C-store: Tobacco Products vs. Healthy Future

By Brian Harris

tobacco-v-healthy

Something in the convenience store industry seems awry. On one hand, the industry is pushing fresh, prepared foods on its menus. On the other hand, convenience stores continue to profit greatly from tobacco products.

According to NACS, the Association for Convenience & Fuel Retailing, retailers have found that foodservice can entice new customers inside the store, and at a higher profit level than for items like gas. While NACS focuses specifically on gasoline sales, it should also be noted cigarettes are a low-margin product as well.

Margins for cigarettes and tobacco average about 15 percent, which is comparable to the products sold at Costco Wholesale Corp., Jeff Lenard of NACS told Crain’s Chicago Business. But what the products lack in margin for the convenience channel, they make up for in volume.

Last year, convenience stores garnered a whopping 86.9 percent share of cigarettes sold in 2014, compared to a 6.7 percent share for grocers and drugstores, according to the latest State of the Industry data from NACS.

‘Smoke ‘Em If You’re Not CVS’

Unsurprisingly, the tobacco market is shrinking largely because of high prices and health concerns. But the products have seemed to find a home in the convenience channel thanks to CVS Health’s decision to halt sales of tobacco products at its 7,000 pharmacies nationwide.

According to David Bishop of analysis firm Balvor LLC, CVS’ strategic change affects all of its pharmacy network providers, essentially creating a spillover effect that could benefit c-stores.

Unsurprisingly, the tobacco market is shrinking largely because of high prices and health concerns. According to Reuters/Ipsos poll, conventional cigarette smoking has declined to about 19 percent of adults. A new trend is on the rise, however, with one in 10 U.S. adults now taking part in vaping. However, analysts remain cautious, pointing to the fact that consumer safety perception is becoming increasingly clouded.

Where Does the Industry Go From Here?

The bottom line is that while convenience stores aren’t pharmacies, and being a one-stop destination is still the objective of these retailers.

That being said, convenience stores will continue to move away from the “smoke and cokes” perception that has defined the industry for decades. They will become the one-stop destination for increasingly health-conscious consumers with busy, active lifestyles.

The future is clear: Retailers who don’t adopt a versatile model will be left in a cloud of smoke.

Topics: C-store

If C-store Food Sales Are Up, Why Is Industry Optimism Down?

By Scott Hill

health-c-store-food

“Summertime and the livin’ is easy,” Ella Fitzgerald famously sang. This year, retailers have expressed optimism about summer sales and with good reason.

According to a recent retailer sentiment survey released by NACS, the Association for Convenience & Fuel Retailing, more than four out of five retailers say in-store sales were higher in the first half of 2015 compared to the first half of last year. Fifty-five percent of retailers also reported stronger fuel sales so far in 2015 than the year-ago period. Lower fuel sales always bode well in an industry that has better margins on in-store items than at the pump.

The past several years have seen the convenience store industry become a convenience restaurant industry. With cigarette usage hitting new lows, the continuity of beverage promotions and the expansion of food offerings has been a great way to get customers in the door.

More than three in four convenience store retailers (77%) say they are selling fresh fruit and vegetables, with almost six in 10 selling packaged salads and nearly half also selling cut fruit and vegetables. This trend has been ongoing for the past six months. Half of all c-store retailers surveyed said they have expanded their fresh fruit sales, 30 percent have increased their cut fruit and vegetable offerings, and 21% are offering more salads.

It’s not just about fruits and vegetables. C-stores are selling other better-for-you items, including nuts and trail mix, healthy bars, yogurt, string cheese and hard boiled eggs. Retailers surveyed indicated they are most expanding selections of health bars and yogurt.

Of course, this rosy report on summertime food concessions has a flipside and important lesson.

C-Stores Can’t be Complacent in Strategy

Summer is the time for c-stores to make the most out of increased foot traffic from good weather and vacation plans. So while the living is easy for customers, c-store retailers can’t afford to be lackadaisical about their promotions.

While the NACS survey revealed that retailers are very optimistic about their own business prospects, they are slightly less optimistic about the convenience retailing industry (79% down slightly from 80% in the second quarter), and the economy as a whole (61% down from 70% in the second quarter).

