This article published November 2016. For latest news THIS MONTH'S ISSUE
Following sizable foodservice gains made by the convenience industry, QSRs broach c-store territory, elevating a catch-up game that has consumers spoiled for choice (if a bit confused).
By Jerry Soverinsky
Earlier this year, Subway launched a month-long promotion for its breakfast sandwiches, offering a BOGO offer for those purchasing a breakfast offering before 9 am. “Everyone knows the importance of breakfast to help fuel their day, that’s why this May we want to make your morning even better by offering a free Subway breakfast,” said Chris Martone, executive chef for the Subway brand, in announcing the promotion. “Our robust breakfast menu has something for everyone - whether you’re in a rush, on-the-go or sitting down for your first meal of the day.”
The move came just a few months after McDonald’s kicked off an all-day breakfast promotion - expanded since then - in an effort to snag market share from its QSR competitors as well as c-stores, many of which have long offered breakfast items throughout the day. But the Golden Arches didn’t stop there. This summer, the chain announced that it was eliminating artificial preservatives from its Chicken McNuggets and high fructose corn syrup from some of its buns, while completing a commitment to serve antibiotic-free chicken. Not exactly a Norma Rae nutritional overhaul, but a deliberate attempt at change. “More than ever, people care about their food—where it comes from, what goes into it and how it’s prepared,” said Mike Andres, president, McDonald’s USA. “We’re making changes to ensure the food we’re proud of is food our customers love and feel good eating, and we remain committed to our continuing food journey at McDonald’s.”
Meanwhile, Burger King made news with its own un-burger-like announcement: It would “become the largest restaurant chain in [the] U.S. to serve … hot dogs.” At less than two bucks each or $4.49 when part of a combo meal, its offering sounded eerily similar to those offered by most convenience stores.
What’s going on here? All-day breakfast, BOGO promotions, healthier/safer offerings, grilled hot dogs— they’re tactics taken from the unofficial c-store playbook, and deliberate attempts by QSRs at culling the evolving tastes and preferences of today’s consumer, most notably the millennial.
It’s not difficult to see why. Same-store sales at many QSRs have been slumping, with overall comparable sales in the United States and Canada down 0.8% in Q2 2016, according to Business Insider. “Restaurant sales are virtually flat, and they’re expected to remain weak for the rest of the year.” As a result, QSRs are looking to discounts and other promotions—hallmarks of c-stores—to try to lure customers.
“Quick-service operators once focused all competitive efforts against chains most like them in operation and menu offering,” reported The NPD Group in its QSR Market Monitor Competitive Edge, V6 2015. “To gain share in foodservice, a much broader perspective is required. Customers visit multiple channels to meet their prepared food needs … [comparing] the food from QSRs, c-stores and grocery stores.”
We’ve addressed the blurring of channels before, detailing the encroachment of dollar stores into c-store territory (see “The Race for Space” in the October 2012 NACS Magazine). And as challenges on that front continue to grow - Dollar General announced this summer it will be operating fuelling stations in at least 37 locations (former Walmart Express stores) - the industry hardly needs enhanced pressure from QSRs, which are intent on doing whatever is necessary to finesse market share from convenience stores. “We have a target on our back,” warned Andy Jones, president and CEO of Sprint Food Stores at this year’s NACS State of the Industry Summit.
It’s no doubt a moving target, as convenience stores continue their evolution to provide advanced foodservice programs and welcoming environments that entice non-traditional c-store customers (like soccer moms and seniors). But getting to know what you’re up against is essential to ensuring you retain your newfound gains as well as those within your grasp.
With more than 232,000 U.S. locations, QSRs overshadow the ubiquitous c-store, whose latest U.S. store count hovers around 154,000. Additionally, QSRs generate higher transaction counts than c-stores—575,000 per year per McDonald’s (according to their website), versus 533,340 per year per c-store—as well as sales. The average Chick Fil-A, for instance, generated $3.1 million in sales in 2015, as reported by QSR Magazine, or about eight times what the average c-store tallied in foodservice sales. And much of these sales are coming from the same customer pool as convenience stores - “Convenience stores and QSRs share the same customer base,” states the NACS State of the Industry Report of 2015 Data: “a white male aged 16-34, which aligns well with ‘Bubba,’ the convenience store industry’s heaviest user profile.”
But that imbalance has been receding, as c-store foodservice programs mature and their sales increase. From January 2013 to November 2015, as QSR sales remained flat or down, convenience store sales skyrocketed 28%, with gross margins up a stellar 32%, according to NACS data. As a result, QSRs began implementing aggressive tactics to steer consumers to their restaurants.
“There has always been a certain degree of QSRs mimicking c-store strategy in recognition of shared target consumers,” explained John Pracht, vice president of retail for Nielsen. “Snack brands are infused into QSR meal offerings while being offered in primary CPG forms in c-stores. The choice of a fountain drink through a drive-thru QSR or in a convenience store has always been relevant.”
But whereas that mimicry was modest or perhaps even coincidental, more recently, QSRs have focused deliberately on c-store tactics, with BOGO promotions and multiple meal deals. “While dealing has always been very important in the QSR space, today, it’s more than the combo deal,” said David Portalatin, vice president – industry analyst of food consumption for The NPD Group (NPD). “The 4 for $4 or 4 for $5 are everywhere.”
