Convenience Store Food Service Consultant- Dean Dirks: News, Articles, Events

August 22, 2008

DUE DILLIGENCE – DOING YOUR HOMEWORK

Filed under: Speeches — Tags: , , , , , , — deandirks @ 4:19 pm

Outline of the “Due Dilligence – Doing Your Homework” speech I gave at the FOOD SERVICE AT RETAIL EXPO 2008.

  1. DUE DILLIGENCE
    DOING YOUR HOME WORK
  2. HOMEWORK
    Financial analysis
    Physical issues
    Day part customer count
    Choosing the correct format
    Core competency for food service
    Upper management commitment
  3. FINANCIAL ANALYSIS
    PROJECTING DAILY SALES
    Inside customer counts 478
    Capture Rate 20%
    Expected F.S customers 96
    Average transaction $7
    Projected daily sales $669
    Monthly sales $20,076
  4. PROJECTING FOOD COST
    Food costs=COGS / Sales
    Projecting food costs are complicated
    An item w/ $2 cost w/ $7 retail = 28%
    An item w/ $2 cost w/ $6 retail = 33%
    Sales mix skews food cost
    TB #1- 34% bean burrito mix =22%fc
    TB #2- 24% bean burrito mix=24%fc
  5. LABOR
    Don’t listen to general labor cost %
    Write a manning table w local labor rates.
    Washington state min wage is 8.25
    Labor in Washington vs. Mississippi, how can you discuss labor % ?
    Include incremental supervisor labor
    Include taxes, bonus, and benefits
  6. EXPENSES
    INCLUDE ALL EXPENSES
    Rent 
    Linen/Laundry 
    Telephone 
    Credit Card Service Charges 
    Other Taxes/ B&0 
    QSR Royalties- 
    Depreciation 
  7. Required rate of return (Hurdle Rate)
    INVESTMENT -$181,148
    Cash flows 
    YEAR 1-$29,106
    YEAR 2-$25,406
    YEAR 3- $22,176
    YEAR 4-$19,357
    YEAR 5- $16,897
    END OF YEAR 5 YEARS- $112,942
    $68,206 Left on the investment at the end of 5 yrs
  8. ANALYZING CUSTOMER COUNTS
    Customer counts per day part
    This information will dictate the format
    Heavy lunch-deli
    Heavy dinner- hamburger, chicken
    Heavy breakfast- donut, breakfast sand
  9. PHYSICAL REVIEW
    Drive thru-critical hamburger formats
    Parking- limited can be offset by high carry out, Subway for example
    Store layout to share labor, donut formats need to be by the registers for impulse
    Signage restrictions
  10. THE HUMAN FACTOR
    Is the owner committed to food service?
    Does the owner understand that it may take time to show a profit?
    Skill set for managing food service
    Research market rate for FS managers
    Are you willing to take on another staffing problem.
  11. THE REWARD
    Food service can be very profitable. Do your homework, select the correct concept and know how to manage food service

August 20, 2008

Marketing in Today’s Foodservice Environment

Filed under: Articles — Tags: , , , , , , , — deandirks @ 11:56 pm

Growing foodservice sales has several challenges in today’s environment. The high price of fuel reduces inside customer counts and no matter how you look at it people just have less disposable income. In most cases, dispenser marketing opportunities are used for fuel promotions or beer and cigarette deals that may drive customers inside the store. This does not leave food service with a lot of options other than to grow segments (such as breakfast), offer new items or discount.Traditional quick-service restaurant (QSR) companies have decided to compete with discount menus. This started heavily in December 2008 when McDonald’s had a same-store sales decrease for the first time in 56 months. In January 2009 McDonald’s came back with its $1 menu and every QSR followed suit to compete. Even segments that have not traditionally discounted — in particular Subway — were led into this trap when Quiznos ran a 12-inch sub for $5 special. Subway’s sales decreased so it matched the Quiznos promotion with a $5 sub program.

I call this discount marketing plan the “Pizza Model.” Years ago, the pizza market went to war discounting pizza and today the segment can’t sell a pizza unless it is discounted. The Subways of the world are walking into the same trap. At the same time, Subway and others may have had no choice because sales were declining.

One thing to remember is that the whole foodservice market is driven by the QSR companies, not franchisees. For the most part, QSR companies are not concerned with franchisee profit but with total sales. The companies get paid royalties on gross sales not the franchisees’ net profit.

Subway franchisees I talk to tell me that the $5 sub promotion drove sales by 10 percent to 20 percent. At the same time food costs went up 5 percent to 7 percent, so the net affect was lowering the bottom line profit.

Taco Bell’s “Why Pay More” promotion produced 6 percent sale growth. Menu prices are 79 cents, 89 cents and 99 cents. Franchisees are concerned that the sales mix of certain items on this menu is significantly hurting food costs. For instance, the 89-cent Cheesy Double Beef Burrito has high a food cost, slightly above 50 percent. When the promotion was launched, Taco Bell was betting on products like the lower-cost bean burrito to be a higher part of the sales mix.
The biggest danger in getting customers accustomed to a discounted menu is that when raw food prices go up, customers react negatively to raising prices to answer the higher cost of goods. The pizza market felt this hard when cheese rose 50 percent and flour costs doubled last year.