At least one retailer expressed concern about an “influx of new competitors in the market.” It’s not just other convenience stores that pose a threat, but also dollar stores, wholesale clubs like Costco and Sam’s Club, and big-box retailers and grocery stores opening smaller format stores with fresh foods.

It’s important that convenience stores remember that their fuel sales continue to give them a competitive market advantage. This is why forecourt promotions and cleanliness of facilities are important for the fresh food upsell.

Summertime is prime time for building the kind of brand that consumers come to trust, whether they are five minutes from home or five hours away.

Topics: C-store

Remote Monitoring of Restaurants Isn't the End-All Solution

By Jennifer Hoffman

restaurant-security-camera

Repeat after me: Restaurant video surveillance isn’t the end-all solution to your operational needs.

Now more than ever, video solutions are extremely accessible via the Internet. Sure, they might help reduce losses at the point-of-sale and decrease inefficiencies. For instance, a manager might be able to observe peak traffic times and adjust staffing needs accordingly. Video may also help to spot Hillary Clinton at a Chipotle, if you remember that story from April.

Then there are those retail chains that use video surveillance as a “gotcha,” big brother management tool.  In 2012, 7-Eleven spent $40 million on digital technology, reported the Los Angeles TImes. One one hand, some franchisees were indeed stealing from the company. However, one franchise attorney called this level of security “paranoia city.”

7-Eleven is a different industry, but I use the example to show how video surveillance can be a slippery slope. In addition to the risk of making your employees feel uncomfortable, video surveillance in operations has three drawbacks:

1. Video needs to be constantly monitored

Seriously, who has the time to watch through hours of video per day to gather notes? It’s so much easier when you are presented with real-time data that lends itself to clear and actionable insights.

2. Video doesn’t tell the whole story

Why are customers not going near the new promotional display in the middle of the store or ordering the new menu item? Could it be that new promotional materials were not displayed correctly to let customers know that a promotion is taking place?

3. Video misses the customer perspective

Even a high-quality video won’t pick up on a dirty restroom, poorly washed utensils and the awful noise coming from the vent under the table.

Great News for the Restaurant IndustryJust this week, Technomic Inc. released its 2015 midway report with excellent news: Customer traffic is back to pre-recession levels. Employing qualitative data analysis, Technomic’s researchers were able to pinpoint six key trends:

  1. Fast-casual restaurants show no signs of slowing down and are outpacing other segments in growth.
  2. Build-your-own concepts keep growing. (For example, Blaze Fas-Fire’d Pizza currently has a pipeline of more than 400 restaurants that are slated to open in 42 states, Washington, D.C, and Canada by 2020.)
  3. Some quick-service restaurants have achieved cult-like status.
  4. More restaurants are removing additives from their menus because of increased consumer awareness.
  5. Everyone is now a foodie thanks to blogging and social media platforms like Instagram.
  6. Tech is necessary. However Technomic does not identify digital cameras as the kind of tech restaurants need. Rather, consumer-facing technology--online ordering, table tablets and mobile apps--rule the day.

These trends provide enough reason for why managers need to be present in their stores. How do you know if your quick-service restaurants are executing menu items correctly? How do you know if you’re delivering the branded experience that makes QSRs reach that cult-like status?

We often say that you need eyes and ears in the field. In the restaurant industry, you also need a heart out in the field. The most successful restaurateurs are passionate about their food and their culture. So, get out there and make technology work for younot the other way around.

Topics: Business Operations, Restaurants

Back-to-School Shopping 101: What Retailers Should Know

By Julia Burnett

target-back-to-school

Just when school lets out, back-to-school advertising begins. Already on July 14, AdvertisingAge published an article on Target’s back-to-school campaign. There’s no such thing as “too early” when, in Target’s case, back-to-school is your second-largest selling season.

Indeed, “‘tis the season” applies to these mid-summer months. School supplies, apparel, eyeglasses, shoes, backpacks and electronics are all on consumers’ lists. Consumers have a lot to buy and a lot of places where they can spend their money. Add online retailers into the fold, and the options for scoring deals are seemingly endless.

Customers win in this kind of competitive environment, but where does that leave your retail business?

