By Maureen Azzato
Foodservice is saving some retailers’ bacon during this protracted recession. In the face of cost increases in many top categories, lower customer counts, softer sales and tighter margins, foodservice shines bright in a dark time for many retailers.
While the category may not be yielding double-digit sales growth as it did a few years back, many convenience retailers are grateful that foodservice continues to grow in this challenging economic climate.
But operators realizing any sales and gross-margin-dollar growth in foodservice have worked hard to make that happen. Rolling up their sleeves and getting back to basics, retailers have trimmed costs where possible, and revved up their competitive positioning and marketing programs to boost value, raise customer counts and increase the size of transactions.
“People are economizing even if they don’t need to,” said Jack Cushman, executive vice president of food services at Nice N Easy Grocery Shoppes, operator of 85 stores, based in Canastota, New York. “Overall, we have been mostly making marketing and buying changes in this environment, as opposed to menu changes, to improve our foodservice results.”
Indeed consumers are trading down in this economy, but the trend works somewhat to the advantage of convenience stores, according to Cushman. “We are serving people today that in the past might have been adverse to eating on the run. I see this as an opportunity to service a lot of new customers who now are looking to economize.”
With construction down in most parts of the country, the convenience store industry’s blue-collar bread-and-butter customers have all but disappeared. “We see a lot of new faces in our stores and this is an opportunity to win them over with our value and customer service,” Cushman said.
And although consumers are trading down, it doesn’t mean they will relinquish quality, according to Michael Sherlock, director of foodservice for 569-unit Wawa Inc. “the things we’ve found that are important during this time continue to offer value to the customers but not by sacrificing quality.”
Despite the recession, Nice N Easy and Wawa are experiencing foodservice sales and profit growth, which both executives attribute to food waste reductions, smart buying tactics while commodities prices are low and value marketing initiatives.
“We’ve been able to save costs by controlling spoilage at the store level and are really looking at the financials of what products are selling at what time of the day and making sure the right product is available for our customers,” Sherlock said.
Over the past two years, Wawa has implemented SAP custom software solutions, which yield critical item-level foodservice data — something few convenience store operators are able to do because cost-effective turnkey solutions are not readily available yet.
“We have a model now in place that tells direct-product profitability down to the SKU level,” Sherlock said. “We know what we are making on any item at any given time of day. This has really helped us maximize profitability and cut waste. …It’s not about cheapening ingredients. It’s helping us identify where can we trim fat that we were basically just throwing away.”
Cushman agreed that excess food waste will decimate a foodservice program. “If portions aren’t right or your people are stealing or you’re overproducing on products hot and/or cold that are not made to order, food waste will kill your profits. If you are not watching those things you could easily lose five percentage points on margin.”
Not yet at item-level inventory, but working hard to get there through Professional Datasolution’s forthcoming foodservice module, Nice N Easy recently assigned a food waste price lookup (PLU) key to its POS system so that the store manager records any discarded items. “If nothing else, it is knowing the office is tracking waste a little more closely,” Cushman added.
Amer Hawatmeh, a multi-unit independent operator with four stores that focus on foodservice, works 14- to 15-hour days in his stores and has had to cut back on labor as well as other areas.
“We’re doing a little bit of everything and relearning how to run our business better all over again,” said Hawatmeh, president and CEO of St. Louis-based St. George Oil Inc. “We’ve had to cut back, but there’s only so much infrastructure you can cut. I am back as general manager, buyer, food preparer, cashier — that’s what it takes today.”
Over the past year, Hawatmeh has maximized his profit by tapping into foodservice distributors for some of his buying, especially to support his pizza program. By using traditional restaurant sources, he can get more products for lower prices than his regular distributor offers.
“I can make a 16-inch pizza now fully loaded with pepperoni or sausage for under $3. If I went [through my traditional distributor], a 12-inch pizza would cost me $4.”
Food sales at Hawatmeh’s stores in St. Louis and Tampa, Florida, are up about 5 percent, but profitability is up about 10 percent due to savvy product buying.
Sourcing product more cheaply has also helped Nice N Easy and Wawa maximize profits in tough times. Both chains track the commodities market very closely and are buying coffee, deli meats and cheeses, foodservice packaging and other paper products while at record low prices.
Because commodity prices have stabilized, Nice N Easy has implemented a lower pricing strategy and special promotions around subs, wraps and pizza.
“We’re going to market with lower prices so our margins may be a bit lower on some items, but it is part of our strategy to grow volume and customer counts,” Cushman said. “Because of the recession we’re going to market with a $4.99 sub every day, any day. It’s not every sub we carry; it’s three select subs every month with a rotation.”
The result has been significant double-digit sandwich sales growth this past year. The chain’s regular subs sell for $5.69. Another driver is the $6.99 pizza with 89 cents for additional toppings, a special that — pre-recession — only ran on Mondays, Wednesdays and Fridays from 5:00 p.m. to 7:00 p.m. that program has since been extended to any time, any day due to its popularity.
Most successful convenience store promotions are running about $1 less than quick-service restaurants (QSR), according to Tim Powell, convenience store foodservice program director for Technomic, a Chicago-based foodservice consultancy.
“Quick-service restaurants and limited-service restaurants [LSR] have been rather insulated by the recession and some of that has been due to the shift to combo meals,” Powell said. “A few years ago we thought dispensed beverages would be in a real tailspin; we didn’t see the segment growing. But when the economy turned, one of the key components for the combo meal is carbonated soft drinks, which is how many QSRs and LSRs are recouping a lot of their profits.”
Foot traffic has been down in all food-service segments, but QSRs and LSRs are increasing their check averages with combo meals, which Powell said he is starting to see more convenience retailers implement. Kids meals are another great a way to attract families, he added.
“Families with kids have not been going out to eat too much lately, so everyone is trying to draw in the families by appealing to kids with discounted meals or kids-eat-free promos,” Powell said.
However, Arlene Spiegel, New York City-based foodservice consultant at Spiegel & Associates Inc., warned that offering promotions that cut prices too deeply could damage the business long-term. “The really smart operators who are in the business for the long run are using this time to rethink and retool their operations and marketing initiatives,” she said, adding that many of today’s cost-saving initiatives will continue when times get better.
“There’s no turning back once an operator sees the value in paying attention to the details,” she said. “This is really a nickel and dime business at the end of the day, and those coins can mean the difference between success, failure and often survival.”
Maureen Azzato is a freelance content developer and editor. Most recently, she was publisher and editorial director of On-the-Go Foodservice, a publication for cross-channel retail foodservice executives.