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

July 16, 2009

Dirks Associates has partnered with Atlas Scinergy to offer a range of COST- SAVING SERVICES called the “Gold Standard Savings Program.”

Filed under: Misc. — Tags: , , , , , , , , — deandirks @ 11:32 pm

Altas Scinergy provides FREE cost-saving analysis to convenience stores across the United States.

“Atlas Scinergy saves our clients money without charging any upfront fees orretainers,” remarked Dean Dirks, President of Dirks Associates, a leader in the Convenience store consulting market.

Atlas Scinergy simply reviews the clients’ costs and negotiates with suppliers on client’s behalf. Dirks Associates emphasize lowering of food and labor costs.

With Atlas Scinergy’s Gold Standard Savings Program, COSTS will REDUCE in the following areas:

  • Credit card processing
  • Electricity
  • Natural Gas
  • Telecommunications
  • Shipping

“Many store owners unknowingly and unnecessarily overspend in areas like credit card processing, energy, and telecommunications,” Dirks said.

Atlas Scinergy has relationships and leverage with suppliers that a small operator doesn’t have. Let the Gold Standard Savings Program work for you.


June 8, 2009

The Fine Line Between Paranoia and Reality

There is always a fine line between paranoia and reality, with the recent swine flu outbreak being a classic example.

Pork producers lost millions of dollars because people believed eating pork would cause swine flu. Even though that is not possible, you couldn’t convince the public of it. It was hard to decide whether the swine flu epidemic was as bad as it seemed — or a product of sensationalized cable TV.

During that time, I was scheduled to go to Texas to work on a project for Church’s Fried Chicken, with most of the locations within 30 miles of the Mexican border. I was confronted with the paranoia vs. reality syndrome. I was leaning toward canceling the trip and probably losing the client, until my wife did some research. Last year, more people in the world were killed by coconuts than swine flu.

I am not downplaying the horrible swine flu epidemic, just trying to put it into perspective. At the end of the day, I realized I was going to make my decision purely based on fear rather than logic.

How does fear affect the foodservice industry?

If people were willing to quit eating pork because of uneducated fear, then those same consumers likely also convinced themselves to stay away from convenience store foodservice and fast feeders that gave them any perception of potential swine flu risk.

My concern is the long-term effects the swine flu may have on our industry. Some health departments have been talking about making fast feeders dispense soda lids, bulk condiments and other food items behind the counter rather than in the dining area. As painful as it may be, it makes sense.

As consumers were being told the best way to avoid swine flu is to constantly wash their hands, some people went so far as to not shake hands to avoid the risk of grabbing someone’s unwashed hand. Given such cautions, concern about other people touching your soda lid is understandable.

While fast feeders are not thrilled with the prospect of moving products behind the service counter, they are weighing this inconvenience vs. the high cost of lawsuits for not taking proper action. And more important is the potential loss of business from the perception of a lack of food safety.

The c-store industry has significantly higher exposure to possible changes in health department codes. Grilled hot dogs, nachos, condiment bars, soda cups, soda lids, coffee cups/lids, bulk coffee creamers and open coffee pots, to name a few, may be at risk. If the health codes are changed, labor will have to be increased and foodservice profitably will be at risk.

Retailers should therefore approach foodservice with the possibility of new health department codes. While it may never happen, a contingency plan is a good idea.

— Develop an action plan should these health codes come to fruition.

— Make strategic decisions based on the possibility of new health codes. For example, opening a salad bar at this time would be a poor long-term decision.

— Determine which products are exposed to the public and what your solution will be.

— Review foodservice items that will not comply with possible food safety codes.

— Address presentation to avoid the paranoia vs. reality syndrome. Give customers a better perception of food safety. For example, coffee pump pots give the customer a better perception than coffee pots exposed to the air and vulnerable to human contamination.

— More than anything else, educate and push employees for better presentation. Go into any fast feeder and you will see employees wiping their face, touching their nose, coughing into the air. It goes on and on. It is bad enough these practices happen, but now people are watching.

I was in a big-name chain recently and asked an employee how she was doing. She said, “I am a little sick, but not contagious.” I thought to myself that she shouldn’t be working and surely shouldn’t be telling people she was sick. Unfortunately, the swine flu fear is not going away and an action plan is critical — not necessarily because of reality, but because of paranoia.