Take a page from Target’s playbook. The retailer is combining the power of social media and “School List Assist” on Target.com. This new tool provides a curated list of school supplies, which parents can order online for home delivery or in-store pickup.

"Parents are on a budget, and they’re trying to get all the things on their list," said Rick Gomez, senior vice president, marketing. “We will have a steady drum beat of promotional offers throughout the season."

Back-to-School Shopping: The Perennial American Pastime

Think of back-to-school shopping like it’s the lengthy Major League Baseball season. The players need to condition and prepare. Baseball teams see what’s working on their rosters and make cuts and additions as necessary. The lineup that takes the field in April can look like a lot different than the team in September.

Similarly, the merchandise mix you have set up now is likely to change come September for the simple reason that consumer preferences change each year. According to a survey by the International Council of Shopping Centers, 70 percent of consumers plan to spend more time this year on back-to-school items, including wardrobes that keep up with the latest fashion trends and supplies that satisfy new school requirements.

Consumers Prefer the In-Store Experience

Importantly, the ICSC survey revealed that consumers still prefer physical stores for back-to-school shopping. An overwhelming 83 percent of their purchases involve physical stores, including 7 percent of purchases that will be made online and picked up in-store.

Two other important findings from the survey are that 42 percent of respondents prefer to physically examine merchandise before they purchase it, while 37 percent like the convenience of one-stop shopping.

It’s more reason why retailers should audit their stores during these busy months. It really comes down to two goals:

  1. Making sure retail promotions are displayed and priced correctly.
  2. Maintaining a neat and orderly environment during the back-to-school rush.

Execute these two objectives, and you’ll be the cool kid in school. And if you’re not cool, at least you’ll be rich!

Sample Retail Inspection Form

Sample Retail Store Evaluation Form

Topics: Retail

How a Major C-store Retailer Used Zenput to Unlock Hidden Potential

By Scott Hill

mapco-mart

Communication and time efficiency. They can set your organization apart from the competition, or they can prove to be your Achilles’ heel.

How much does your organization value communication?

An equally important question: How much do you value your organization’s time?

Many organizations settle into processes where they accept the status quo of their operations. “Well, it’s always taken this long to verify a promotion, so this is the way it has to be. Thanks in advance for your patience!”

In our experience, so many organizations fail to realize that they don’t have to settle. Cost-cutting and revenue-driving opportunities are achievable now just by making a few simple changes in the way you utilize your existing mobile technology.

Mapco Inc. valued communication and time efficiency enough to change how they used their existing network. It was a significant, yet manageable, change for a convenience store organization with 375 locations spanning eight states.

Before Zenput, it took too long for Mapco’s senior management team to get actionable answers from store-level managers. That was the central communication problem. Executing a routine task, such as rolling out a new product or promotion, would take an average of two to four weeks. The delay in gaining actionable insights was Mapco’s time problem.

Once Zenput was implemented, the missing data was no longer a problem. Mapco slashed operations costs and expanded the platform’s use throughout the organization, from district managers down to store-level managers. As a result, the time it took to gain actionable insights steadily improved.

Instead of waiting for district managers to visit stores, Mapco gave its store managers access to Zenput through their mobile devices. The result was 100 percent compliance in as little as two days.

Notably, Mapco did not have to order new mobile devices for their employees, nor did they have to engage in time-consuming training programs. Zenput’s platform was nimble and easy to use, and provided a centralized place to prioritize the tasks at hand.

Topics: How to be Successful with Zenput, C-store

Is a Restaurant REIT the Right Move for Darden’s Olive Garden?

By Vladik Rikhter

olive_garden_exterior

Is it a matter of financial success or a move that indicates a larger operational problem lurking beneath the surface? Ultimately, that’s what investors are trying to determine regarding Darden Restaurant Inc.’s decision to transfer approximately 430 of its more than 1,500 Olive Garden restaurants to a publicly traded real-estate investment trust (REIT) and lease them back.

Darden is the first major restaurant chain to take such a step, reported the Wall Street Journal. Prodding by Darden’s activist investor, Starboard Value LP, contributed to this decision (more information on this below).

Switching to an asset-light model via a REIT is becoming an increasingly popular move among large chains.The WSJ article sites Bob Evans Farms Inc. and McDonald’s Corp. as two companies who have recently explored this financial option. Notably, all of these brands have something important in common. They have all made recent headlines for financial and brand struggles.

