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

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:


1 Comment »

  1. Costs vs. Deliverable vs. Buyer Perception vs. Actual Demand

    How long will patrons continue searching for the best or at least their desired product if they feel manipulated or under served?

    I’m very excited about the fresh food growth in Convenience Stores. 90% of the fresh product offerings currently in convenience and grocery stores do not suit my healthy minds requirements, but it’s certainly a growing segment that I’ve been spending more and more of my food dollars on in recent years. Offering a fresh product set is a very complex endeavor especially due to the extremely limited shelf life, but it can also be very rewarding especially in building a loyal customer base.

    Although there are forecasting tools available, buyer behavior is not completely predictable due to the extreme differences in some very relevant variables effecting the specific market of each store location. A couple of examples are shopping trends for a particular region and the buyers perceived value of a given product offering at the point of purchase.

    Now, back to the point of my comment…

    Buyers will buy and re-buy, but the re-buy will only occur if their need is not only satisfied, but as long as they are continually satisfied. Spoilage is a part of COGS(cost of goods sold); retail price, at least over time, must be large enough to capture margin above and beyond all costs. Of course the golden ticket is total net margin, so keep in mind that the total margin realized from all sales to a customer is key.

    Some consumers are interested in products that are simply tasty, others are interested in those that are simply healthy, others are shopping only based on price, others are interested in convenience and others have higher requirements consisting of all four motivations mentioned.

    So, my point is that you must satisfy your specific customers needs every time. There’s no better way to kill a re-buy than with a bad product or no product. If you have to pick between the two, I’d personally suggest offering no product. Spoilage is quite likely a lower expense than loosing a single customer.

    Well…good luck to all of you out there working hard to make a good living and even more to those of you that work hard in trying to make others lives better at the same time!

    Comment by Troy Skeen — November 12, 2008 @ 4:08 pm

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