Food before fuel: Convenience stores increasingly compete against QSRs
As of Dec. 31, 2017, the United States is home to 154,958 convenience stores — a 423-store increase over the prior year, according to NACS, an association of convenience stores and fuel retailers. Extremely competitive, this industry has been characterized by significant merger-and-acquisition activity in the past few months, including the recent purchase of 1,030 Sunoco stores by 7-Eleven and The Kroger Co.’s sale of its entire portfolio of convenience store holdings to U.K.-based EG Group.
While consolidation is making the biggest convenience store chains even bigger — No. 1-ranked 7-Eleven (a subsidiary of Japanese-owned Seven & I Holdings Co.) now has approximately 9,700 stores in the United States and Canada — the top 10 convenience store chains still make up less than 27 percent of the U.S. store total and the top 100 chains less than 65 percent, according to the Top 100 research report compiled in mid-2017 by Convenience Store News (CSN), a sister publication to Store Brands. This means that smaller regional chains and independent operators have the opportunity to grow and thrive, and many have strong brand identities in the marketplace.
When it comes to private brands, a retailer’s size has everything to do with its approach. A chain like 7-Eleven can justify investment in a much wider assortment of own-brand consumer packaged goods (CPGs), notes industry consultant Steven J. Montgomery, president of Lake Forest, Ill.-based b2b Solutions.
Significant but much smaller convenience store chains tend to carry a limited number of store brand food and beverage CPGs, instead differentiating themselves through their private-branded foodservice offerings and their “total store” brand, which encompasses such factors as customer service, touch-screen ordering, loyalty program discounts and store ambiance.
Though perhaps best known for its private brand Slurpee slushed ice drinks and Big Gulp fountain beverage line, 7-Eleven began to amp up its store brand CPG offerings with the launch of 7-Select during the Great Recession.
As 7-Eleven CEO Joseph DePinto explains, consumers were “ultra price-conscious” when the chain first rolled out 7-Select, which then consisted of 32 SKUs, in November 2008. At the time, 7-Eleven observed that manufacturers were reducing the quality of products and packaging to cut costs.
“We decided that manufacturers weren’t hearing what we were saying, and we would have to go it alone,” recounts DePinto in an interview with Convenience Store News after his induction into CSN’s Hall of Fame this past November. While the brand initially ocused on packaged snacks, 7-Eleven continued to expand it with many new products, including non-food items.
A turning point came in mid-2015, when the company added two premium food lines to the brand: 7-Select Go!Yum, which contains indulgent items such as Sea Salt Caramels and Jalapeño Cheddar Popcorn, and 7-Select Go!Smart, which focuses on healthful snacks. These new lines were designed to captivate quality- and price-conscious foodie millennials.
“Millennials love private label,” DePinto says, emphasizing that 7-Select will be a $1 billion business within the next year. 7-Select added 280 new SKUs in 2017 and today includes more than 800 items, ranging from cold-press juices to premium toilet tissue.
In fall 2017, 7-Eleven introduced the Trojan Horse white wine label, the first of the retailer’s wines to feature vintage dating. The company even recently launched a cosmetics line called Simply Me Beauty, an assortment of 40 items for on-the-go young women.
In March 2017, NACS released a study showing that consumers increasingly select a fuel station based on the quality of the associated convenience store’s food offerings. Although a majority (51 percent) of American drivers still said that gas price was the main reason they preferred a specific store or chain, that figure represented a 6 percentage-point drop from two years prior.
Because of the greater emphasis on food and beverages at c-stores, 42 percent of drivers who fueled up went inside the store — a 7 percent increase from two years earlier. Of those customers going inside, 45 percent said they bought a beverage and 35 percent said they bought a snack, NACS reported. Overall, 8 percent said they bought a sandwich or meal, a proportion that jumped to 13 percent for consumers aged 18 to 34.
But NACS’s national statistics don’t begin to explain the huge fan base of certain regional c-store chains such as Media, Pa.-based Wawa and Altoona, Pa.-based Sheetz, which are commonly described as having a “cult following.” According to a Jan. 6 Business Insider article, Wawa wows with the high quality of its own-brand made-to-order hoagies, paninis and other fresh sandwiches, while Sheetz impresses with its snazzier store interiors that have ample seating, larger variety of prepared food items and unique walk-in “Soda Cave.”
“Chains like Sheetz, Wawa, Rutter’s and RaceTrac in particular have a massive focus on food,” notes Stephen Young, vice president of strategic business development for Bakkavor, a manufacturer of private brand fresh-prepared food such as a hummus and burritos. “They are really becoming destinations for their sandwiches and other food offerings. And while you’re there, you might also pick up some gas.”
