How Foodservice Impacts Profits

Dennis Peters has no complaints about the proprietary fresh chicken program at two of his 24 Friendship Foods stores in Ohio. It’s popular, it’s profitable and it’s been a proven concept for the past 12 years.

Well, maybe there’s one complaint.

It’s a little too fresh. Not “peck-you-on-the-hand-when-you-grab-it” fresh, but certainly fresh enough to see employees receive some rigorous training in food safety and proper cooking temperatures.

“It’s scary having a fresh chicken location,” admitted Peters, director of retail at Fremont, Ohio-based Friendship Food Stores. “It’s scary handling it, receiving it and holding it prior to cooking. The entire program is more … intense. It’d be very hard to roll out chain-wide.”

Don’t be mistaken, mind you. Friendship Food’s proprietary chicken program is a serious draw for customers who have grown to love it at the two stores where it’s offered. It just has its added challenges.

“It’s an excellent program,” Peters said, “and it does extremely well in the locations we have it in. But we’ve also been doing it for some time.”

The Friendship Food team has spent more than a decade ensuring the chicken program adheres to high quality, but they’ve also found a foray into foodservice doesn’t have to piggyback a lesson in stress management.

About three years ago, the company introduced a co-branded chicken program at six stores. Worth noting: The offering includes packaged and frozen items. “It’s a safer, user-friendly product,” Peters said.  

In addition to chicken, seven Friendship Food Stores have been offering a co-branded pizza program for the past seven years, while the chain also leases space to franchisees that operate sub sandwich shops. All told, co-branded foodservice is offered at 20 of the 24 Friendship Food locations.

The chain is also a shining example of all the options operators have when it comes to the lucrative foodservice category. In addition to national and regional brands, there’s the option to go proprietary like a Sheetz or Wawa or even stick with a prepackaged offering in a manner consistent to what’s available at successful chains like 7-Eleven and Chevron.

Cost to Co-Brand  
Either way, the path to profitability depends on how well the program is executed and creating a financial model that works for each individual store. For example, a unit that is operating in an already crowded foodservice market would be better served by co-branding with a national quick-service restaurant (QSR). Stores in more rural areas tend to be successful with proprietary programs or partnering with a foodservice brand that doesn’t have franchise and royalty fees—one that’s strictly based on an exclusive distribution agreement for food items.

Friendship Foods’ path to foodservice is also a small sampling of the diverse needs compelling convenience store operators to choose one foodservice brand over another. Ultimately, these operators are evaluating brands on two fronts: driving traffic and driving profit.

“That’s the bottom line, trying to get people into the store,” said John Cary, director of operations at Uppy’s Convenience Stores, which operates 38 sites in Virginia. “There’s a lot more value with those national brands, because people know what to expect.”

It isn’t always as cut-and-dried as “frozen chicken versus fresh chicken” when weighing the smorgasbord of co-branded foodservice options. A variety of factors come into play, the most obvious among them being cost of entry.

Logic would dictate that returns on investment are relative to overall startup costs, provided a program is operated as designed. If a retailer drops $100,000 on a franchise program with a national foodservice brand, for instance, they might see significantly more returns than they would on a turnkey program whose startup costs are $3,000 to $5,000.

But earning potential isn’t the sole focus here, and even the conventional wisdom isn’t so conventional. After all, there’s an old question in the foodservice business: Would you rather make 10% on $100,000, or 20% on $50,000?  

To be sure, the ROI becomes less a factor than the brand’s ability to drive customers into the store, where they’ll visit other profit centers and boost the bottom line.

Sandy Arrasmith, vice president and owner of J&H Oil in Grand Rapids, Mich., has relied on her co-branded foodservice offerings—Subway and Piccadilly Pizza—to drive foodservice profits and increase traffic. J&H Oil has been a franchisee of a sub sandwich co-brand since 1995, offering it at 11 of 34 stores, with plans to expand it to two more stores this year.  
Arrasmith said the sandwich brand she works with is typically her first choice for a foodservice concept at new locations. “It’s a brand that’s very easy to work with, and the startup costs compared to other brands are much less,” Arrasmith said “Several thousand dollars less.”

In addition to posting strong foodservice sales, the sandwich concept has also helped boost in-store traffic at J&H Oil.
But the startup costs for each foodservice brand seem more a footnote—a necessary evil, so to speak—for retailers trying to make a serious push into foodservice. “It all depends on how you want to be in the foodservice business,” Arrasmith said. “We found Subway was very profitable for us. It was easy to do, easy to implement and the costs are controlled. That’s the whole reason we ventured down the foodservice road.”

So while the choice of co-branding comes down to consumer demand, it’s not just about the product—it’s about the name, and sometimes, the novelty.

Launching Profits
A single visit to California convinced John Cary and the Uppy’s team that they’d found a truly unique co-branded foodservice solution for their Virginia stores. The concept is based on Johnny Rockets, a national restaurant chain on the West Coast.  

“I didn’t know much about them, because they’d done mostly free-standing restaurants,” Cary said of the brand. “But it’s something unique for our market. We’re trying to work something out now to put it in four of our stores.”

A ‘60s-style diner offering grilled hamburgers, chili fries and other restaurant-quality items, the restaurant concept also has a strong entertainment appeal; its employees are known to dance and sing along to jukebox songs.

