C-Stores Fight New Foodservice CompetitionJanuary 11th, 2011 | Posted by in Uncategorized
Washington D.C. – As we’ve discussed before, convenience stores have their sites trained on the lucrative quick service prepared foods market. Through a languishing economic recovery, consumers are looking for quick and convenient meal options at affordable prices without sacrificing quality.
Many c-store operators believe prepared foods to be key to customer loyalty and higher profitability. For example, Steven DeSutter, president and CEO of Stripes, is recently quoted in Convience Store News as saying that prepared foods is their “greatest loyalty program.”
In Asia, where convenience stores are even more popular than in North America, c-stores are aggressively expanding their fresh food offerings as well. For example, 7-Eleven (over 4,700 locations) and FamilyMart (over 2,300 locations), the two largest c-store chains in Taiwan, are both adding seating areas to accommodate customers coming in for a fresh snack.
Convenience stores have posited a number of value generators provided by fresh foods, including:
- Generating incremental visits to buy prepared foods
- Attaching other items from the convenience store to the same basket, thus increasing basket size and customer share of wallet
- Increasing customer satisfaction and loyalty
- Driving total store sales and increasing overall profitability
Sounds like a winner for everyone involved. So what are the dangers of introducing / expanding prepared foods offerings?
The Importance of Testing
As we noted earlier, a significant requirement to winning is mitigating the unique risks inherent in food service:
- Equipment is pricey
- Food preparation is highly labor-intensive
- Building a successful menu is challenging
- Profits can erode quickly if spoilage is not properly managed
Additionally, the margin contribution of prepared foods must be weighed against cannibalization of existing packaged food lines as well as the opportunity cost of using valuable store space for other uses. Evaluating prepared food expansion plans by running a small scale, limited-risk test is proved the best tactic for a number of sophisticated convenience retailers, including Wawa. Chris Gheysens, Wawa’s CFO, credits in-market testing and rigorous program evaluation with maximizing Wawa’s fresh food program effectiveness.
Testing in Practice
The best practice in-market testing capability answers three key questions about any business idea to properly evaluate it:
- What impact does this initiative have on my results – revenues, profits, shrink, customer satisfaction, etc.? When measuring the investment impact of prepared foods, it is crucial to evaluate what’s happening to the other parts of the store. Are regular snacks being cannibalized? Are there positive halo effects on drinks?
- Does the initiative have larger impact on some stores and/or customers than others? What is the predicted impact by store and by market, and can I design a rollout program that maximizes returns?
- What value is created by the individual components of the initiative? Can we eliminate certain food items from the menu to maximize effectiveness?
Only by accurately answering these questions can you evaluate and maximize the effectiveness of expanding prepared foods.