Building Brick by Brick

At a quick glance it makes for a dismal picture: Killer interchange fees, nightmarish margins on gas, ever-rising tobacco taxes thanks to the whimsies of politicos.

There’s a host of potholes marring the road to profitability, and few convenience chains on the market can afford to bankroll a multimillion dollar facility to optimize their foodservice production and profits.

What c-stores can do, however, is build an effective foodservice program from the ground up if they learn to nurture the fundamentals and capitalize on the resources available, said Tim Powell, convenience store foodservice program director at Technomic Inc. in Chicago.

“Not all of them are that good at it,” Powell said. “Executing a good foodservice program is not that easy.” Yet it’s the surest route to longevity. “It’s definitely an area where you’re going to see more of a shift. It’s a good way to recoup the margins.”

A four-month Technomic study released last month showed c-store foodservice is outpacing foodservice growth in industries overall, Powell said. C-stores are expected to see 3.5% growth in foodservice over the next year, while foodservice as a whole is likely to see just 2.1% growth in that period.

Cigarettes are still a top contributor to c-stores in terms of profit margins, but even that category is pockmarked by uncertainty as federal regulation, state taxes and losses to other sales channels—legal and illegal—are taking their toll. “And with gas prices what they are, it makes foodservice at c-stores that much more attractive,” Powell said.

Leading retailers like Sheetz and Wawa, both headquartered in Pennsylvania, are setting trends almost impossible for smaller chains to keep up with. “Sheetz and Wawa have good programs all the time—those guys know what they’re doing,” Powell said. “The major chains have the deep pockets to do that type of thing.”

But even those industry juggernauts started as a seed, a notion regional or small chains should keep in mind as they gear up for a rollout. “You can’t just put one foot in,” Powell said. “It’s a strategic decision, not a quick decision.”

Attention to Detail
Establishing the groundwork for a profitable foodservice program is paramount, achievable even in addressing the most simplified but often-overlooked aspects. “Do you bring the employees in first and hope it works, or do you get something in first and then bring in the employees?” Powell said.

Surprisingly, the Technomic study found just 10 to 15% of convenience store chains have dedicated foodservice employees. In some cases, retailers are setting up foodservice programs willy-nilly and letting the program run without labor controls.

“You have to operate more with a foodservice restaurant mentality,” Powell said. “It’s even more fundamental than just understanding that you have to have foodservice employees.”

Knowing the local market and demographics is essential, as is having a reliable understanding of food safety and preparation. “These are major issues,” Powell said, but they’re issues retailers are sometimes failing to appreciate when setting out to build a foodservice program.

Suppliers typically have ready-made foodservice programs available, which could help some stores gain a foothold before going full bore. There are readily available programs for small chains, as well. The Convenience Store Decisions’ Foodservice Webcast Series (News p. 14) showcased Sam’s Club programs geared specifically toward smaller chains looking for foodservice products and equipment.

Suppliers can be instrumental in assisting with product merchandising or knowledge of food safety, Powell said, though it’s imperative to seek out foodservice distributors rather than just retail distributors who have less understanding of the needs specific to foodservice.

Ruling the Supply Side
While it’s no shocker that innovative foodservice will pave a sure path to profits, the inexhaustible ingenuity at Sheetz is proving the right distribution model erases any limitations on the menu.  

“Our only constraint right now is our own imagination,” said Stan Sheetz, CEO at the Altoona, Pa.-based c-store chain. “We can do anything with regard to potential future product development—we’ve really taken control of that whole supply chain.”

To be sure, Sheetz Inc. has done more than take control of the supply chain—it has completely reinvented it.  
Operator of more than 350 stores in six states, Sheetz celebrated the opening last month of a 140,000-square-foot foodservice production facility, Sheetz Bros. Kitchen, in Claysburg, Pa. A five-year project that called for cooperation from government bodies at the local, state and federal levels, the $46 million kitchen has practically revolutionized the notion of foodservice in the c-store channel.

The facility places countless facets of the foodservice process smack in the hands of Sheetz, from concept to countertop. At a time when some retailers are trying to figure where they can land a better doughnut, Sheetz is making its own doughnuts the way it wants.

“In the long run, we realized the only way we were going to get fresh products to every single store every day of the year is to do it ourselves,” Sheetz said. “Plus, the flexibility your own kitchen provides you is tremendous.”

Part of the Sheetz Distribution Services division, the new kitchen will churn products 24 hours a day as it readies for daily delivers to the army of Sheetz stores in Pennsylvania, Ohio, West Virginia, Maryland, Virginia and North Carolina.  
Countless items produced in the kitchen will be new to the Sheetz menu, particularly as the chain is introducing a ramped up grab-and-go foodservice format, “MTgo!”

“Most of those made-to-go products will be unique to Sheetz,” Sheetz said. The line will give Sheetz customers an instant choice in seizing ready-made breakfast sandwiches, salads, wraps, yogurts and other products varying by store. “We don’t anticipate that it’s going to have a major impact on our Made To Order line.”

Fresh Foods Rule
The Made To Order program will remain a staple to Sheetz foodservice, though the new kitchen facility will still impact that program in profitable ways, like streamlining foodservice production and preparation so in-store employees can have more time with customers.

Planners at the chain were able to isolate some of the tasks specific to the Made To Order program at the store level—filling condiment bottles, for instance—and reassign them to the kitchen facility. “By moving that to the kitchen, we’re able to automate it and have the machine do it,” Sheetz said. “It saves (the store employees) time and aggravation.”  

A bakery at Sheetz Bros. Kitchen will also make buns for subs, hot dogs and hamburgers, as well as fresh doughnuts, pastries, muffins, cookies and cinnamon rolls.

Maintaining freshness for products delivered daily to more than 350 stores, the most distant being a nine-hour drive, is no easy feat. Dual-climate delivery trucks offer ambient settings and cold-storage for the products, many of which are engineered with special glazes and ingredients to preserve freshness during their hours-long journeys.
“Most of the products have a glaze on them,” Sheetz said. “The glaze helps to insulate the donuts and hold in the freshness for a long enough period that when they get in the stores, we can put them on display and still be able to offer a very fresh product.”

The retailer purchased a fleet of new delivery trucks specifically for the kitchen and also refined a cross-docking and delivery system to expedite the shipments to the stores, Sheetz said. The delivery system that preceded the introduction of the kitchen allowed for a strong foundation for the new process, and it’s anticipated the fleet will make most of its deliveries within a 12-hour round trip.

“We’ve gotten pretty good at the routing,” Sheetz said. “How long all the drive times are, learning how to cross-dock stuff, learning what size vehicles are needed.”

In the end, $46 million buys more than just a state-of-the-art facility. It’s insurance for principles and peace of mind. “Now we know we have the flexibility to do it the way we want to do it,” Sheetz said. “And do it the way our customer wants us to do it.”

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