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THE BUSINESS OF CONVENIENCE RETAIL MAY 2017 | CSPDAILYNEWS.COM

CSP’s desire for c-store foodservice, portrayed as a breakfast burger: big, bold and unforgettable.

HOW DO WE STACK UP? The latest score of the c-store foodservice game

CSP / VOLUME 28 / ISSUE 6

CSPDAILYNEWS.COM

CONTENTS MAY 2017 38 COVER STORY

Level Up Is the c-store industry winning the foodservice game? No, and yes. BY A IMEE H A RV EY

F E AT U R

ES

Dishes such as this lo mein entree from Swiss Farms are changing the image of c-store food.

48 GRAND OPENING

A Big Break Breathable space and barbecue anchor MFA Oil’s latest store prototype. BY MITCH MOR R ISON

56 SPECIAL REPORT

QuickChek Rising The company’s path to its 50th anniversary is paved with convenience milestones. BY GR EG LINDENBERG

63 CASH-MANAGEMENT REPORT

Greenback Flak C-stores may suffer from a bundle of cash-related issues, but tech-driven solutions are on the way. BY ER IK J. M A RTIN

73 CONFECTION

Form and Functional Retailers ponder whether— and where—to place benefitboosted candy and gum. BY STEV E HOLTZ

Cover and photograph on this page by Clint Blowers; food styling by William Smith

CSP (ISSN: 1077-5536; USPS #006-523) is published 14 times a year by Winsight, LLC and includes 12 monthly issues and 2 handbook editions—Category Management in April and State of the Industry in May. Editorial, Sales, Production, and Circulation offices are located at 300 S. Riverside Plaza, Suite 1600, Chicago, IL 60606. Subscriptions: One year—$95; Canada—$110; Latin America and all other foreign countries (airmail)—$185. Single copies—$15, except foreign, where postage will be added. Remit by Check, Draft, Postal or Express orders. Other remittances at sender’s risk. Address all communications for subscriptions or circulation to P.O. Box 1328, Northbrook, IL 60065-1328. Periodicals postage paid at Chicago, IL and additional mailing offices. POSTMASTER: please send address changes to CSP Magazine, P.O. Box 1328, Northbrook, IL 60065-1328. © Copyright 2017. All rights reserved, including the right to reproduce in whole or in part. CSP® is a registered trademark of Winsight, LLC. The views presented in advertising do not necessarily reflect the views of Winsight, LLC.

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Maverik is taking steps toward becoming a “food destination,” with 40 sites now offering customizable pizzas and made-toorder street tacos.

Are c-stores winning the foodservice game? No—and yes

BY AIMEE HARVEY, ABBIE WESTRA AND ANGEL ABCEDE

PHOTOGRAPH BY DAVID NEWKIRK / ILLUSTRATION & LETTERING BY GARY MUSGRAVE

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Defining an Industry

ich Green has a lot on his plate: towering sandwiches, fiery burritos, a muffin brimming with molten dark chocolate. There’s a lot in his bowl, too: C-store foodservice can be organized mounds of mashed potatoes, into three main “tiers,” according gravy, sausage, bacon and to Technomic. While some chains fall ham. Oh, and a biscuit. Yes, into a single group, several have cheese too. Probably a chili multiple footprints with both legacy sauce for some heat. stores and new builds. As such, Adventure-themed Maverik the numbers account for actual stores has built its foodservice appeal vs. entire chains, because many on a program that’s “different chains have stores in two or more tiers. from the food you may find in the typical convenience store,” says Green, the chain’s director of foodservice. “It’s a little spicier, edgier and more ethnic than you would expect.” Lately, the 300-store Salt Lake Citybased chain has set its sights on made to order. It’s talking customizable wood-fired Neapolitan pizzas with charred-to-a-blister crusts and freshly made street tacos with shredded meat and crumbled Mexican cheese. Its everyday customer already knows it for bold flavors and hearty portions, but Maverik wants to take its foodservice up a level. And it has the profits to propel it, growing foodservice samestore sales near and sometimes above double digits for the past three years. “But it’s not enough,” Green says. “When customers consider us to be a food destination above all else, I’ll consider Basic 89% Maverik a successful foodserPremium 8% vice establishment.” Scott Simon’s obsessed Superpremium 3% with his customers, too. He’s president and CEO of Broomall, Pa.-based Swiss Farms, a convenience drive-thru chain that’s making aggressive moves into a niche that’s more competitive with restaurants. The company has brought on a new executive chef to spearhead wide-ranging enhancements: wholesome dinner entrees, Traditional hot/cold beverages (coffee, fountain, frozen) made-from-scratch items, on-site prep and Limited or no on-site preparation and no made-to-order options customizable school lunches that appeal to Limited roller-grill offerings and grab-and-go food options kids and parents alike. Its latest target seeks Limited condiments to offset the competitive disruption from Minimal merchandising/signage meal-kit companies. “Swiss Farms Signature Meal Kits are next on the horizon,” says Simon. “When you