Two Uppy’s stores plan to add seat-and-eat co-branded concepts of the brand, while two other sites will offer orders to go. “They haven’t done anything in convenience stores yet, so we’re excited to see them expand,” Cary said.

Uppy’s is also a Subway franchisee at five sites, as well as Dairy Queen at three stores. There’s a Dominic’s Sausage of New York at one location, where 400 square feet of space is room enough to cook and showcase sausages and hamburgers.

On the unbranded front the chain has Uppy’s Deli, which offers grab-and-go solutions like fried chicken, potato wedges and macaroni and cheese. Wherever possible, though, Uppy’s prefers national concepts.

“If we have the opportunity, we’d rather go with name-brand foodservice,” Cary said. “They all seem to draw customers into our sites, which is the bottom line for us.”  

Options Important
Echoing that sentiment is Joe Cotton, director of restaurant services for Oklahoma City, Okla.-based Love’s Travel Stops and Country Stores.

“We try to put something in there that gives our customers options,” Cotton said. “We try to give everybody an appeal. The trucking industry is obviously a big piece of our business, but so is four-wheeler traffic, so we have to take all of that into consideration.”

Love’s offers a slew of co-branded options at more than 200 stores in 33 states, including sandwich concepts, roast beef programs, pizza, chicken and various QSRs.

“It all depends on which franchises are close enough and which we can get deals on,” Cotton said. “Some we can’t get because we’d be impeding on franchise territory rights.”

It’s a bit of retail science figuring out which brands will complement others when paired at a store. At some sites, for instance, Love’s prefers a chicken program next to its sub sandwich program because the two concepts create a good balance.  

Arrasmith, too, said J&H Oil diversifies its foodservice programs to target a broader range of customers. “Pizza tends to be more of a grab-and-go item that customers are going to take with them,” she said. “Whereas with (subs and sandwiches), especially with the lunchtime crowd, they’re looking more for a place to sit down and eat.”

Some co-branded turnkey concepts can appeal to operators because they don’t require long-term contracts or franchise agreements and the cost of entry is more affordable than a full-scale QSR. Some of J&H Oil’s franchise agreements have been secured for less than $100,000 per site, while entry costs for turnkey operations have been as little as $3,000 per site.

“You’re not locked into anything if it doesn’t work out,” Arrasmith said of the smaller investments. “And your investment is just the equipment and the time. Plus, you get the name-brand recognition.”

Succulent Support
A coalescence of brands at one store can also present challenges, however. Just ask Peters, of Friendship Foods, who found that pooling co-branded solutions at a single store hasn’t necessarily ushered in uniformity or harmony in the world of menu signage and POS systems.  

“I wish I had the time and resources to develop something,” Peters said, “because whoever does is going to be very wealthy.”

Options abound for POS systems, signage and the like, Peters said, but there are few resources to completely integrate signage, POS and menus among diverse brands.  

“Wholesalers have to become more involved in POS material and develop those touch screens that would take on all of our menu items for all our brands,” Peters said. “Say I have three or four different programs through wholesalers for sandwich, pizza and soup. There’s no way of getting all that information to customers in one space. The industry has done a terrible job of accomplishing that. Wholesalers need to take the lead role.”

Peters said he turned down a co-branded sandwich program because the company didn’t offer marketing and graphics support. The product was great, the prices were great, but there was no vehicle to deliver menu and POS solutions to customers. “They hadn’t even thought of it,” he said.

Whether it relates to in-store advertising and signage or marketing and operational support, brand support is a critical aspect for operators who want maximum profit with minimal investment.

Krispy Krunchy recognized this early on. A fried chicken and Cajun seafood concept whose operators also run their own convenience stores, the company offers a broad array of custom signage and menu boards. The operators’ experience as c-store retailers was paramount in developing these materials.

Retailers Can Drive Change
Jack Parker, director of operations and marketing at Popingo’s, a nine-store convenience chain in Napoleonville, La., said Peters is spot-on about retailers needing better menus, signage and POS. That’s one of the reasons Popingo’s installed the chicken concept at four of its nine stores.

“Number one, you get a brand without paying loyalties and franchise fees,” Parker said. “You just pay the cost of goods. But they also help you do a lot of other things.”

Among those things: Menu boards, POS systems, pump-toppers and intense marketing supporting. “They even help you get tongs for the chicken,” Parker said. “They’re helpful all the way around.”

Plus, they understand turnover, “so they’re retraining a lot, too,” Parker said. “They’re very agreeable to come in and retrain employees. In fact, they push for it.”

Innovation and quality are paramount as well. “In the last three or four months, they’ve come up with a pizza program to complement their chicken and catfish,” Parker said. “They realize that people don’t want to eat chicken or catfish every day.”  

In truth, there’s scarcely a foodservice brand in the market that doesn’t offer a healthy degree of marketing, operational support and innovation. The trick is finding the right fit for each store.

“All of them that we deal with have very good training and support programs, and very good people in the field who we constantly work with,” Cotton said of Love’s foodservice brands.

For a list of co-branded foodservice concepts and national foodservice brands, visit www.cstoredecisions.com. 

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