Here are three examples: 

  1. McDonald’s is closing more restaurants that its opening for the first time in nearly 40 years. 
  2. Bob Evans Inc. will close 20 underperforming locations and eliminate 60 positions as part of $14 million cost cuts.
  3. In October 2013, an activist investor group won all 12 seats on Darden’s board of directors after arguing the Olive Garden chain is poorly run. It is true that 2014 Olive Garden sales plummeted. This is a big problem since Olive Garden reportedly accounts for 56% of Darden’s total sales.

Through the REIT, Olive Garden will pay back $1 billion in debt. It raises the question, is a real estate investment trust a sign of bailing out the sinking ship?

It could be, according to one analyst for Motley Fool, who calls an REIT a short-term solution to a long-term problem. Darden owns more than 1,500 U.S. restaurants, so “being a landlord is a sideline business that distracts from its real purpose of serving food,” one analyst remarked.

“This REIT is ultimately just a gimmick -- financial engineering that does not address Olive Garden's real long-term problems, including a shift in consumer sentiment away from carb-heavy foods like pasta toward healthier fare,” he concluded.

Maybe that’s true about the healthy trend, or maybe not. It could also be that people were just getting bored with the brand or had a disappointing meal.

Olive Garden’s Silver Lining

Fortunately for Olive Garden, there’s a silver lining in this pasta bowl. The restaurant chain recently reported an increase in sales and profits, and experienced a  4% lift in stock prices.

For now, the REIT is resounding with investors as Olive Garden returns to the basics that gave its brand a national presence. The chain brought back its “Buy One [entree], Take One” program for a limited time in March and its new breadstick sandwiches have also seemed to resonate with customers.

Menu innovation might be the key to Olive Garden regaining market share and gaining new customers. Consistency across the franchise will be just as important.

Interestingly, when activist investors Starboard Value Partners took control in late 2013, they created a presentation about what Olive Garden was doing wrong. Problems included not salting the pasta water, putting excessive amounts of sauce on its food, and having non-Italian menu items, CNN Money reported.

It may be too early to tell if Olive Garden has raised the bar on its menu, but at least these consistency issues were noticed and documented. It’s further evidence that Starboard is righting the Olive Garden ship instead of merely bailing it out.

Topics: Business Operations, Restaurants

The Secret to Cutting Energy Costs in Restaurants

By Jennifer Hoffman

cutting-money

How well-versed are you in your restaurant energy costs? Here are three things you may not realize when it comes to the energy costs of restaurant operations:

  1. The average restaurant uses five to seven times as much energy per square foot as other commercial buildings. A fast-casual restaurant may use up to 10 times as much. (Source: EnergyStar.gov)

  2. 69% to 81% of total energy use in a restaurant comes from four sources:
    • cooking water
    • refrigeration
    • water heating
    • lighting

  3. 52% of consumers say they would visit a restaurant that engages in environmentally sustainable practices more frequently, according to a recent industry survey. (Sources for No. 2 and 3, Nate Kessman for FastCasual.com)

According to Nate Kessman, vice president of business development at Great Eastern Energy, employee engagement is the secret to successful execution of a restaurant energy strategy.

While it’s important to gather data to measure the progress of your energy efficient appliances, it’s just as important to measure progress in employee engagement. Where do you begin?

How to Make Restaurant Employees Care about Energy Efficiency

When developing a strategy to reduce restaurant energy costs, it’s a good idea to hold a meeting with your employees and ask for their input in developing a process. This is a good opportunity to emphasize the importance of environmental sustainability. Ultimately, vigilant and engaged employees will keep costs down.

The Environmental Protection Agency’s Energy Star program provides energy-saving tips for restaurants in three areas. Each of the following areas benefits from employee involvement:

1.Refrigeration and Other Restaurant Equipment

Employee involvement: Maintenance/repair, startup and shutdown of appliances, thermostat checks.