Premium Basic offerings plus …

Limited specialty beverages (e.g., espresso machine) Broader roller-grill item selection Limited made-to-order options, some on-site prep Extensive grab-and-go offerings Broader condiment offerings Foodservice merchandising/signage is prominent in store

Superpremium

Premium offerings plus …

Broad specialty beverages (e.g., espresso, cappuccino, chai) Extensive/varied roller-grill and grab-and-go offerings Extensive made-to-order offerings and on-site preparation

The Lay of the Land

Customization via extensive condiment offerings

n 2016, Chicago-based research firm (and fellow Winsight brand) Technomic conducted a study that sought to provide a data-based definition of c-store foodservice. The data gathered was broken down into three tiers—basic, premium and superpremium—that help to clarify where the industry is today, and the realities of how it can grow. At the basic level, the roller grill and fountain are king and queen. Signage is minimal and on-site prep is even more rare. (See the illustration on this spread for a complete breakdown of the tiers.) Move up to the premium level, and these stores are providing the food and drink options of the basic tier, but with a wider variety of choices. Here, customers can expect to find menu offerings with more of a specialty positioning, and the merchandising

Focus on fresh, quality ingredients Foodservice is a focal point of design, including in-store seating

Basic

40

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preorder through a mail-service program, you have to think ahead for that order. But with us, all you have to do is drive through. “We are successful because we always put our customer first,” Simon continues. “We don’t cook for ourselves.” These are two c-store chains in very different markets, serving very different audiences. On one hand is the extremesports-themed concept with its towers of indulgence; the other, a neighborhood chain serving up meatloaf from the drive-thru. Both are far from the catch-all menu of many c-stores and more like the concept-driven restaurant industry, with its “fast-casual burger” and “family-dining Italian” segments. But their aims are the same: Focus on the customer, play to your strengths and keep your brand identity in focus—all while taking the calculated risks necessary to advance. They’re hustlers, keying into the foodservice opportunity the industry has been trying to bag for more than a decade. But they’re also aspirational exceptions to the more realistic norm. For years, the industry has been talking about foodservice as the magic bullet for growth. So are c-stores winning the foodservice game? No. And yes. Turns out, it depends on how you define winning.

Source: Technomic

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How Do the Biggest Chains Fare?

Kum & Go has been focused on its Go Fresh Market concept with made-to-order sandwiches and cafe-like pastries. Everything points to the idea that the time is now for c-stores to maneuver upward. The consumer is ready, the industry is waiting and all that’s left is for companies to accelerate. But if that’s true, why has the gap between the basic and premium levels remained so vast for so long? Is the industry finally on the verge of a seismic shift among foodservice tiers?

In the spirit of Technomic’s tiers, CSP editors reviewed foodservice programs from the top 50 chains by store count. The takeaway? Lots of gray area.

Right-Sizing Growth he short answer is no,” says Crecca. “We are years away from seeing any sort of significant movement up, especially between basic and premium tiers. “Even though about nine out of 10 c-store operators are saying that foodservice is a strategic priority for their business … the reality is that the level of investment is going to vary dramatically from operator to operator.” Consider the sheer size of the basic tier and the number of c-stores in this group. What would it take for a retailer with hundreds or thousands of basic foodservice stores to propel themselves upward? “So much has to be considered for operators that are trying to make that leap,” says Crecca. “They’d have to ask themselves, ‘Is foodservice even a strength for us now? What is the core competency of our company?’ ” If foodservice were a category on the SAT, the analogy would go like this: Basic c-store foodservice is to quick-service restaurants (the bulk of industry dollars, yet mature and with smaller growth projections) as premium and superpremium are to fast casual (flashy and fast-growing, yes, but a just sliver of the store count and dollar sales pies). The real crux of the challenge lies in the

“There are ways to grow where you’re planted.”