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

June 1, 2009

The Value of Foodservice

Recently quoted in this article by Linda Lisanti and Mehgan Belanger

Given the depressed state of the economy, and little improvement expected in the coming months, it was no surprise that value and price were among the most spoken words during the Convenience Store News 2009 Foodservice Roundtable.

“There is incredible pressure to lower prices,” said Gary Wildman, category manager for Petro-Canada’s Neighbors division, who joined several other best-in-class convenience retailers including Kwik Trip Inc., Quick Chek Food Stores, Tedeschi Food Shops and Thorntons Inc. for the two-day event, held March 16-17, 2009, in New York.

Attendees agreed c-store retailers who focus on offering cash-strapped consumers quality food and beverages at value prices will find foodservice to be a resilient — and growing — category in these shaky economic times.

In a new C-store Foodservice Pulse Study, presented by CSNews Editor-in-Chief and roundtable moderator Don Longo, 61 percent of the c-store companies responding said their 2008 foodservice sales increased over the year before.

The study, conducted in early March and aimed at revealing preliminary 2008 data on c-stores’ foodservice results, also found 51 percent of respondents saw their foodservice category outperform all other in-store categories in sales growth last year, and 49 percent said foodservice sales for the first half of 2009 are projected to beat their previous year’s by a mean average of 4.9 percent.

The study, fielded over three days, recorded the responses of 71 convenience store retailers with some type of foodservice program. More than one-third of respondents said they had full-touch (made-to-order) programs; 34 percent described their foodservice as some touch (assembled on-site, thaw and serve, roller grill, etc.); and 29 percent had just no-touch programs (grab and go, prepackaged items for sale).

Approximately 26 percent of respondents said consumers were purchasing more for take-home consumption — representing a potential area of untapped opportunity for c-stores.

Retailers at the Foodservice Roundtable shared several ways they’re trying to present greater value to customers to drive up their foodservice sales and market share.

Kwik Trip and Petro-Canada reengineered menu items to be able to offer lower price points. Kwik Trip now offers a smaller, thin-crust variety of its private label Cheese Mountain Pizza for $5.99. Its original pizza retails for $9.99 to $10.99, said Paul Servais, foodservice zone leader for the La Crosse, Wis.-based chain of more than 350 convenience stores.

Similarly, beginning this month, Petro-Canada’s Neighbours will roll out Grillers, a takeoff of the chain’s signature panini sandwiches, but with reduced ingredient portions, with pricing at two for $6, compared to the signature panini sandwiches ranging in price from $4.99 to $6.29 each.

“We’re focused on engineering menu items to get more penny profit,” Wildman explained. “With Grillers, we still get the same ring, but we can offer value to our customers.”

Other retailers such as Wilson Farms prefer to maintain their strict product specifications, while remaining competitively priced on comparable menu items. “We have a saying, ‘You change product, you change customers,'” said Nick Gallegos, vice president of sales and marketing for Wilson Farms, a chain of 200-plus neighborhood food stores. “This [approach] could lead to lower foodservice margins, which requires increased emphasis on other higher-margin items to ‘enrich’ the mix.”

Yet another approach is to put forward promotions and deals around foodservice, just as Quick Chek Food Stores and Kwik Trip are doing.

Quick Chek, based in Whitehouse Station, N.J., is presently advertising bundle deals in one of its districts. One “Value Meal,” which sells best at lunch, includes a $2.99 six-inch sub, a 75-cent bag of chips and a 99-cent, 32-ounce fountain drink — bundled for $4.73.

“This promotes both value and quality to our customers,” said Jerry Hayes, regional director of operations for the chain of more than l00 stores. “We just bundled some of our everyday value items together to show the customers the total value.”

Kwik Trip, meanwhile, is having success with Dollar Days, a promotion it’s been running once a week since December. Every Wednesday, the company’s stores offer one foodservice item — be it a cheeseburger, rib sandwich or Tornado (there are 12 items rotated) — for $1 each. The everyday price of these items ranges from $1.19 to $1.99.

“Managers at nearby QSRs (quick-service restaurants) are coming in and asking our store managers, ‘what did you do yesterday?’ because they were empty,” Servais said.

As consumers trade down from fine dining to casual, casual dining to fast casual, fast casual to QSRs and so on, convenience store operators stand to benefit in the chain if they focus their foodservice offerings on perceived value rather than discounting, said foodservice consultant and guest presenter Dean Dirks, of Dirks & Associates LLC.

