they can add to their coffee,” Lombardi said. “Or in addition to the traditional egg, protein, slice of cheese sandwich, allow them to throw something else on there, like Tabasco sauce or mushrooms or Swiss cheese. The option for the customer to tailor that product creates an advantage.”
Retailers such as Wawa, Rutter’s and Sheetz — all based in Pennsylvania — have touch-screen ordering kiosks that enable customization, giving customers the option to choose their toppings and sides with their breakfast orders.
And while convenience stores don’t have drive-thrus, they do have the upper hand when it comes to product variety.
For instance, QSR breakfast customers typically have to choose among the house coffee, milk and orange juice, or drink a soda with their breakfast. Convenience stores can offer a variety of coffee drinks — both brewed and bottled — along with teas, juices and cooler doors full of additional beverage options. What convenience stores lack in the speed of a drive-thru, they can make up for in selection.
Convenience stores have come a long way since the microwavable breakfast sandwich. Still, many consumers continue to view convenience store offerings as less than fresh, Technomic’s Tristano says. That can be a problem for operators trying to build a breakfast program.
When purchasing weekday breakfast items, more than half of the respondents in a Technomic survey said it was important that the food was prepared fresh and made to order. Moreover, consumers who buy fresh-prepared food average more visits, higher checks and more items purchased than convenience store shoppers as a whole, according to the NPD Group. Though “fresh” can have different meanings, most respondents in the NPD survey said it means they can see the item being prepared or that it’s made with fresh ingredients.
Weiner says Rutter’s fresh-prepared hot offerings outsell prepackaged items around three to two, but that doesn’t mean there’s not a place for grab-and-go items in the morning. At New Jersey-based Quick Chek, breakfast purchases are usually evenly split between grab-and-go and made-to-order, says Jennifer Vespole, senior category manager for foodservice.
“You can never take away premade in our environment,” she said. “It serves that person who is really looking for something quick.”
QSRs pioneered the combo meal, bundling food and drink items for less than it costs to purchase each separately, but they’re not the only ones who can package up a deal.
Sara Lee Foodservice provides promotional materials to help convenience stores that serve its Jimmy Dean breakfast sandwiches bundle the product with a coffee in the morning daypart. Research shows such deals can increase check averages by up to 10 percent and raise basket size by more than 15 percent, according to the company.
The practice can drive new purchasing behaviors, says Catherine Porter, Sara Lee’s senior customer marketing manager for convenience stores. For instance, pairing the company’s premium sausage, egg and cheese biscuit with a coffee can encourage consumers to trade up from the cheaper sausage biscuit. Bundling can also get consumers to purchase high-margin items, such as potato sides, that might be considered optional, says Rafi Mohammed, author of the pricing strategy book, The 1% Windfall.
Rutter’s uses its touch screen ordering kiosks to suggest a bundle with hash browns and a coffee when a customer orders a breakfast sandwich. The upsell seems to work, as Weiner says nearly half of all breakfasts sold are combo meals.
To use bundling successfully, Porter suggests pairing items that are a natural fit (e.g., coffee and a pastry) and change deals frequently so customers don’t get too attached.
With menu-labeling laws already on the books or being considered across the country, QSRs are adding healthier items to their menus — many aimed at the breakfast daypart.
Earlier this year Dunkin’ Donuts gave customers the option to order any of its breakfast sandwiches with egg whites; Starbucks promoted a line of 90-calorieor-less beverages; and McDonald’s is testing oatmeal.
Though Technomic’s Tristano says there is often a disconnect between consumers’ desire to eat well and what they actually order, it’s clear they want to see healthy options on the menu. And though more foodservice customers indicated that it’s important that a breakfast item tastes good and is filling, almost half also said it’s important that it’s healthy.
In response to requests from customers for healthier breakfast options, Quick Chek in February launched an egg white turkey sausage omelet sandwich on a multigrain roll with 350 calories and six grams of fat. At time of press, Vespole said it was the stores’ third most popular made-to-order breakfast item.
Convenience store operators intimidated by the legwork required to build a breakfast program from scratch, or whose sales aren’t up to par, can consider partnering with rather than competing against QSRs.
Partnering with a nationally recognized brand can lend credibility to a convenience store’s foodservice program, says Shultz Hartgrove, senior vice president of convenience development for sandwich chain Quiznos, which in March debuted a national breakfast program to court convenience stores.
“It gives [customers] that comfort in the c-store operator,” Hartgrove said. “It’s perceived to be cleaner, safer and a better value because the consumer doesn’t have to make an extra stop.”
Hartgrove says when convenience store operators open a Quiznos franchise on site in-store sales can improve, too. “People are clearly coming in and buying other stuff,” he said.
But Steve Rosen, chairman and CEO of franchise consultancy FranNet, says partnering with a QSR doesn’t guarantee killer breakfast sales. Because so many breakfast offerings are similar across the chains, it’s important to choose a quick-service partner that has made a name for itself in the daypart. There are costs — including equipment, franchise fees and ad contributions — to consider, and the franchisor likely won’t grant exclusivity rights.
“You might find yourself spending a couple million only to find out they’re building another store right across the street,” Rosen said. Before signing on, operators should do their homework.
“It comes down to how much that brand is worth,” Rosen said. “Ask yourself, ‘Will it bring more people into the store? What am I adding to the menu that I couldn’t do for myself? Am I going to be getting enough to justify what I have to give up?’”
Jamie Hartford is a freelance writer based in Hood River, Oregon. She specializes in covering the business of food.
***
If competition in the breakfast ring was fierce before, it got a lot tougher this spring with the entrance of heavyweight Subway. The largest U.S. restaurant chain by units debuted a new morning menu in most of its 23,000-plus locations in early April.
Like Subway’s other offerings, its new omelet sandwiches are built to order with the customer’s choice of toppings and condiments. They are available on the chain’s seasoned six- or 12-inch sandwich breads, a light wheat English muffin or flatbread.
“This is really an extension of what we’re known for and what we’re already doing,” said Les Winograd, Subway spokesman.
Options include regular omelet sandwiches and four Fresh Fit Egg White Muffin Melts, each with less than 180 calories and less than 4.5 grams of fat. Suggested prices range from $1.75 to $6.00, depending on the type of sandwich and size. Also available are sides such as yogurt and apple slices.
Though Subway franchisees have had the option to serve breakfast for some time, only around 9,000 previously chose to do so, Winograd says. Franchisees whose leases or other contract requirements prevented it were allowed to opt out of the new breakfast program, but a few days before launch the company expected wide-scale participation among its locations, including some in convenience stores.
“We felt that this was the right time to roll out breakfast nationally,” Winograd said. “We have franchisee buy-in, a national advertising campaign behind it, and great products. We also just launched a national coffee program with Seattle’s Best Coffee, because you can’t have breakfast without good coffee.”