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

March 18, 2009

Opportunities for a Challenging Economy

Here is an outline of the “Opportunities for a Challenging Economy” speech I gave today at the Convenience Store News Food Service Roundtable.

    Recession- 18 months
    Loss of jobs may make the recession longer.
    6-10% inflation by 2011
    $4 a gallon gasoline in the next year, which will further reduce disposable income.
    Savings rate is up 6%, which helps the banks but not spending.
    Trading down
    Fine dining trading down to Red Robin and TGIF
    Red Robin- TGIF down to Subway and Qdoba.
    Qdoba, Subway down to McDonalds’ and BK
    Starbuck’s trade-down to McDonald’s espresso
    “Go without” – Starbucks, Jomba Juice, etc
    1/3 consumers-eating  out less than a year ago
    Meal replacement
    Fringe day parts-breakfast-snack-late night
    Lower customer counts
    Increased price of cigarettes driving sales else ware
    $4 a gallon gasoline- more pay at the pump
    C-stores are the “face” of big oil. PR problem to overcome when gas rises.
    “Go without” mentality on impulse purchases
    Rising labor costs-Washington State $8.55,
     Oregon$8.40, Vermont $8.06, 5 states @$8.00
    Increasing energy costs
    Cannibalization with new units
    Discounting strategy, intense competition.
    Subway $5 sub
    McDonald’s dollar menu
    Burger King – dollar menu
    Wendy’s – 99 cents price point
    Quizno’s -$5 sub
    Taco Bell -79 cents, 89 cents and 99 cents.
    Sonic’s Dollar Menu
    QSRs backed into a corner with discount menus
    Consumers expect to pay $1 for a value burger.
    A $5 Subway sub is now an expectation.
    QSRs assumed add ons, which has not happened
    Subway is countering with $1 add ons- discounting $1.59 soda to $1
    Franchisees are battling the mother corporations to raise prices because of low margins
    Law suits to lower royalties to offset value menu
    25 % consumers eat breakfast away from home
    QSR Sector is aggressively getting involved:
    McDonald’s chix-biscuit breakfast sandwich
    McDonald’s McSkillet Burritos,
    Burger King’s Cheesy Bacon BK Wrapper
    Hardee’s –Ham/ Three Cheese Burrito.
    Jack n box
    Breakfast  isn’t as price point determined as it is perceived value driven
    McDonald’s Snack Wraps
    Chicken McNuggets
    KFC popcorn chicken
    KFC crispy chicken strip
    Wendy’s Go Wraps,
    PRICE POINT  1.49-$1.99
    Technomic found that 86 percent of consumers were surprised by calorie counts listed on menus.
    82% – calorie disclosure is changing their order
    60% percent is affecting where they visit.
    Taco Del Mar has launched a 320-calorie burrito
    Subway has 9 subs with 6 grams of fat or less
    Hardees country breakfast burrito – 780 calories
    Jack in the box breakfast taco- 720 calories
    Menu engineering- smaller portions, different containers, lower price points
    B K- testing premium items, ribs & thicker burgers
    Burger King is testing a self serve condiment concept similar to a salad bar
    Hardees’s, Thickburgers
    Domino’s is delivering  oven baked sandwiches
    Pizza Hut is delivering baked pasta dishes
    Quizno’s recently started to offer home delivery
    Subway has drive thrus back in R&D
    Show associate money w/bonus & contests
    Set goals that are attainable and measurable
    Post results. Competitive, peer pressure
    Make check average a criteria for a raise.
    Terminate employees that don’t show average check growth.
    Loyalty cards rather than discounting.
    Emphasize the draw of your brand, not the deal.
    Subway is an example of this by selling discount rather than healthy. No longer a niche QSR but a discounter .
    Avoid discounting
    Focus on VALUE rather than discounted pricing
    Merchandise and market VALUE
    Fringe marketing (add on sales)
    Breakfast, snack, and late night
    Food costs-
    Ideal cost of sales based on recipes at cost
    Sales mix will generate an ideal food cost.
    New ideal food cost each week based on sales mix
    Food cost budgets-  variance to cost of sales.
    Remote electronic labor tracking based on sales per/labor hour or units per hour to control labor.
    Phone/blackberry alerts for OT
    Re visit flow to decrease labor
    Decreasing energy costs
    Smaller kitchens and smaller dining area spaces
    Denny’s reduced their footprint 25%
    Equipment -Flat griddles with heat recovery
    Burgerville is trying to design a building that would operate on wind-energy credits  and solar power.
    C-store food service can benefit in the trade down chain.
    Products focused on value rather than compete with discount pricing.
    “Fringe markets” Breakfast, Snacks, Late Night
    Home meal replacement-grow in this economy
    Trade down coffee growth.
    Create low calorie items and market them.
    Portable ,eatable,snack items
    Market “GREEN”
    Leverage unemployment to get better employees and increased check averages
    Experiment with QSR market products, they spend millions in R&D and test marketing.
    The trade down creates a huge opportunity. Subway is up 7% and McDonald’s  best 4th quarter in 12 months.
    While food service has a huge upside potential many of the QSR companies “pros” are struggling to drop money to the bottom line.

March 13, 2009

Establishing The Right Foodservice Brand

Establishing The Right Foodservice Brand
By Howard Riell

Retailers continue to debate regional and national chains versus proprietary.
There are few sure things in business. But partnering with an established foodservice brand could be about as close as one can get.

That’s because proven concepts offer so much, such as built-in brand equity, customer loyalty, honed or even turnkey systems with shorter learning curves, proven menus and recipes, pre-existing designs and equipment packages with the bugs worked out, as well as potentially more efficient purchasing and distribution. Plus, big brands often come with advertising and promotional support, training programs and varying degrees of in-the-field and back-office assistance.