2. Lighting

Employee involvement: Dimming the lights, installing LED lighting and daylight sensors, installing occupancy sensors

3. Heating and Cooling

Employee involvement: Changing your air filter regularly and conducting a yearly HVAC tune-up

Remember that your employees know your facility the best. They are most familiar with the maintenance “quirks” of each location and can help develop your corporate strategy. Once the strategy is developed, execute by assigning property inspection tasks and tracking their completion.

For more energy-saving tips, check out Energy Star’s Guide for Cafés, Restaurants, and Institutional Kitchens and Energy Use and Energy Efficiency Opportunities in Restaurants.

Topics: Restaurants

How to Hire & Retain the Right Retail Employees

By Brian Harris

happy-apple-retail-employees

“Your people make all the difference. The only thing your competitors can’t copy is your culture and your people.” – Mel Kleiman, expert on hiring the best hourly employees

In one day, Mel Kleiman’s “employee from hell” totaled nine Hertz rental cars. Kleiman, who once owned the largest group of Hertz Rent-A-Car franchise locations in the U.S., is also the founder of Humetrics, a consulting firm that specializes in helping companies hire the best hourly employees.

According to Kleiman, hourly employees comprise more than 60 percent of the U.S. workforce, but many companies fall short on retaining top employees long enough to see a return on their investment. The result is high turnover rates and high costs to the employer.

How do you find the right retail employees? It’s a two-way street between the applicant and employer. Kleiman says to hire tough and manage easy. (In fact, that’s the name of his book.)

He urges employers to ask tough questions during the interview process. Don’t just ask them about their ability to do the tasks required in your job opening. Kleiman says that 95 percent of applicants will come to the interview prepared to tell you only what you want to hear.

Instead, ask them about their past job experiences and their ability to work with others. Ask them what their most difficult job was and how long they stayed at it.

Retention of Great Retail Employees is Self-Reflective

The hiring process isn’t just applicant/employee-centric. It’s also employer-centric. What kind of company are you inviting the applicant to join?

In the above video, Kleiman identifies five things all great employee is looking for in a job:

1. Great Bosses, Great Employees
Your employees are more likely to stay when they are surrounded by good people who want to see them succeed. How do managers measure up? How effective is the senior management team at communicating?

2. Growth
Employees are more likely to stay when they have an opportunity to advance or grow their skill set.

3. Interesting Work
Challenge your employees. Give them new responsibilities.

4. Family Friendly Work Environment
Life exists outside of work. Employees want to work for people who recognize and respect that fact.

5. Recognition
It’s a human emotion to crave recognition. People want to know when they are doing a good job. An occasional reward can go a long way!

Here’s an important question: Do you use the right tools to measure your store’s progress so you can identify your great employees, grow your business, experiment with new tasks/responsibilities, properly staff your stores so employees have a consistent schedule, and recognize your staff?

Falling short in one or more of these areas may also be holding you back from hiring the right people. You can’t just hire people who look good on paper to fix your business. Your company needs to be strong from the ground up, so you can attract good, hardworking employees who will grow with your business.

“We hire people for who they are, not what they know. Your most important job is making sure you hire the right people,” Kleiman concluded.

Topics: Professional Development, Business Operations

EV Charging Stations: The Next Frontier for C-stores

By Scott Hill

ev-charging

This may sound shocking (intentional word play), but EV charging may actually be good for the convenience store industry.

You might remember a humorous line from the 1988 classic “Who Framed Roger Rabbit?” The villainous Judge Doom wants to destroy Toon Town in order to build a freeway – a brand-new concept for the 1940s, when the movie takes place. It’s so new, in fact, that the movie’s protagonist refers to it as the “lame-brained freeway idea.”

At the time, the proliferation of highways did seem like a far-fetched idea. That perception changed with the passage of the Federal-Aid Highway Act of 1956, which authorized $25 billion for the construction of 41,000 miles of the Interstate Highway System over a 10-year period. What followed in subsequent decades was the growth of fuel supply networks and the proliferation of convenience stores.

Nowadays, the proliferation of EV charging stations may have seemed like a far-fetched, “lame-brained” idea. But in 2015, there are clear signs – both in the automobile industry and c-store industry -- that the future has arrived.

