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Be a Super Market

While grocery departments have shrunk, convenient packaging and fresh produce offer pockets of opportunity for c-stores.

​By Debby Garbato

A convenience store might not be the first stop for purchasing a Thanksgiving Day turkey and all the trimmings, but come summer, sales of sauerkraut, ketchup, hamburger buns and other barbecue-related items spike—even as convenience store grocery sections have continued to shrink. It’s these kinds of seasonal opportunities, along with more fresh fruits and veggies and the special needs of rural and low-income markets, that can generate strong performances in the edible and perishable grocery categories.

Over the past decade, grocery items in many c-stores have been replaced with faster turning, higher margin merchandise. “We’ve reduced the category in favor of growing categories like beer, energy drinks or water,” admitted David Crawford, vice president of marketing and operations at Las Vegas-based Green Valley Grocery. “The grocery items we offer usually meet immediate needs.”

Edible grocery sales decreased slightly in 2015, according to recently released NACS State of the Industry data. Average annual same firm sales fell to $15,394, a 1.7% decrease year-over-year.

“Edible grocery is a staple of c-stores, and consumers expect cereal as well as shelf stable food to be stocked,” said Stephan Mecklenburg, research coordinator at NACS. “However, retailers have been struggling with their ability to compete with other channels for the fill-in grocery occasion and have been slowly reducing the amount of space devoted to edible grocery. There is still plenty of opportunity to reinvigorate the category with the right product mix and an understanding of the shopper’s needs.”

Many retailers have also cut grocery square footage to expand foodservice. Enticed by high margins, some operators have shifted space from shelf-stable and fresh grocery products to foodservice offerings like hot, cold and frozen dispensed beverages and food prepared on-site.

“Foodservice is more profitable and drives traffic,” said Eric Bray, senior national sales manager at Jersey City, New Jersey-based Goya Foods. At a Bronx, New York, 7-Eleven, for example, the grocery section occupied just four feet, and half of that was filled with Lunchables and single-serve cheeses.

Core Grocery Products
Today, shelf-stable grocery is limited to core items, such as coffee products, dry packaged foods, condiments, boxed cereal, baking items and meat/ seafood. These account for 70% of c-store grocery sales, according to General Mills. “There are six ‘power’ segments,” said Kelly Fulford, convenience senior category development manager for the manufacturer. “These are the functional drivers of the overall grocery category.” Within these categories, ramen, salad dressing, dry soup, chili and coffee are the top contenders.

In Beaverton, Oregon, Plaid Pantry features fresh fruit, fresh bread and eggs. “Space from shelf stable grocery has eroded,” said Tim Cote, vice president of marketing. “[Meanwhile] beverages, tobacco and snacks are still the most important categories. Perishable and frozen are good growth areas, but breakfast is always best.”

Sales of cereal and other items are being driven by convenience store-friendly packaging that lets consumers eat directly from the container. These packaging innovations include small, ready-to-eat cans of soup and ravioli, along with Cheerios and other cereals in foil-covered plastic bowls, Crawford said.

“Every year, for the past five or 10 years, there’s been more innovation,” he added. “Most major brands now have c-store packages. With cereal, it used to be either big boxes or single-serve boxes. Now, there’s plastic bowls or containers designed for customers who are going to eat it within five minutes.” According to Fulford, 67% of shoppers expect c-stores to carry cereal; 59% leave if they do not see their favorite brand.

Yet the popularity of ready-to- eat packaging extends beyond cereal. At Green Valley, the top selling grocery item in units is Cup Noodles Soup.

Goya is also focusing on convenience store packaging. Its refried beans are in microwaveable pouches; other beans (and soups) come in single-serve cans. Goya also offers instant rice mixes, frozen empanadas and Jamaican beef patties. “We’re not selling our 20-pound rice bags,” said Bray. “We focus on high volume items that cross over from the Hispanic to the general market.”

A Fresh Start
For a growing number of retailers, fresh produce presents opportunities. According to NACS State of the Industry data, average sales for perishable grocery items increased in 2015 to $19,418 annually, an average same firm increase of 24.0% over 2014.

“C-stores managed to grow fresh produce sales despite significant challenges with consumer perception, spoilage and merchandising,” said Mecklenburg. “Many chains have recognized the opportunity to capitalize on current shopping trends, and have ramped up their fresh produce offerings. Stocking items like cut fruit appeals to health conscious, on-the-go consumers and helps to position stores as a destination for healthy and fresh food.”

Convenience stores have no intention of becoming farmers’ markets, although there is a need for every day, high turning fruits and vegetables. “You won’t find 50 varieties of produce,” said Bray. “They’ll have highly consumed items like cucumbers, tomatoes and onions.”

However, convenience stores have traditionally been viewed as destinations for junk food, not fresh produce. Via an initiative called reFresh, NACS is working to change this. The program aims to educate the public about convenience stores’ community contributions, correct outdated perceptions and partner with nutrition-focused organizations. (Learn more about the NACS reFresh initiative at nacsonline.com/refresh.)

