Foodservice has been a double-digit contributor to inside sales at convenience stores for two decades as retailers enhanced their food and dispensed beverage offerings to woo forecourt customers in a highly competitive market. Although the COVID-19 pandemic took a bite out of the category in 2020, there are clear signs ahead that the category is poised for more growth.
Guidelines and regulations at the federal, state and local levels—plus consumer wariness about sanitation and food safety—forced closures or modifications of many c-store food and self-serve beverage operations. Foodservice managers shut down roller grills and hot cases and turned off self-serve soda fountains, cappuccino and espresso machines and coffee stations. Refillable club mugs and tumblers were turned away. Many operators decided to pare down menus to simplify food prep and speed up customer orders, whether for takeout, curbside pickup or delivery.
“Day by day, hour by hour, we were trying to manage what was happening in our stores and satisfy not only compliance but consumer expectations,” said Heather Davis, director of foodservice, Parker’s, based in Savannah, Georgia. Davis presented the foodservice category deep dive at the 2021 NACS State of the Industry (SOI) Summit on April 14. (Look for comprehensive and exclusive coverage of the SOI Summit and 2020 SOI category performance data in the June issue.)
With schools and offices shuttered starting in March 2020, traditional commuting patterns were upended. “Prepared food business declined because consumers weren’t out and about,” Davis said.
Shoppers consolidated trips whenever possible and sought to maximize every retail interaction, so the majority of trips became short, local occasions for essentials and staples for consuming later instead of immediately.
“Our drive times became very inconsistent,” Davis said. Dayparts compressed—the key grab-a-coffee morning rush hour was especially hard hit and has yet to fully recover. C-stores saw some of those trips shift to the midday and evening dayparts, representing an opportunity to meet needs for meal items for dinner. “Consumers were figuring out how to get through their workweek, teach their kids and prepare for the unknown,” Davis said.
Preliminary data from the NACS 2020 State of the Industry survey indicate that foodservice generated 22.6% of total in-store sales and 35.4% of in-store gross profits last year. This compares to 25.4% of in-store sales and 38.9% of inside gross profits in 2019. On an annual basis, foodservice sales fell by 9.6%, from $651,934 in 2019 to $589,241 in 2020, and represented 8.7% of total sales last year. Gross profit dollars declined by 11.8%, from $356,496 in 2019 to $314,377 in 2020, and represented 19% of total gross profits.
There was some built-in confidence with prepackaged items at the onset of the pandemic, so people bought more prepackaged than normal.
The foodservice segment of in-store sales in convenience includes the five categories of prepared food, commissary, hot dispensed beverages, cold dispensed beverages and frozen dispensed beverages. Prepared food typically is the largest sales and gross profit driver within the foodservice category, accounting for nearly 65% of sales in 2020.
Commissary was the bright spot in an otherwise challenging year for foodservice. Commissary traditionally accounts for the smallest percent of sales within foodservice but in 2020 accounted for 8.3% of sales, better than cold dispensed beverages (7.4%) and frozen dispensed beverages (7.7%).
During the bulk of the stay-at-home period in the second quarter of 2020, commissary generated the only foodservice category sales growth. For the year, average commissary sales per store were up 13.3% in 2020 over 2019. The subcategory includes sandwiches and wraps, sides and salads, heat-and-eat foods like burritos and ready-to-eat meals like soup.
“There was some built-in confidence with prepackaged items at the onset of the pandemic, so people bought more prepackaged than normal. They felt like these items were safe; they weren’t handled a lot,” Davis said. “At Parker’s Kitchen, we expedited the expansion of our fresh-made sandwiches and salads in our kitchens, resulting in double-digit growth for this subcategory.”
In the sector as a whole, prepared food gathered speed in the third quarter as consumer trust returned regarding store-made food items, and states reopened. For the year, the subcategory saw average sales per store fall -7.4% compared with 2019, NACS SOI data indicate.
“Early on, when personal travel was really restrictive, I think c-stores were a bit of an oasis in more ways than one,” said Leroy Kelsey, NACS director of research and head of the NACS Convenience Voices™ shopper intercepts program. “We had the extended hours; we were close, and we had some of those items in the center of the store that people needed,” he said. “Shopping a smaller box became an attractive way to reduce friction and limit chances of exposure compared with braving a supermarket or big box store.”