4

Amount of top five chains in the basic tier: 7-Eleven, Circle K, Murphy and Speedway

The amount that received unanimous superpremium status: Sheetz and Wawa

4%

16%

The amount (eight chains) that received strong premium votes: Cumberland Farms, Giant Eagle GetGo, Holiday Stationstores, Kum & Go, Kwik Trip, Maverik, QuickChek and RaceTrac

Source: CSP editorial staff, CSP magazine and CSP Daily News

and signage to support it. Superpremium c-stores are truly foodservice destinations. Food and drink is a central facet of the brand’s overall identity. There usually are seating areas, open-kitchen designs and a technology component, such as digital menu boards or kiosk ordering systems. The primary message communicated by superpremium brands is about freshness, quality and restaurant-style preparations. Reflecting the patchwork complexity of our industry, these three buckets aren’t static: One chain with hundreds or thousands of locations can operate stores within multiple tiers. And many do. But the real takeaway, says Donna Hood Crecca, associate principal of Technomic, is how store counts shake out among the three: A whopping 89% of c-stores fall into the basic tier. Eight percent are considered premium, and 3% fall into the superpremium bucket. “The superpremium players—the Sheetz and Wawas of the world—they’re like restaurants,” says Crecca. “But while they get a lot of ink, they’re not representative of this industry at all.” Why is there so much room at the top? Fundamentally, it’s hard to turn a gas station into a restaurant. And it’s tough to combat lingering perceptions about food quality. “We are still constantly faced with having to prove that you can get great food at a c-store,” says Ieva Grimm, a former retailer who is now president of Duncansville, Pa.based consultancy Synerge. But the ground may be shifting: Nearly 60% of all foodservice consumers believe c-stores are just as capable as restaurants in providing fresh food and beverages, according to Technomic. Of these consumers, 67% were millennials—the most frequent visitor for c-store foodservice and the massive, diverse consumer group that increasingly has more money to spend on dining out. Meanwhile, chains from west to east are investing in foodservice. Thorntons has been rolling out its “Real Kitchen. Real Food.” store concept with made-on-site meals. QuikTrip continues to expand its QT Kitchens made-to-order concept. In January, Pilot Flying J made its foodservice strategy known by hiring former KFC and McDonald’s executive Shannon Johnson to fuel its PJ Fresh Marketplace brand. And

Amount of chains qualified as “on the move”: Maverik, QuickChek, QuikTrip, RaceTrac, Royal Farms and Thorntons

5

6

Amount of chains with split votes for varying in-store format or channel blurring: CST Brands, Giant Eagle (GetGo), Mapco, Speedway and Sunoco/Stripes

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industry’s jumble of store types. “We’re seeing companies move toward enhancing their foodservice offer, but most will be unlikely to do it throughout their entire system,” Crecca says. But that’s not necessarily a bad thing. The fact that the consumer perception of c-store food is trending positively means many operators within the basic tier must be doing something right—or, at the very least, have figured out what quality, great taste and value mean to their customer base. “There are ways to grow where you’re planted,” she says. “Consumers tell us that convenience stores are on par with QSRs for coffee quality, as well as service and convenience. Basic c-store locations may make up the overwhelming majority share of this industry, but they’ve still gained that strong vote of confidence from the consumer. Not every chain has to think and act like a restaurant, and that’s OK.”

An Army of Ones rimm agrees that there won’t be a sonic boom of big, national chains suddenly doing foodservice overhauls. (See p. 43 for our assessment of who’s making moves.) But she does see foodservice slowly and steadily heating up on the local stage. “Future growth in c-store foodservice will come from the 110,000 smaller independent operators,” Grimm says. “They’re showing more creativity than the big brands and starting to figure out how to leverage what is special about them.” She points to Mendez Fuel, Coral Gables, Fla., a traditional enough store on the outside selling flavorful empanadas and freshsqueezed juices inside. In Sonoma, Calif., Bonneau Market features Carneros Deli, which serves up high-quality deli meats sliced right at the counter and daily specials developed by the deli staff. Along with the one-store wonders, Bucee’s, Enmarket, Rutter’s and a notable number of other leaders are proving the foodservice potential for chains with store counts below triple digits. Sixty-six-store Wallis Oil began testing its own concept, On the Way Cafe, in 2013, and it regularly pivots with the realities of product sourcing, menu rationalization, execu-

Cross-Channel Comparisons

Foodservice may be a ripe opportunity for c-stores, but competition from traditional restaurants and supermarkets remains intense. Fast-casual and supermarket segments are bringing in the big gains, while c-store foodservice looks more like the mature quick-service market dominated by McDonald’s and other legacy names.

