Friends & Enemies
QSRs find ways to compete against, partner with and learn from c-stores
By Scott Hume, Executive Managing Editor -- Restaurants & Institutions, 1/1/2004
The official capacity of Beaver Stadium at Penn State University in University Park is 107,282, second in size only to the University of Michigan’s stadium (which holds 219 more). But 108,276 squeezed in on Nov. 1, 2003, when the Nittany Lions lost a 21-20 heartbreaker to Ohio State.
During half time, a sizeable portion of the overflow crowd went looking for food, and they lined up for branded M-T-O (made-to-order) Burgerz and sub sandwiches at two concession stands operated by Sheetz.
What’s a convenience-store operator doing in a college football stadium? Building its brand.
“When you’re the dominant gasoline retailer in your markets, like we are, you can’t help it if people think of you as ‘those big gasoline stores.’ But I don’t want them to say that. I’m out to switch their thinking,” says Bill Reilly, vice president of food and beverage for the 292-store, Altoona, Pa.-based c-store chain.
“I want them to say: ‘Hey, Sheetz is in Beaver Stadium and they’re not selling gas. They’re all about the food.’ And that’s right,” he adds. “We have a food message to tell, too, and I can make a million impressions at Beaver Stadium. I’m not in it to make money. If I break even [on the concessions] I’d be over the moon. But is it worth it? Absolutely.”
Reilly offers the same emphatic response when asked if Sheetz is considering placing similar food-only operations elsewhere on college campuses. Malls and airports also are possibilities. “Anywhere there are large numbers of people where we can get the message across that we also stand for food,” he says.
Gearing Up for Growth
 Mallard Oil's stylish Fuel Warehouse in Kinston, N.C. exemplifies the innovative marketing and design many c-stores have adopted. |
Sheetz’ eagerness to promote its foodservice operation—even at the expense of profitability—underscores both the increasing importance food sales have for many c-store chains and the seriousness of the competitive challenge this segment presents, especially for quick-service restaurants. Far from being sleepy marketers, c-store operators have invested in the latest in ordering technologies, upgraded décor and created branded food lines (often responding to trends such as low-carb foods more nimbly than have QSRs).
C-stores were a $290.6 billion industry in 2002, according to the Alexandria, Va.-based National Association of Convenience Stores (NACS). Gasoline accounts for better than 60% of revenues, and tobacco products are the biggest sales generator inside the stores. But foodservice’s 12.3% share of in-store sales still translates to $13.4 billion, higher than 2002 worldwide sales for Burger King, ranked No. 2 in R&I’s Top 400 Restaurant Concepts.
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Overall, however, per-store profits for the U.S. c-store industry declined in 2002 for the second consecutive year, NACS reports. That makes it hungry for profit-boosting strategies, and increasing foodservice revenues is a prime tactic.
Sheetz, for example, is planning stores bigger than its current average footprint, facilitating its first use of drive-thru windows and limited seating at foodservice counters. Reilly says the company is focusing on developing upscale meal-replacement foods that can increase Sheetz’ evening-daypart sales (when gas sales are strong but foodservice is its weakest).
Some QSR operators may underestimate the seriousness of the competitive challenge because they are unaware of c-stores’ efforts to upgrade exterior and interior designs as well as improve their product mixes and brand images.
One look at the stylish post-modern design of Mallard Oil’s Fuel Warehouse c-store in Kinston, N.C., (honored with a merit award from the North Carolina chapter of the American Institute of Architects) says that this operation is more than a gas-and-go road stop.
Foreign Affairs
Montreal-based Alimentation Couche-Tard, Canada’s largest c-store operator, has been implementing its Store 2000 design strategy, creating retail spaces that look more like Starbucks or Panera Bread units than stereotypical c-stores. Wood-paneled walls, bistro tables and seating, and even overstuffed chairs where customers can read and enjoy coffee are common. Fewer than half its Canadian units have gasoline pumps.
 C-stores have integrated the latest technologies. Touch-screen ordering terminals are in all Sheetz stores; other c-store operators are adding food-ordering kiosks at fuel pumps. |
QSRs on this side of the border had better be ready to compete with such units: In October 2003, Couche-Tard plunked down $830 million (U.S.) to acquire the 1,663-unit Circle K c-store network from ConocoPhillips, increasing the Canadian company’s system to a total of 4,630 stores. Alain Bouchard, Couche-Tard chairman, president and CEO, says the intention is to apply the Store 2000 business model to Circle K. In 2001, Couche-Tard entered the U.S. market, acquiring the Columbus, Ind.-based Bigfoot c-store chain. It followed in 2002 by buying the Hudson, Ohio-based Dairy Mart system, and last year acquired 43 units from bankrupt Clark Retail Enterprises, based in Oak Brook, Ill.
 Source: Technomic Inc. research for National Association of Convenience Stores. Percentages total more than 100% due to rounding. |
Couche-Tard already has ties to several U.S. QSRs. It recently secured the master franchise for Dunkin’ Donuts development throughout Quebec (with plans to open more than 100) and also operates licensed Subway and A&W restaurant locations.
Another foreign owner looking to raise its c-store profile is Britain’s BP plc, owner of the former Amoco and Standard Oil brands in the United States. Some of its gas stations have partnership arrangements with QSRs, including McDonald’s, and many others have small c-store components will little or no foodservice. But in nearly 500 locations, it has opened large BP Connect branded c-stores.
Fast-casual chain Au Bon Pain served as a consultant on creation of BP Connect’s Wild Bean Cafe, which features coffee-shop décor. Tables and chairs are arranged around wood-paneled counters where customers select from a variety of coffee and tea choices; baked-on-premise croissants, pastries and breads; self-service beverage stations; and branded Panini Melts sandwiches, soups and salads.