Davis agrees. “As the pandemic continued and restaurants remained closed or were operating at reduced capacity, customers tried food from convenience stores for the first time—or the first time in a long time,” she said. “This allowed us to showcase our food quality which, paired with our aggressive focus on sanitation, made us a comfortable choice for a hot meal away from home.”
Source: NACS State of the Industry Report of 2020 Data and CSX
Hot dispensed beverages, which are typically the second-biggest contributor to foodservice, have the most ground to recover to return to pre-pandemic levels. Average sales per store for hot dispensed beverages tumbled -33.4% compared with 2019 as commuters opted to make their own coffee at home. In contrast, the subcategory recorded 20.6% growth in average sales per store in 2019.
Cold dispensed beverages were able to regain some lost ground by mid-year as people ventured out more. The subcategory, which already had been trending downward for the past several years, finished 2020 down -7.9% in terms of average sales per store. In 2019, cold dispensed beverages saw average sales per store increase 11.9%.
As consumer behavior continues to change, food is where we are going to make money.
Dispensed beverages “are not on the same path to recovery as prepared food has been, so we’re going to have to be innovative in this area and identify opportunities to draw our customers back in,” Davis said. Retailers need to build trust among customers that the fountain and coffee areas are clean and sanitized, she said, and also evaluate the fountain beverage lineup and look for new flavors in things like teas and lemonade to create excitement. She points to the success of Parker’s Fancy Lemonade. “It has a cult following where people rave about it,” Davis said. “A couple of years ago we only had it in two locations because we were making it in-house, and we were able through one of our partners to replicate the recipe and roll it out to all of our locations. It has taken off and become one of our top dispensed beverage items.”
Frozen dispensed beverages finished in the black for the year, notching an increase in average sales per store of 2.3% over 2019. The subcategory in 2019 saw average sales per store grow 7.7%. Travel picked up during the summer months into the fall, coinciding with the traditional prime season for frozen slushies and other frosty drinks.
The top-performing foodservice retailers maintained sales multiples better than the bottom-performing foodservice retailers. Among retailers in the top quartile for foodservice based on 2020 sales, prepared food sales slipped 4.8% year over year, while retailers in the bottom quartile saw prepared food sales tumble 43.7%. Looking at performance in the commissary subcategory, however, the bottom-quartile retailers saw a 11.7% rise in sales, while the top-quartile retailers experienced a 18.7% decline in commissary sales. The top-quartile retailers also took a big hit in the hot dispensed beverages subcategory, with sales down 40.1% vs. 24.1% for the bottom-quartile retailers. Davis points to regulations that constrained many retailers’ ability to offer dispensed beverages. “There was only so much that certain concepts and locations could do to continue to offer those things,” she said.
Retailers with foodservice operations leaned into that offer as fuel sales declined on the forecourt. “As consumer behavior continues to change, food is where we are going to make money,” Davis said. “That’s what’s going to drive people into our stores. They’re not going to be filling up as much. They’re not going to be buying as many tobacco products, so food is really going to be the champion that we can lean on to drive us into the future.”
Source: NACS State of the Industry Report of 2020 Data and CSX
Competing with QSRs
Moving into the future includes capturing sales lost to QSRs. In general, food locations with drive-thrus during the pandemic were in high demand as in-store dining rooms went dark. Long before COVID-19 struck, though, quick-serve restaurants were siphoning away foodservice customers from c-stores. In the 2020 NACS Convenience Voices survey, 35% of convenience shoppers said they planned to buy fast-food somewhere else within 30 minutes of visiting a c-store, compared with 15% of shoppers surveyed in 2019. Kelsey notes that the majority of people who went to QSRs after visiting a c-store were women with children.
People are still price conscious, so look to have deals in place that encourage customers to pick your food and beverages over a competitor. “With foodservice, we have the opportunity to identify ways to incorporate dispensed beverages into deals and meals to drive traffic, so find ways that we can tie dispensed beverages into what they’re getting from our prepared food offering,” Davis said.
Besides QSRs, c-stores are facing a new foodservice threat: ghost kitchens. “These guys are not only coming into our area but they’re offering a lot of the same items that we’re offering within our establishments, and they’re making it incredibly convenient for consumers to get it, so we have to be a part of that,” Davis said. “We have to make sure our name is in the mix when somebody picks up their phone to order food.”