Jeff Lenard, vice president of strategic industry initiatives for NACS, said this involves more than suggesting retailers sell more produce. “It’s about demonstrating the business case, educating affiliated groups and giving them tools to succeed. It’s about regularly surveying consumers about shopping habits and using this research to develop programs to focus on those consumers most likely to purchase produce. And, it’s about working toward new opportunities—to not just obtain produce affordably, but to effectively merchandise and market it.”

Last year, NACS partnered with United Fresh Produce Association to develop the “Are You Fit for Fresh?” toolkit that helps chains evaluate the potential of implementing fresh produce via a simple, 10-point checklist. NACS formed a partnership with United Fresh in June 2014 to help grow convenience store produce sales.

NACS also joined forces with the Hudson Institute, a research company, to produce “Wellness Strategies for the Convenience Store Sector.” This report delves into consumers’ changing purchasing patterns. Another publication, “Healthy Food & Small Stores,” was produced in cooperation with The Food Trust, an organization that works to ensure that all neighborhoods have access to affordable, nutritious food.

Some convenience retailers have joined forces with the Partnership for a Healthier America (PMA), which works with private businesses and PHA honorary chairperson First Lady Michelle Obama to facilitate healthy food choices for busy families. One PMA partner, La Crosse, Wisconsin-based Kwik Trip, is offering apples, pears, oranges, tomatoes, avocados, potatoes and onions along with bananas, which it introduced 10 years ago.

Today, Kwik Trip’s 476 stores move about 20 semi-truck loads of bananas weekly. According to a PHA press release, Kwik Trip’s total bulk produce sales grew 5.5% in 2015 and the retailer plans to further expand healthy options this year.

Other large chains, including Wawa, Sheetz and 7-Eleven, have also been aggressive about offering fresh produce, as have some smaller retailers. Working with the PHA, U-Gas (with stores in Missouri and Illinois) and Twice Daily (Tennessee and Kentucky) plan to increase produce offerings and other healthy options over the next few years. Other regional players, such as Green Valley Grocery, offer apples, limes, lemons and bananas near registers.

Rotten Tomatoes
Despite the benefits of offering produce, c-stores worry about waste. Since they often lack skilled produce managers, retailers must train employees to handle produce. But handling a product that somebody is going to pick up and eat is different from placing cans of soup on a shelf.

“It’s a shift in dynamics,” said Robert Wolf, food operations manager at Nebraska chain Pump & Pantry. “Employees are used to stocking shelves and rotating items. Now, they must recognize when produce is getting old. We don’t just have c-store clerks; we have food handlers who work in a c-store.”

Wolf also circumvents the problem by incorporating slowly moving produce into foodservice. “I want items that work in more than one channel. Our stores with produce also make pizza and fresh sandwiches with lettuce, tomatoes and onions. And if they’re not turning, potatoes become French fries.”

Other retailers offer produce seasonally. Some allow trucks filled with watermelons or pumpkins to set up in parking lots. Hence, rotten fruit is somebody else’s problem. In Pennsylvania, Rutter’s partners with local strawberry farmers each spring. Other retailers allow local farmers to set up outdoor produce stands. Regardless of strategy, sporadic offerings attract motorists who may not otherwise stop.

Unique Markets
Some markets present bigger opportunities for grocery, including rural areas, low-income neighborhoods, truck stops and stores near campgrounds. In rural communities, Walmart may be an hour away or the local supermarkets close early. Hence, the convenience store, which is often open 24/7, serves the quick grocery needs of the community.

In New York’s Syracuse market, Nice N Easy Grocery Shoppes sells produce outside a dozen rural and interstate locations. Bins hold freshly picked apples, watermelons and salt potatoes from local farmers.

Pump & Pantry’s rural locations offer wider assortments of eggs, bacon, bread and one-pound bags of flour “designed to get you through to the next shopping venture,” said Wolf. With one store, the retailer met with the city council to determine what that community needed and wanted.

One rural location sells produce, too, as does a high-volume Pump & Pantry truck stop near low-income apartments. Vegetables are displayed in a four- by-four foot refrigerator set, Wolf said.

Green Valley Grocery also operates in low-income neighborhoods where residents receive Supplemental Nutrition Assistance Program (SNAP) benefits. In fact, one store’s Electronic Benefits Transfer (EBT) card purchases are 10% of total sales. But a proposed rule by the Department of Agriculture’s Food and Nutrition Service will make it increasingly difficult for convenience retailers to participate in SNAP, thereby negatively impacting customers that use their SNAP benefits at convenience stores.

While the future of SNAP in convenience stores looms, retailers do not foresee any surprises in grocery as a whole. “Ten years ago, we might have had eight feet,” said Crawford. “Now, we have maybe three. Will it go away? Probably not. It should always play a vital role. After all, we’re convenience stores.”

Debby Garbato is an independent business journalist and research analyst who has covered retail for 25 years.