“I’ve never been a believer in discounting. I am a believer in value or the perception of value,” he explained. “C-stores can’t compete with QSRs on discounting.”

Dirks offered roundtable attendees these tips for making the most of the trade-down trend:

— Experiment with QSR market products since these companies spend millions of dollars in research and development, and test marketing before rolling out a new item;

— Focus attention on the “fringe markets” of breakfast, snacks and late night;

— Offer home-meal replacement solutions since this is a growing segment;

— Create low-calorie items and market them, in advance of a possible nationwide mandate requiring foodservice providers to display calorie counts for every item; and,

— With so many people on unemployment, use this time to upgrade to better employees and increase check averages by pushing existing employees to up-sell. Set attainable goals for associates, run contests, offer bonuses, and be sure to post the results.

Executing Fresh Safely
Convenience retailers are balancing the need to be perceived as providing fresh foods with also offering a foodservice selection that is profitable, appetizing and safe. It’s a balancing act that only the best in class are capable of doing.

Panelists agreed a made-to-order (MTO) foodservice program, where food is made on demand in front of customers, conveys freshness. Yet, they also said the dedication and labor required of such an operation can put the concept out of reach for many convenience store operators.

Wildman from Petro-Canada noted, “The best-in-class operators want to control foodservice themselves,” as opposed to the alternative, which is having foodservice category management and replenishment handled by a direct-store delivery driver.

Another option for foodservice operators is to use a commissary where foods are prepared, packaged and then delivered to the stores. This option allows c-stores to own and control the products; however, creating the logistics and volume required to be successful can be challenging. On top of this, pre-packaged food does not have the same perception of freshness as made-to-order food does, the attendees said.

It is difficult for a customer to define a product as fresh when the packaging contains the phrases “enjoy before” or “best by,” Wildman noted.

“Commissaries have a difficult time overcoming the fresh factor,” added Brian Matlock, director of foodservice for Rockland, Mass.-based Tedeschi Food Shops, whose convenience stores include full-service fresh deli counters.

Thorntons, which operates a commissary offering daily delivery of fresh goods to a group of stores near its base, knows firsthand the logistical prowess needed to supply fresh foods to stores. Logistics of delivering to far-flung locations is the main reason the company has not expanded its commissary to serve additional stores, said Melina Hall, senior foodservice category manager for Thorntons Inc., based in Louisville, Ky.

If a commissary approach isn’t feasible, yet another foodservice option is to create a portfolio of products supplied through a wholesaler. “Fresh is a misnomer,” said Wildman. “In our fresh-food oriented Neighbours format, we offer fresh, prepared-with-care foods, but the ingredients used are a combination of fresh and frozen.”

The cheese, deli meats and vegetables are fresh, while the rest of the ingredients come fully cooked frozen. The company offers MTO and fresh-to-go foods packaged, labeled and UPC-coded on site. MTO sandwich breads arrive frozen/fully baked and are then toasted or grilled when a guest orders a sandwich to maintain consistency and quality. (There’s nothing worse than a sandwich on soggy bread, the retailers agreed.)

Foodservice of any type requires dedication, roundtable attendees agreed.

“If you want to get into foodservice and be successful, you need to clearly understand that you must make a strategic, long-term, company financial and cultural commitment,” Matlock concluded. “C-store operators who try to get into foodservice without the proper vision, knowledge and support infrastructure hurt us all.”

This article can also be found here:

April 13, 2009

Calorie Count Laws Provide Marketing Opportunities

Filed under: Articles — Tags: , , , , , , — deandirks @ 11:03 pm

For years, the convenience store industry has tried to get a foothold in the healthy segment. With good product, merchandising and marketing, the industry — myself included — thought that the healthy segment could be developed.

For the most part, however, retailers found out that while customers talk about wanting healthy products, they just didn’t purchase them — at least not from convenience stores.

Unfortunately, our industry still has to overcome the “gas station stigma” with foodservice customers. In stores I supervised, we had a hard time convincing our customers that buying milk at a c-store was safe. Most of the time, we had longer shelf dates because we had one door and turned the door so quickly. Customers just don’t see our industry as being able to deliver a healthy product.

I think there’s a new opportunity for retailers on the horizon. More than 30 states, cities and counties have laws in place that require restaurants to list calories for any menu item. Last month, the LEAN Act was introduced in Congress, which would require restaurants and grocery store chains that serve prepared foods and have 20 or more locations to disclose calories for each menu item. Smaller restaurant chains and independents would be exempt and would not face the expense of testing their menu items to produce such information.