Preparing and packaging hot food for delivery brought new challenges for Parker’s, Davis said. With the explosion of meal takeout and delivery services, there was tremendous demand for packaging that maintains food quality and temperature, plus quality seals to signal food safety. Davis described frustrations in consistently sourcing appropriate—and preferred—packaging. Not only that, foodservice managers had to re-evaluate how they prepared some types of food.
“You had to figure out how to sell your product so that it wasn’t just made and handed to somebody that was going to eat it right now,” Davis said. “You had to prepare that so it could sit in your store for five or 10 minutes waiting on a delivery service to pick it up, and then make it another 15-20 minutes down the road to the customer that actually got the food to be able to consume it and still have an enjoyable meal,” she said.
“The relationship you have with your packaging supplier needs to be as strong as the relationship you have with your foodservice supplier,” she said. “Packaging is so critical to everything that we do. We’re a business built on takeout, and so having that packaging that satisfies the needs of your food so that it ensures a great experience has to be at the forefront—top of mind—for everything that we’re doing.”
Seize the Opportunity
Heather Davis, director of foodservice, Parker’s, based in Savannah, Georgia, shared advice for convenience foodservice category managers during the 2021 NACS State of the Industry Summit on April 14. Here are her key takeaways.
- Assess your menu. Your menu is your foodservice brand, so you have to ask yourself, what do you want to be known for? If you try to do everything every restaurant around you is doing, you’re not going to be able to do it all well. Find that thing you can do great, and that’s what’s going to set you apart.
- Determine how far you can take it. Figure out what you can consistently execute and focus on that item. You have to take into account manpower, equipment and what your building can actually support. For Parker’s, we have a chicken tender. It is our core and our hero, and so we focus on things that complement that core offering. And you should be doing the same, whether that’s sandwiches, tacos or burgers. Find that key item that’s going to be your core, and then find things that are going to complement that without taking away your ability to cook that item consistently great every single time.
- Digital experience is key. You want your customers to have your app downloaded so when they decide they want to eat, you’re top of mind. Give them a reason to pick you. People want to be rewarded if they’re choosing you as their meal destination. Building a loyalty program that delivers on that is essential. Frictionless and contactless experiences are in high demand now more than ever before. The customer experience is being redefined, and what satisfies a customer is very different today than it was a year ago. We have to shift to be able to capture that. We need to adjust to where we can still deliver on the level of service that makes us great, that makes people want to come see us, but then also gives them the frictionless and contactless experience that they so want.
- Taking it the last mile. Delivery and curbside options are a necessity if you want to remain on top. If delivery is not in your wheelhouse, then find ways to incorporate curbside into your business. It could be a sign in designated parking spots outside of your store with your phone number listed that says, ‘Call us when you get here, and we will bring the food out.’ If you can build more into it from your app to where they can hit the button that says, ‘Hey, I’m here’ and tell you what spot they’re in, that’s amazing, too. We have to find ways to extend the reach of our store and take those things to them. Another benefit when people are ordering mobile is that basket size increases substantially. We’ve seen in some situations with delivery services that basket sizes double compared with the in-store basket sizes, so there’s a real opportunity here because customers will add that upgraded side; they’ll add that bigger drink.
Where does the industry go from here? Davis shared how to seize the opportunities ahead:
- Continue to focus on sanitation and food safety. Keep it clean and educate your teams on not only food but also the food safety aspect of the business.
- Develop your internal teams to embrace food. This has to start at the top. At Parker’s, the passion for food starts at the very top and goes all the way down within our company. Everybody knows that food is the priority, and we’re extremely passionate about it.
- Have a quality offering, and focus on your core. The reality is convenience stores have really high quality food. Let your customers know the work that you’re doing. Tell them if you’re hand-breading fresh not frozen chicken. Tell them that you’re cutting whole potatoes and making fries. Tell them about the things that make your offering elevated against the guy next door. There’s a real gap in what we’re doing and what the consumer knows that we’re actually doing.
- Ensure relevancy by dayparts to grow sales throughout the day. Make sure that you’re offering the right thing at the right time of day. Assess your offering and make sure you’re hitting the things between lunch and dinner that are going to capture foodservice sales during the time that is historically been defined as the snacking period. People are eating meals during the snacking time.