Recap from CSP Podcast Series with Impact 21

Convenience stores serve a critical need in the retail market by providing quick-and-easy access to snacks, drinks, gas, and basic necessities like toilet paper and bread. But in recent years, one part of the c-store business that has risen above all others in the hot growth area: Foodservice. And more importantly, foodservice profitability.

According to data from the NACS State of the Industry survey, total foodservice sales in convenience stores increased by 14.3% in 2022. Yet despite such impressive growth, industry leaders continue to face daunting operational and managerial challenges.

To unpack these and offer solutions to industry leaders, Liza Salaria, Practice Lead for Category Management and Foodservice at Impact 21, participated in a three-part podcast with CSP Daily News Senior Editor Hannah Hammond. Here are some key takeaways from their conversation.

 

Takeaway No. 1: Create A Foodservice Operating P&L

For any convenience-store business to succeed over the long term, it must earn a return that exceeds its cost of capital. That’s why forward-thinking business leaders in the sector have put so much focus on measuring and managing return on investment (ROI) as a basic operational practice. It is only through continuously making incremental progress in lowering costs and increasing revenues that firms achieve competitive advantage in their industry.

The problem, however, is that many convenience stores may be trying to squeeze that “square-peg” business (in this case, foodservice) into a “round-hole” P&L.

“The ability to improve the profitability of your foodservice program starts with knowing your numbers—and ultimately what is driving these numbers,” Salaria said in Part 1 of the podcast series.

As a first step, Salaria suggests coding the largest expense items with a direct relationship to foodservice sales, which is often led by “labor” and “food supplies”. This creates a clearer picture of program profitability, she said.

Salaria employed this simple yet powerful P&L tool to measure the sales and margin incrementality compared to direct expenses and investments when she expanded a foodservice program for Fresh Food. In introducing menu items like sandwiches and smoothies, the business had to invest in panini presses, blenders, and new training for the staff—but with scant visibility into how investments in new equipment, new operational processes, and, ultimately, cannibalization to existing business were impacting the bottom line. Only when Salaria created a foodservice P&L was she and her team able to understand what was driving down profitability.

To truly understand the impact your foodservice program is having to the total convenience business, Salaria recommends incorporating a “market basket” impact into P&Ls. This affords companies to view the combination of “other” c-store products being purchased in the same transaction with food. Finance teams can then predict revenue and profit losses if these food items were to be discontinued.

“The real risk of not being intentional with your P&L,” Salaria says, “is making a macro decision to remove a food category or program altogether when it may actually be driving a significant amount of customer trips and driving sales of other categories.”

Want to share? Part 1: Foodservice Operating P&L

 

Takeaway No. 2: Take A Holistic View Of Waste

Eliminating waste is the holy grail of the foodservices business—but most companies err by focusing their energies only on eliminating food waste.

According to Salaria and Beth Hoffer, Vice President of Operations and Foodservice of Weigel’s convenience stores during Part 2 of the podcast series, companies should look beyond just traditional “food” waste. The remedy is to reduce waste by minimizing variability in business processes and creating a continuous flow between each step. Salaria and Hoffer follow the Lean Six Sigma methodology, which categories eight types of waste: defects, overproduction, waiting, nonutilized talent, transportation, inventory, motion, and extra-processing.

At Weigel’s, for example, Hoffer and her team focused on understanding the precise physical “movement” of employees. That meant asking themselves hard questions. What tools are necessary to make a pizza? How often do workers need to shift from one place to another to complete their task? What changes could be made to the physical kitchen layout to increase efficiency?

In Salaria’s experience, the waste of “overprocessing” can be just as costly as an inefficient kitchen design. In one example, kitchen employees of a fast-casual chain were “pre-portioning” roughly five to six ounces of french fries for each order from a five-pound bag. While well-intentioned, this work was wasting precious employee time. The more efficient solution, Salaria said, was to give workers a five-ounce measuring scoop and have them process orders in real time.

“Retailers should always look upstream to their suppliers—to work with them to package and ship the product in a manner that’s optimal for their kitchen and their work design,” Salaria said.

Want to share? Part 2: Holistic View of Waste

 

Takeaway No. 3: Focus Your Menu

A critical component of foodservice profitability is the menu. To Salaria, a c-store’s menu must be unique and executed with razor-sharp efficiency.

Two companies executing their menus with discipline and efficiency are American fast-casual chains Chick-fil-A and Chipotle Mexican Grill. Chick-fil-A focuses on chicken while Chipotle emphasizes fresh modern Mexican bowls, tacos, and burritos. In both cases, the value proposition to the consumer is variety, quality and speed—made possible through a core set of ingredients cooked with one method and assembled on one production line. Notably, neither chain offers burgers or pizza or other tangentially related food.

There is a reason for that; introducing a new menu item outside their core ingredient and operating chassis could require “unique equipment, unique processes and a unique work design,” Salaria noted in Part 3 of the podcast series.

In Salaria’s experience, Chipotle Mexican Grill’s introduction of the quesadilla underscored a harsh reality for c-store businesses: introducing new menu items can add complexity and at times become unprofitable. When Salaria was an executive at a large East Coast chain, for example, she introduced grab-and-go fresh salads, which were popular with customers but posed operational and financial challenges. Fresh salads require “single-use ingredients,” such as cucumbers and mixed greens. And these must be sourced and inventoried only for making a salad. Hence, not easily profitable.

Salaria decided to pivot back to what the company had become famous for: made-to-order subs. In a twist, the company began offering “old-fashioned subs” with bread baked twice a day and meat portioned in real time on actual slicers, each wrapped in traditional butcher wrap. It was a hit—and profitable.

“It doesn’t matter how scrumptious your food items are if you can’t make money doing it,” Salaria said.

Want to Share? Part 3: Focus Your Menu

Measure Foodservice Holistically

It has never been more important to understand how your foodservice program is performing, not only as a standalone restaurant business but as a catalyst for customer and revenue growth for the entire c-store business. While it can take some time to get all the pillars of profitability right, developing a foodservice operating P&L, taking a holistic view of waste, and focusing your menu will allow you to see the impact of foodservice to your total business.