Just last week, Europe’s largest auto manufacturer, Volkswagen, announced that it wants to add 12,000 EV charging stations at the company’s facilities across Germany. It’s a big statement from a major player in the automobile industry, especially considering the fact that there are only 4,800 publicly accessible Level 2 charging stations, and just 100 DC fast-charging stations across the entire country of Germany. It’s also proof EV charging is attracting global attention.

Meanwhile in America, the U.S. Department of Energy’s Alternative Fuels Data Center estimates that there are a total of 9,900 electric and 25,705 charging outlets in the U.S. With the network growing, more eyes are beginning to shift to the convenience store industry to see whether they will adopt the idea as well.

In March, Ricker’s Oil announced its partnership with Nissan to install nine Level 3 DC fast-charging stations at its Ricker's locations in central Indiana. The stations deliver a full charge in 30 minutes and are part of the Greenlots network of EV charging stations that participates in Nissan’s "No Charge to Charge" program. This program provides two years of free public charging to buyers of new Nissan LEAF EVs. It’s a great example of the automobile and convenience & fuel retailing industries working together.

Where Does That Leave a C-store’s Business Model?

While folks like “American Pickers” still dig around for vintage fuel signs and accessories, the days of America’s love affair with big oil companies are coming to end. It’s no longer “cool” to guzzle gas. Instead, it’s now cool to meet the sustainable, environmentally friendly interests of modern and increasingly educated customers.

Besides, selling gas has always been tough on margins. As Forbes points out, privately owned gas stations have some of the thinnest profit margins in retail. As a result, c-stores try to make up for thin gas margins by selling other products, including snacks and drinks.

The dawn of EV charging presents a great opportunity for c-stores to expand their services and provide a sit-down, quick-service or fast-casual dining experience. Or, perhaps they can simply offer fresher grab-and-go options.

What does the future of the c-store look like? While no one knows with absolute certainty, perhaps a Millennial consumer is charging their car while enjoying a fresh salad and neatly packaged sandwich in an outdoor seating area. It’s not utopian; it’s where the industry is headed.

Topics: C-store

Auditing Branded Gas Station Forecourts Can Increase Supplier Payments

By Scott Hill

Shell Gas Station forecourt
Photo by Daniel Oines, on Flickr

Branded gas station operations are an interesting business. According to NACS, the Association for Convenience & Fuel Retailing, approximately half of the fueling stations in the country sell branded fuel from one of 15 major refiners/suppliers. Often, these stations have signage that make them look like they are owned by the refining or supply company. However, many major oil companies have left the retail fuels business to concentrate on upstream production.

As NACS explains, the contractual relationship between a supply company and the retailer is similar to the relationship between soda companies and branded fountain dispensers.

Common Problems in a Typical Supplier Scenario

For the purpose of examining the typical supplier/retailer relationship, let’s consider a fictitious c-store chain, Sandy’s Shops. Sandy’s is a regional company that operates a Shell-branded forecourt as part of its supplier agreement with the fuel supplier. Sandy’s also pays a premium on the gas it sells because of the brand value Shell holds.

Since Shell’s brand image is at stake at this station, Shell routinely audits the forecourt. If Shell finds that this area is maintained according to brand standards, Shell will repay Sandy’s a portion of the gas markup.

See Also: Converting Your Forecourt into a Moneymaker

Sounds like a good deal, right? It is, as long as the forecourt is held up to standards. When it isn’t, this contractual arrangement becomes a disaster for Sandy’s.

Even when standards are considered low, it takes Sandy’s an average of 90 days to receive a copy of Shell’s audit report. Shell will deduct those 90 days from their premium reimbursement total. Ouch!

In a business where gas prices change overnight and customers complete a purchase within minutes, this arrangement doesn’t make a lot of sense.

The Case for Real-Time Data & Shared Responsibility

If Sandy’s had been self-auditing their forecourt on a regular basis, they would be able to report and respond to maintenance issues in real time. They wouldn’t have lost out on the money Shell pays back.

However, Shell could also help their retail partner by sharing its audit results in real-time via a mobile platform, rather than sharing this report quarterly. Sandy’s wouldn’t miss out on 90 days of payment, and Shell would maintain a high brand image.

When having a clean forecourt is in everyone’s best interest, suppliers and retailers should support one another. They can easily do so with mobile technology.

Topics: Business Operations, C-store