Young notes that convenience store retailers prefer to focus on foodservice because the margins for sandwiches and burritos, and especially for the accompanying soda pop and chips, are much higher than for gasoline.
“The c-store industry has constantly evolved to meet the changing needs of its customers,” Montgomery adds. “Convenience stores have changed from being places to go for replacement or fill-in grocery items to being sources of refreshment and foodservice.”
Many of the most food-focused c-store retailers are based in Pennsylvania, and that’s no coincidence, according to Steve Hartman, president and CEO of Rutter’s, a York, Pa.-headquartered chain. For many decades since the ending of Prohibition in 1933, Pennsylvania restricted the sale of wine, beer and spirits to state-controlled stores. Prevented from selling beer, a longstanding staple of U.S. convenience stores, Pennsylvania c-stores differentiated themselves through their standout fresh-prepared food and private-branded nonalcoholic beverages, Hartman explains.
Equally important, several Pennsylvania convenience store chains, including Wawa and Rutter’s, began as dairies. So fresh own-brand milk and other dairy items formed the foundation of these retailers’ product assortments.
At Rutter’s, which has about 70 stores that carry roughly 15 percent private brands, customers order custom-prepared food at touch-screen kiosks. Given the huge number of ingredients the kitchens stock, “we actually have over a billion combination of items you can order in our stores,” Hartman maintains. These range from crab cakes to spareribs to a wide variety of salads.
To win over millennials and other health-conscious consumers, the chain offers many fresh items and seeks out and identifies products that are non-GMO and clean label.
“In January, we hired a full-time category manager for fresh and local food,” Hartman adds. “I think we’re the first c-store chain in the country to do that.”
Based in North Salt Lake, Utah, Maverik is c-store chain with more than 300 stores across 10 western states. A few years ago, the retailer decided to rebrand itself, shedding its former Wild West theme for an adventure theme that would better resonate with millennials and the sports enthusiasts who visit the Rocky Mountain region.
“Our goal when you walk into a Maverik is that you feel you’re walking into the great outdoors,” says Aaron Simpson, the company’s chief marketing officer.
The retailer has a small selection of private brand CPGs, including Glacier Rain bottled spring water and Tracker Snacks candy, each in packaging that reflects passion for the outdoors.
“We look at categories where we have an opportunity to offer better prices to the consumer,” Simpson notes. “We don’t have many private label products.”
Maverik’s main food focus is in the fresh realm. The retailer’s own BonFire brand consists primarily of many fresh-prepared offerings, including a particularly robust selection of hearty grab-and-go sandwiches that can be taken on a rock-climbing excursion or fishing trip, for example. The BonFire brand also includes snack chips and a few other shelf-stable snack products.
To cater more to health-conscious consumers, Maverik stores also carry a lot of salads and fresh fruit. “We try to have a healthy selection for those who want it,” Simpson says.
All things to all people
Despite the retailer’s outdoor-adventure brand positioning, Maverik, like other convenience stores, has to be all things to all people, according to Simpson. A large proportion of c-stores’ core customers are still blue-collar individuals who come in to pick up beer and cigarettes.
“We service 99 percent of the American public,” echoes Hartman. “People still want tobacco. People still want gasoline. People still want unhealthy items.”
Bakkavor’s Young, for one, believes that c-stores could do more to address the needs of millennial parents.
“If you want to grow the market, you actually have to focus on busy moms,” he says. “You not only have to meet her needs but those of her kids, or she’ll go someplace else.”
Healthful grab-and-go snacks and meals aimed at children would help bring in these customers, Young says.
Move over, QSRs
At a time when supermarket chains are looking to simplify and speed up shopping for customers, convenience stores have a distinct advantage: Their considerably smaller size allows customers to get in and out much faster.
This is true even though c-stores are getting bigger in order for retailers to expand their foodservice and seating areas. The average convenience store today is around 3,500 square feet, Hartman estimates. Rutter’s largest store under construction will be 10,800 square feet.
Rutter’s and other food-oriented c-store chains not only compete with one another but also see quick-service restaurants (QSRs) as major competitors. “We can sell hamburgers and French fries that we think are better and quicker and more convenient, and we can also give you 650 beverage choices,” Hartman notes. “QSRs can’t do that.”
C-stores are evolving and transforming the fast-casual dining landscape, according to Hartman. “We are really much more of a disruptor than a disruptee,” he says.
Schierhorn, the managing editor of Store Brands, can be reached at [email protected]