Early experiences with fine dining restaurateurs in states that require calorie listings show that these upscale establishments have lost customers after listing the amount of calories for each item on their menus. Some restaurants have been forced to modify their menus and others have eliminated items after customers realized how many calories those dishes contained.

It only makes sense that the same results will follow at fast feeders. I live in a county that now requires calorie listing. I usually go to the same quick-service restaurant (QSR) for breakfast each morning, but when I discovered my breakfast burrito has 720 calories, I switched my breakfast choice to Subway.

It’s interesting that one company that could succeed with healthy food, Starbuck’s, has failed at foodservice for the most part so far. The struggling coffeehouse chain is gambling its foodservice future on menu items it introduced in February, such as a reduced-fat turkey bacon breakfast sandwich, lighter options featuring reduced-fat turkey bacon, cholesterol-free egg and reduced-fat aged white cheddar on a multi-grain english muffin. This item’s calorie content stacked up against a QSR’s breakfast sandwich creates a huge menu board merchandising and marketing opportunity. This along with other Starbuck’s food items will grow frequency and customer counts. I think consumers will eventually see Starbuck’s as a place they can go with confidence to eat something healthy for breakfast.

At the end of the day, c-store retailers have the opportunity to compete with fast feeders by developing lower-calorie items, and then merchandising and marketing them aggressively. This will be easier and more effective than competing with organic products, sushi and other experiments that many have tried.

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

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:

February 27, 2009

Marketing in Today’s Foodservice Environment

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 is January’s article written for; it can also be found here:

February 19, 2009

Fast Food Franchisee Challenges

The fast feeder’s discount strategy is paying off with same store customer counts growing from the prior year.

While discounting has increased customer counts, the results haven’t helped the bottom lines of foodservice franchisees. The chart below shows how the leading fast-food restaurants increased store traffic by anywhere from 2,000 to almost 127,000 customers in the mid to later-part of 2008 — mostly due to their recently launched discounted menus.

The problem is that quick-service restaurant (QSR) profitability comes from royalties and does not equate into franchisees’ profits. For example, McDonald’s franchisees have formally fought the dollar menu because of its lack of profitability. Taco Bell is experiencing a 50 percent (yes, that is right) profit decline overall as its 79-cent, 89-cent, and 99-cent menu comprises 50-to 60 percent of the sales mix. While these price points drive sales, they may not drive profits.

Subway has discounted foot-longs to $5 from $7, while food costs have risen by 26 to 32 percent. The $5 foot longs account for about 65 percent of the chain’s sales mix. While sales have been maintained, and in some cased grown, the net profit for each store has actually dropped.

In addition to higher food costs, discounted menus create higher labor costs. Before the discounted menu, it took 1,000 units at $7 to produce $7,000 in sales. At that volume level, the location could be manned with two people. Now it takes 1,400 units to produce the same $7,000 in sales. Labor costs go up to produce those 400 incremental dollars because at key times three people are needed to man the location instead of two. Basically, Subway is adding labor dollars to product the extra amount in sales.

In the stand-alone QSR world, these factors are catastrophic. In the convenience store industry, increased customer counts will build incremental inside sales. It may come down to a basic philosophy in how you view foodservice. Do you want your food service to make money or do you want it to draw customers to the store?

At the end of the day, QSR companies focus on royalty growth, stock value and sales per store. These financial successes help franchise companies sell units to new franchisees.

This is February’s article I wrote for; it can also be found here:

January 20, 2009

Fast feeders and convenience stores could be the big winners in the tradedown game.

Filed under: Articles — Tags: , , , , , , — deandirks @ 4:29 pm

A good read this month is “The Lowdown on Downtrading” article in CSP magazine’s January 2009 issue. This article discusses how the the shift from casual-dining establishments to c-stores could mean big gains. 

Read the full article here:

December 19, 2008

Check out the January, 2009 issue of Convenience Store Decisions Magazine

Filed under: Articles — Tags: , , , , , , — deandirks @ 11:31 pm

It is always a pleasure to be quoted in one of our respected Industry Magazines. Please check out Convenience Store Decision, January, 2009 – Food Service Trends, for a snippet from me as well as other valuable industry information.

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