Pracht agrees. “All major QSR chains have developed the price multiple menu - for example, four for $4, three for $5—that offers more overall calories for the penny,” he said. “This is an upgrade from the old dollar menu, as millennials looking to stretch their budgets spend more per transaction to capture the full value of the multiple deal.”
But to the extent that QSRs are adopting c-store tactics, a more important question remains: is the strategy working? Just two months into its all-day breakfast initiative, the answer for McDonald’s was a resounding “yes.”
According to NPD, among those who purchased McDonald’s breakfast items beyond its traditional breakfast hours, one-third had not purchased from the chain prior to its all-day breakfast launch. “This preliminary review of McDonald’s all-day breakfast offer suggests consumers are receptive to ordering McDonald’s breakfast foods beyond traditional breakfast hours,” said Bonnie Riggs, NPD restaurant industry analyst. As a result, don’t expect their strategy and those of its QSR competitors to change any time soon.
“I think it is here to stay,” Pracht said. “The concept of a convenience retailer having the luxury of choosing its competition as only being other convenience retailers is not reality.” However, that doesn’t mean it will become a Field of Dreams “if you build it, they will come” proposition.
“QSR efforts to encroach upon the c-store space will depend on the QSR’s understanding of the all-encompassing convenience occasion and remaining true to its core customer,” Pracht said. “The convenience of the c-store begins on the street, ease of access, external appearance of the outlet, gasoline/retailer branding, the speed of the transaction itself... If the product quality is equal and the transaction time is still faster and more personal in a c-store, QSRs may still face challenges in converting c-store shoppers for the meal or beverage occasion.”
Some retailers have already positioned themselves well to defend against QSRs. Indeed, the most popular place to purchase food/beverages in the Philadelphia region, NPD revealed, is not McDonald’s, Burger King or Subway but…Wawa. “This c-store is a clear favourite among consumers,” NPD said, with market share that is nearly double that of McDonald’s and Dunkin’ Donuts.
No matter the maturity level of your foodservice capabilities, there are tangible things you can do to withstand what appears to be a sustained competitive threat from QSRs.
In “The Playbook for Success: A 3-Step Guide to Growing C-Store Business (Playbook),” the NACS/Coca-Cola Retailing Research Council (CCRRC) laid out how retailers can grow their convenience store business. It’s a report that continues to deliver successful strategies for c-store retailers, said Bill Bishop, architect of Brick Meets Click and a key contributor to the CCRRC and its playbook.
Borrowing from the Playbook, Bishop says retailers should emphasise value, a core value proposition and one that distinguishes them from restaurants. “Restaurants have been self-conscious about a historically wide gap between the price of eating out and eating at home,” Bishop said, adding that value does not necessarily mean discounting. “QSRs are quite vulnerable in this regard today as people focus on price. The idea is to communicate value, not discounts.”
Despite aggressive drink promotions offered by QSRs, Bishop said c-stores still rule when it comes to beverage programs, another key learning from the playbook. “It’s an incredible strength of c-store retailing, which is this: If you want a beverage, we’ve got any beverage you want, any way you want it.” Bishop said that while some stores push their prepared foods, they should not do so at the expense of their beverages. “Many promotions speak to food, not drinks. We have a chance to emphasise the beverage and that we have a great variety... For instance, coffee is something we do well and it’s a strong draw. You should talk about that.”
While working with retailers in implementing learnings from the Playbook, Bishop noticed that most had a particular strength. “Some had a strong morning daypart, others had a strong midday one.” As a result, “there are opportunities there,” he said. “If you’re great at lunch, start working on breakfast. Turn to your underdeveloped daypart to help grow your sales.”
A prominent feature of the Playbook is its focus on four main shopping occasions—fresh value fast, family time, my time and female friendly. Bishop said the ability for c-stores to craft an identity catering to some (or all) of these occasions can help resist pressure from QSRs. “The c-store retailer has a chance to project an identity -great food at a great price, great beverages - and position themselves strongly in a competitive field where some of the big players (QSRs) are flailing around,” he said. “We’ve got a chance because of the fuzziness of others’ positions in the QSR space as they try to be everything to everyone and don’t really understand their core customers.”
Finally, retailers should capitalise on consumption trends, which favour smaller meals and snacks - core offerings of c-stores. “There’s a blurring between snacking and meals,” Portalatin said, “an opportunity that should fall in the sweet spot for c-stores because they offer both snacking and meals. The idea is to offer consumers yogurt, fruit and prepared foods, items that fit into the consumer’s desire for a snack or small meal.”
By focusing on their core capabilities and value proposition, c-stores won’t necessarily eliminate the threat from QSRs, but they can withstand its onslaught. Keep in mind, when it comes to foodservice, QSRs are still the dominant channel. “Convenience stores control only 10% of the total QSR traffic,” Portalatin said.
And if the pressure becomes too great - that is, if you can’t beat them - consider joining [with] them. “Partnering with a Subway or other QSR will you get you to the unit volumes you want faster than you can do it yourself,” Bishop said. “If you can’t figure out foodservice on your own, then the branded option partnership is a good one, with top retailers who have gone in that direction.”
This article appeared in the October issue of NACS Magazine and was reprinted with permission. For more information, visit: nacsmagazine.com
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