Running a proprietary program, however, is like being a trapeze artist without a net. Its success rests on the expertise the operator brings to the table. Unless that operator has achieved some degree of size, every function involved—from design to sourcing products—can prove more expensive and time-consuming.

On the other hand, there is no revenue sharing or fee payments, local differences are more easily exploited, there are no restrictions to abide by, marketing supports the retailer’s own brand, uniqueness sets it apart from well-worn concepts, sourcing is more open and the sense of operator accomplishment can be greater.

Proprietary or branded “is a good question, because they are both good options,” said Jack Cushman, Ph.D., executive vice president of foodservice for the 80-unit Nice N Easy Grocery Shoppes in Canastota, N.Y. “It’s like anything else. For instance, is this a good time to get an apartment, a house or a retirement home? Well, obviously it depends upon a lot of things, primarily your age.”

Under Cushman, Nice N Easy has been fine tuning its Easy Street Eatery and Momma Mia’s Pizza & Subs program.
When looking at a business through the same lens, “if you really don’t have any expertise—if you don’t have someone with my background for example, or you don’t bring it yourself as a sole proprietor—then franchising a Subway, another respected national brand, or whatever else really works well with your customer base is a good way to go,” Cushman said.

Proven Concepts
Some concepts tailor programs specifically toward the needs of convenience stores. For example:

• Hot Stuff Foods LLC operates, licenses and franchises quick-serve restaurants that offer partners everything from concept development and product introductions to ongoing marketing and operational support to retail operators in the convenience store industry.

• The Hunt Brothers Pizza program charges no franchise, royalty or advertising fees. Its basic unit fits in 59 square feet of space and returns an average of $368 of gross margin per square foot per year. Its team also provides marketing support in the form of on-location marketing materials and even pizza promotions to help drive traffic, sales and profits.

• Piccadilly Circus Pizza’s program also offers an extensive menu of pizza, subs and breakfast items. Operational support includes territory managers who are available when operational or marketing support is needed. The program also features on-site training, business strategy planning, marketing consulting, cost-control, waste analysis and sales and profit evaluations.

The Joys of Proprietary
While devoid of national brand benefits, proprietary is trending upward, said veteran consultant Dean Dirks of Dirks Associates LLC. “Retailers can typically make more money, and a lot of branded foodservice companies view the convenience store market as a non-growth arena,” he said. “Several fast feeders are pulling back and focusing on their core operations to survive.”

For example, Dirks added, “Taco Bell pulled out of the c-store market because they felt that the quality of the brand was being compromised due to poor execution.”

Going with a proprietary concept, though, means “investing a great deal of money in a concept that is not proven,” Dirks said. “Buying a Subway is safe in that regard: you know the concept is going to work.” Dirks, who spent 20 years as foodservice director at several convenience store chains operating both proprietary and chain concepts, is quick to say he’s not promoting one over the other.

Another difficulty, according to Dirks, is that proprietary foodservice “does not come with systems in place like a Subway does. Setting up the systems for execution, profitability, food safety” and more can prove costly and time consuming.
Proprietary operations must overcome the “‘I feel uncomfortable buying food at a gas station’” image, Dirks said. How to do that? Operators with their own programs “have to execute better than branded foodservice to build their own brand equity similar to what a Sheetz has done.”

Another stumbling block to success with in-house foodservice programs: Many operators lack experience. Proprietary programs need experienced personnel to create and execute the concept.

“The companies I know in the industry that make money in proprietary foodservice have very talented foodservice people,” Dirks said. With a proprietary program in place, operators need not pay an 8-12% royalty that most branded concepts charge. Overall control is another factor that moves some operators to keep things totally in-house.

When an operator opts for a franchise, he is getting a proven concept “in virtually all cases,” Cushman said. “Take Subway, for example. It has certainly proven to be a viable business plan that works. You’re going to get the expertise all the way from sourcing to menu engineering to food safety, even to developing your management and your rank-and-file.”
As a company grows it can draw people who have that core competency, and then try to bring foodservice in-house. That’s when an in-house concept can compete effectively.

“I think it has been proven by companies like Sheetz, Wawa, Nice N Easy, Quick Chek, Rutter’s, Maverick and a number of other organizations that have decided to go there, that hiring people with an expertise and a background in foodservice was absolutely necessary to develop those programs,” Cushman said.

Branding Benefits
Many operators may not realize that, despite franchise or licensing fees, they can usually find it more economical to work with a partner because they don’t have to worry about a lot of marketing details, said Cushman, who has spoken on this topic before NACS and other organizations.

“If you look at the royalty you pay a national brand, it’s about 8%. But you’re going to get that back in food cost through more efficient purchasing,” Cushman said. “If you’re a little guy you may not have the wherewithal to buy a lot. Smaller chains trying to handle foodservice on their own not only tend to have higher food costs, but lower overall margins and traffic counts as well.”

Those proprietary operators who feel they are better served by purchasing the lowest-price items possible, however, are likely to find that consumers will not respond favorably. That could lead to smaller volume, Cushman said, “and then you are going to fall into this whole spiral of frustrations.”

Running a large number of stores isn’t a requirement. “If you’ve got 10 and you’re willing to do some conversion, or a raze-and-rebuild, then you can start there,” Cushman said.

But operators should keep in mind that 10 is not a hard-and-fast number. “It all depends on what kind of traffic and demographics you have. What’s the competition like? If you want to go proprietary and you’ve got a McDonald’s, a Panera Bread and everybody else right on top of you, and you are new at the game, you might suffer through a pretty long learning curve.”

This article was written for Convenience Store Decisions and can also be found here:

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