What is the answer in the convenience store world? I think gorilla marketing:

— Convenience stores need to be viewed more as the good guys; animosity for the oil companies is something retailers need to address. Quite honestly, I don’t blame consumers. Oil companies are creating huge profits and what charities are they involved in at store level? The charity work is always done by the retailer. I have always felt strongly about our responsibility as retailers to raise and contribute money for charities. We need to get more involved with fundraisers for charities like St. Jude Children’s Hospital, Breast Cancer or a multitude of others. This goes a long ways in separating retailers from the oil flags they wave.

— Remember, all marketing needs to drive sales back to the store. Get involved in school events. Give out free coupons for kids from first through eighth grade. You know that the parents have to drive them to redeem the coupon and rarely will they buy only the one item. Frequent reader programs worked well for me when I was an operator.

— Market your ability to deliver food to events.
— Tie foodservice marketing with the fleet fuel business. United Parcel Service was a big customer of a retailer I once worked for, and the drivers were required to fuel at our locations. We gave all the UPS drivers a free small coffee if they purchased a breakfast item. In most cases, they traded up to a larger coffee and we got a big long term lift due to frequency.

— Everyone needs to grow breakfast with presentation by the register. Retailer short-sightedness on receiving money for counter displays that don’t move product may need to be reviewed. Turns are where it is at, not stagnant placement money.

No matter how you look at it, we are in very difficult times and need to grow sales or we won’t survive.

 

This August’s article I wrote for csnews.com; it can also be found here: http://www.csnews.com/csn/foodservice/article_display.jsp?vnu_content_id=1003834847

August 7, 2008

The Real Cost of Foodservice

Filed under: Articles — Tags: , , , , — deandirks @ 8:07 pm

Interesting Newsletter Article I was recently quoted in:

The Real Cost of Foodservice

Invest in growing your foodservice sales — but do so with your eyes
wide open to all the potential costsmoreBy Don Longo, Editor-in-Chief I hope
you come away from reading this special foodservice issue of Convenience
Store News with a feeling for the excitement this category offers c-store
operators, while at the same time a solemn appreciation for the depth of
commitment and study needed to be successful selling fresh, prepared food to
consumers. CSNews reported in its 2008 Industry Report ( May 2008 ) that
foodservice was the fastest-growing in-store category last year, increasing
a whopping 10.1 percent on a per-store basis. It was also the highest profit
category in the store, accounting for 21.63 percent of gross margin dollars.
This issue is full of examples of c-stores that are capitalizing on
foodservice as a growth driver for their business.

However, foodservice is not for the faint of heart. Just last month, the
National Restaurant Association said its monthly survey of restaurants
showed operators were greatly worried about increasing wholesale food and
commodity prices, with 21 percent of respondents identifying food costs as
their top challenge. C-store retailers are facing the same huge increases in
ingredient costs. Senior writer Linda Lisanti reported earlier this year
(“Rising Costs Take Bite Out of Profits,” CSNews, May 5) skyrocketing
commodity prices, as well as increased packaging and transportation costs,
were eating up retailer profits in foodservice. Lisanti reported on how
retailers all over the country — from large chains like Kwik Trip and
Village Pantry to single-store owners — were scrambling in the wake of the
highest annual food price increase since 1990. And food prices aren’t likely
to go down this year. With farmers unable to plant as much corn due to the
heavy flooding in the Midwest, corn prices are soaring to record levels.
According to the U.S. Department of Agriculture, September-dated corn
contracts zoomed to more than $7 per bushel, up from about $6 in June.
Federal policies encouraging the diversion of a large share of the corn
market from food to fuel production just exacerbates the problem. There is
no question the current short-sighted policy of giving massive subsidies for
ethanol production needs to be re-evaluated as part of an overall energy
policy that balances environmental concerns with the real food, fuel and
economic needs of American consumers. Cripes! China is bidding on rights off
the coast of Florida, where U.S. oil companies are forbidden to drill.
Unfortunately, neither of the current presidential candidates have
articulated an intelligent strategy that deals with both the immediate fuel
price problem and the long-term energy needs of the nation. But I digress.
Let’s return to the store. After cost of goods sold, labor is the next
highest expense in the foodservice arena. In fact, foodservice labor as a
percentage of foodservice sales increased from 22.4 percent in 2006 to 25.6
percent in 2007, according to CSNews’ exclusive 2008 Foodservice Study (see
page 37). CSNews’ foodservice expert columnist Dean Dirks wonders why
c-stores don’t have a category manager for labor. “We have category managers
for everything from cigarettes to candy,” Dirks said. “But the money blown
in labor far offsets rebates in candy.” Restaurants may be suffering more
than c-stores from the impact of rising food costs, but they also tend to
watch below the line more closely, according to Dirks. “They have people
managing all expense categories, from labor to electricity,” he pointed out.
So, by all means, invest in growing your foodservice sales — but do so with
your eyes wide open to all the potential costs. Newstex ID:
VNU-0059-27153044

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