Foodservice is no fad in c-stores; operators see it as a path to profit

Aiming to fatten up profit margins, some major convenience-store operators are investing in ambitious foodservice programs.

NPN MarketPulse reported in its Feb. 22 issue that QuikTrip Corp. plans to build a $21 million “kitchen” in Bellefontaine Neighbors, Mo., as it pursues growth through an emphasis on fresh foods (See, “Experts: QuikTrip pay is above average and so are stores”). Sushi and papaya-mango fruit cups are on the menu at some 7-Eleven stores. A move by some operators to emphasize foodservice has been evident for some time now, prompted in part by a squeeze on profit margins for fuel; operators are seeking alternative sources of profit. Further, the impending opening of Tesco stores, the first of which are scheduled to open this year in the Phoenix market, may be prodding some operators to venture into foodservice as a competitive tactic. Tesco, a U.K. retailer, has said its U.S. stores will feature extensive fresh foods and meals designed to appeal to convenience-minded consumers.

Also, operators in other trade channels are seeking to expand their customer base by expanding their foodservice offerings, raising the competitive stakes for convenience-store operators. For example, Dunkin' Donuts is expanding its menu and remodeling stores to draw customers later in the day, The Philadelphia Inquirer reported this week. Philadelphia has one of the first nine "new concept" Dunkin’ Donuts stores in the country, where the menu includes oven-toasted flatbread sandwiches and single-serve pizzas designed to be eaten on-the-go. A major U.S. convenience chain targeting foodservice as a profit generator is Delek U.S. Holdings, Franklin, Tenn., the parent company of Mapco Express, which has begun opening small restaurants called Mapco Marts. The Tennessean reported March 4 that the restaurants feature freshly made sandwiches, a soup of the day, burgers and fries. The chain is building new stores that contain the restaurants, the newspaper reported, and renovating some existing stores to accommodate the new eatery format. The markup, or gross profit margin, on food prepared in a c-store is about 48 percent, according to the National Association of Convenience Stores, while it is 6.9 percent for gasoline sales.

"You don't make money selling gas, you make it inside the store," Jeff Lenard, spokesman for the National Association of Convenience Stores, told the newspaper.

Nationally, food sales at c-stores increased by more than 70 percent in 2005 from the year before, in part because of the proliferation of franchises such as Subway.

Delek marketing vice president Paul Pierce said the company franchises some Subway locations inside its c-stores, but wanted to expand foodservice more without paying royalties or following the rules of an outside franchising company.

Delek converted more than 30 BP gas stations it bought in December 2005 in the Nashville area to Mapco Marts. Twelve of the locations are large enough to have made-to-order grills.

Uzi Yemin, president and chief executive officer of Delek, wants to convert more stores to Mapco Marts.

"We do know we want to roll out Mapco Marts outside Nashville,'' he said. "We know that. We want to operate them in outside states."

Delek, which operates and owns all of its locations, has been acquiring convenience stores from other companies and owns a refinery in Tyler, Texas. Delek plans to buy another 107 stores this year from the Calfee Co. of Dalton, Ga., which will allow Delek to top 500 c-store locations.