Food orders can be placed on touch screens at fuel islands, then picked up inside. Some locations have in-store kiosks that provide weather updates, maps and directions.
BP opened about 75 Connect units in 2003 and is expected to match that this year.
Expanded Menus
Such incursions haven’t gone unnoticed by the largest c-store
operator in North America, Dallas-based 7-Eleven with 5,800 locations.
It has continued its rollout of daily deliveries of fresh foods
such as salads, fresh-squeezed juices and baked goods to stores
and expanded its proprietary Big Eats Deli and Big Eats Bakery lines.
In Southern California, 7-Eleven offers Szechuan beef bowls and
California rolls.
The
company still cooks hot dogs on roller grills, and it sells more
than 95 million of its Big Bite dogs annually. But even this staple
has been dressed up: Big Eats Griller Sausages introduced this year
include spicy Italian links topped with brand-name marinara sauce.
Salsa and pico de gallo have been added to the free condiment bar.
In Austin, Texas, the chain tested a partnership with the Tony Roma’s Famous for Ribs chain. Beef and pork ribs in branded Tony Roma’s sauce, cheeseburgers topped with the restaurant chain’s barbecue sauce and chicken strips in Tony Roma’s Original Sauce allowed 7-Eleven to announce that it was “the first c-store to offer casual-dining fare.” And it had low-carb or no-carb candy in its displays before any casual restaurant chain revised its menu to reflect the popular diet trend.
Having watched Dunkin’ Donuts, Krispy Kreme and others muscle in on its coffee franchise, 7-Eleven last year installed new hot-beverage stations with five coffee varieties, four flavored syrups, seven different bagged teas, an array of toppings and creamers, and regular, skim and 2% milk.
It backed the introduction with an extensive radio advertising campaign touting the more than 1,300 coffee combinations customers can blend.
And 7-Eleven isn’t alone in making changes. Wawa, Pa.-based Wawa c-stores added a line of Specialty Wrap sandwiches, including such upscale combos as roasted chicken, roasted peppers and pesto spread. Ankeny, Iowa-based Casey’s General Store now offers English toffee-flavored coffees with its line of breakfast sandwiches, and strawberry-cream croissants and apple fritters in its baked-goods case. Tulsa, Okla.-based QuickTrip’s stores sell 20 different sandwiches, including barbecued pork and a chicken, cheese-and-bacon breakfast sandwich QSRs haven’t tried.
Need a decorated cake for a children’s party or giant subs for a Super Bowl bash? Customers at Enon, Ohio-based Speedway SuperAmerica c-stores in Minnesota and Wisconsin can order online from the chain’s SuperMoms.com subsidiary and pick them up at their neighborhood location.
Shared Development
Some c-store chains don’t want their foodservice to be any more complex than coffee. Sheetz’ Reilly notes that a fresh-foods commitment requires a more complex operational infrastructure and additional training, especially in food safety.
Co-branding with QSRs is one solution for many c-store chains. According to NACS, there were more than 12,500 c-store units with branded QSR components in 2002.
 Jack in the Box's strategy combines a Quick Stuff c-store with a full-size restaurant (with drive-thru) adjacent to a fuel island. Sheetz is considering selling its M-T-O foods in units that have no fuel component. |
These partnerships also benefit the quick-service brands, of course, providing presence at heavily trafficked off-highway locations and many prime intersections with no space for freestanding units. That’s why chains including Arby’s, Blimpie, Bojangles’ Famous Chicken ‘n Biscuits, Dairy Queen, McDonald’s, Sonic Drive-in and Wendy’s had booths at NACS’ annual expo last October in Chicago.
Some, such as Oklahoma City-based Sonic, are relatively new to c-store co-branding. The chain has opened eight units in tandem with gas station locations in Texas and wants more if the right opportunities present themselves.
“We’re interested in units that will look like a Sonic that happens to be adjacent to a c-store,” says Vice President Dave Vernon. “We’re not interested in doing a mini-Sonic inside a c-store. But there are highway locations where it makes sense for us to partner [with petroleum companies].”
Byron Burns, director of franchise development for Charlotte, N.C.-based Bojangles, says its 30 c-store co-brand units each average $800,000 in annual sales, versus the systemwide average $1.4 million.
Oak Brook, Ill.-based McDonald’s has a long history of partnership licensing with gas station/c-store sites, operating more than 650. Its small-market units average $971,000 annually, while larger, urban sites average $1.5 million, slightly below the $1.6 million systemwide average.
The strongest vote of confidence in c-stores’ sales-building power has come from San Diego-based Jack in the Box. Last year it unveiled its own c-store brand, Quick Stuff, and opened 14, all with adjacent, standard-size Jack in the Box restaurants as well as gas pumps from various petroleum providers. Fifteen are projected to open this year and Chairman and CEO Robert Nugent says 25% of all company-owned restaurants opened over the next five years will have Quick Stuff and fueling components. The benefits? A new revenue/profit channel with shared development costs, he says.
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Outside the Box McDonald's Corp. in November gave up on the "c-store in a box" concept it had been testing in the Washington, D.C., area, shuttering its four Redbox installations. The 18-foot-long vending machines stocked 130 items from personal-care products and staples such as milk to candy and portobello-mushroom-and-cheese sandwiches (the machines maintained 40F internal temperatures). The kiosks, designed by a Dutch company, accepted cash and credit cards. But the Redbox text may have fallen prey to McDonald's Chairman Jim Cantalupo's hard-nosed focus on core businesses, which may also lead to sales or spin-offs of some of its Partner Brand restaurant concepts. A company spokeswoman told The Washington Post the Redbox automated c-stores "did not fit into our long-term growth strategy." |
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