Foodservice Growth Forecast SEGMENT

2016 RETAIL SALES EQUIVALENT ($ BILLIONS)

2017 NOMINAL CHANGE

2017 REAL CHANGE*

Fast casual

$47.0

9.0%

6.1%

Supermarket foodservice

$30.8

8.9%

6.0%

Quick service

$221.0

4.0%

1.3%

Convenience stores

$20.4

4.0%

1.3% *Adjusted for inflation

Source: Technomic Foodservice Industry Forecast, 2016/2017

C-Store Foodservice Revenue by Tier SEGMENT

RETAIL SALES ($ BILLIONS)

RETAIL SALES %

SHARE OF SALES OF PREPARED FOOD

SHARE OF SALES OF BEVERAGES

Basic

$16.6

85%

18%

82%

Premium

$2.1

11%

26%

74%

Superpremium

$0.8

4%

35%

65%

Source: Technomic 2015 C-Store Foodservice Multi-Client Study

tion and marketplace demand. “If we didn’t get into it now, it could be a matter of [dire] business [consequence],” says Rachel Mehl, specialized category manager for the Cuba, Mo.-based chain. Visual presentation is critical for the concept, which is now in three locations, with plans for three more. Its flagship store has an open kitchen design that lets guests watch staff prepare their orders—items such as panini, burgers and chicken sandwiches. “Everyone wants healthy, but all our fried

“Not every chain has to think and act like a restaurant, and that’s OK.”

snacks are in our top 10 sellers,” says Mehl. The open kitchen is an opportunity for customers to speak to staff to make sure orders are correct. “We wanted to put that theater right in front,” she says. “Customers can see we’re not just pushing a button on a machine.”

Execution,With a Smile hat employee-customer connection is often the secret sauce analysts identify as the difference between foodservice winners and losers. For RaceTrac Petroleum, it has been a big factor behind its push toward premium stores. “We treat our team members like family and, in turn, they are committed to give the best guest experience to the folks who walk through our doors every day,” says Robby Posener, vice president of marketing, merchandising, design and construction. Atlanta-based RaceTrac has been on M AY 2 0 1 7 C S P

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Where There’s a Will

The vision and investment needed to vault from one level of foodservice to another typically starts at the top, working its way down through the hiring, training and gradual transformation of culture. For the past few years of CSP’s annual Outlook Survey, retailers have expressed their desire to make the leap.

What profit centers are you planning to build/expand in the year to come?

58% 50% 25% Coffee

Foodservice

Fountain

36%

32%

28%

18%

15%

7%

Launch or expand proprietary program

Launch or expand coffee program

Launch or expand fountain

Launch or expand frozen carbonated beverages

Branded QSR

Build or partner with a commissary

What type of proprietary program will you launch? Prepared on-site

65%

Made to order

55%

Self-serve

29%

Commissary based

23%

“Don’t take on a lot at one time; what you do, do it really well.”

› for great, basic roller-grill fare or a superpremium specialty latte, believes in the convenience retailer’s capabilities. They’re ready. “Of all the products we sell, fresh prepared food is certainly the most complicated and dynamic, but it’s also the most fun,” says Green. “It’s an opportunity to tell your customers who you really are, or who you really want to be.”

Source: CSP Outlook Survey 2016

How will you grow foodservice?

Photograph by David Kirkland

its own path from basic to premium. It has experienced success with its 6K prototype, which debuted in 2012 with made-to-order pizza, its Swirl World frozen-yogurt concept and the rollout of touchscreen ordering for customization. Other 6K elements yielded less direct success, but plenty of lessons. “The Southwest [made-to-order] concept is being pulled from our stores, but it provided great learnings that led us to the pizza, assembled breakfast sandwiches and made-to-order options being rolled out today,” says Posener. “Our guests always keep us engaged in the improvement process.” If hospitality is the secret sauce, then execution is the concrete foundation. “Even if a retailer has all the other moving parts in place—the uniformity of offerings, food safety, products, equipment—they still have to look closely at execution,” says Crecca of Technomic. “The team has to be able to convey quality, value and craveability to the customer, and they have to be the kind of staff that understands the operational mentality of a restaurant.” “We’re more committed operationally than we’ve ever been before,” says Green of Maverik. “That’s not to say that we don’t have a long way to go, but when our customers express delight with our offering and reward us with increased purchases, it catches on. Our store employees get excited, pay more attention and make the program better.” Forty Maverik stores now feature the aforementioned customizable wood-fired Neapolitan pizza, and 12 offer made-to-order street tacos and burritos. Simon of Swiss Farms emphasizes patience. “This is something that’s done over a span of time, and it’s not a quick win,” he says. “Start small and grow into what works. Don’t take on a lot at one time; what you do, do it really well.” While a seismic wave of premium and superpremium stores may not be on the industry’s immediate horizon, strategies such as Maverik’s and Swiss Farms’ aren’t alone: Sixty-five percent of retailers in CSP’s 2016 Outlook Survey say they plan to start offering food made on-site, while 55% say they’re planning a made-to-order food program. That’s exciting—and nerve-wracking. Can all those retailers execute successfully? Today’s customer, whether they’re stopping by