Competing With QSRs (Not So Hard, Really) | NACS – Magazine – Past Issues – 2011 – May 2011
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Competing With QSRs (Not So Hard, Really)

By Maureen Azzato

Menu innovation and variety, dollar pricing and encroachment into breakfast by quick-service restaurants (QSRs) have convenience store operators standing much farther forward on their competitive toes.

But it’s not just QSRs that are causing the nervousness. Limited-service restaurants and beverage and coffeehouses are extending into breakfast, and expanding lunch menus, while mobile food trucks gain urban popularity with unique breakfast and lunch fare. Competition continues to mount and morph, continuously changing the foodservice landscape.

New offerings from the likes of Subway, McDonald’s and Dunkin’ Donuts as well as Denny’s, Chick-?l-A, Panera Bread —even Jamba Juice and Starbucks —contribute to c-store loss of foot traf?c, according to Tim Powell with foodservice consultancy Technomic. Many of these chains have units nationwide and offer drive-thrus, "which makes them formidable," Powell said. But convenience stores need to stick to the fundamentals: "Food has to be fresh, the units must be clean and if I buy a roller grill item from a c-store in Memphis, it better be exactly the same as the one I buy from the same chain in Atlanta," Powell said.

But what seems to plague many convenience store operators are those pesky QSR dollar menus, compelling many —either correctly or erroneously —to follow suit. Many offer two roller grill items for $2, as well as breakfast sandwiches and some sides for under a dollar. While not all convenience stores have roller grill programs, those that do tend to use them as the cornerstone of their discount pricing since the programs are typically inexpensive and fairy easy to operate, Powell said. Some convenience retailers even admit to using roller grill as a loss leader (two roller grill items for 99 cents in certain competitive markets) to get customers inside their stores so they can hopefully up sell them to higher priced, higher margin items or bundled deals.

But in certain markets it is clear that customers —and the convenience store operators who serve them —are not so interested in roller grill programs anymore. Quite a few operators, including Minit Mart, based in Bowling Green, Kentucky, discontinued these programs long ago in exchange for more sophisticated fare demanded by their customers. In the convenience foodservice business for more than 30 years, Minit Mart has tried just about every program and approach out there. The chain’s foodservice program today includes its proprietary O’Deli’s program —featuring lunch and breakfast sandwiches and salads, fried chicken dinners and snacks —and Godfather’s Pizza.

"QSRs are ?ghting the same battles we are," said Fred Higgins, president and CEO of 31-store Minit Mart. "Their costs of goods are going up just like ours and we all have to ?gure out how to absorb those costs. Given these cost increases, promo pricing becomes more dif?cult for us to absorb than it is for QSRs because our business models are so different."

While it takes a lot of discipline for convenience stores not to chase every QSR price promotion, Higgins said it is critical to remain focused on your strategy and to remember —and remind your customers —what makes convenience stores unique. "C-stores take care of people’s needs 24/7 in every daypart," he said. "In fact, in the morning a customer can buy breakfast, but can also buy their lunch for later in the day or groceries for dinner, not to mention fuel, lottery, cigarettes...QSRs can’t do that. We have to better leverage the aspects of our business that differentiate us."

Chevron’s Director of Foodservice Marty Barillas agrees, and said he actually considered QSRs’ limited offerings a competitive soft spot. "Their biggest weakness is they don’t have the offering that we do —we have 3,000 to 4,000 SKUs in our stores and customers ful?ll so many more needs at c-stores than at a QSR." While it’s easy to get distracted from your foodservice strategy with every new QSR item and price promotion unveiled, "you have to remain true to your core competencies. You can’t chase every new thing QSRs are offering and doing. You will just lose focus."

Menu Expansion and Drive Thru
But staying true to your strategy doesn’t mean you can’t be ?exible and respond to changing market conditions and trends. Over the past year, Chevron’s 500 ExtraMile stores have strategically focused on expanding the ExtraGood to Go food and beverage concept, especially the breakfast program anchored by its Van Houtte coffee. Chevron has added iced coffee to the mix as well as Jimmy Dean breakfast sandwiches and Pierre Breakfast Mini Sandwiches, picking up on the small-portion sliders trend. In early April, Chevron also began testing instant oatmeal, dispensed via a machine similar to one used for cappuccino.

"A lot of QSRs are going after coffee and that is one of our core competencies that we work hard to protect," Barillas said. "We analyze competitor pricing and offers very closely and spend a lot of time making sure our prices and promotions are right."

Recent promotional analysis led Chevron to change its promotions strategy storewide. Instead of running monthly promotions, the company switched to every other month, which Barillas said is working very well, giving customers more time to enjoy the promo opportunities, "particularly our high-frequency customers." Suppliers also like it because they can participate at a much higher level, he said, noting that they enjoy more volume and time for promo messages to pass through to customers.

Some advantages QSRs have over convenience stores —food credibility, drive-thru convenience and price-volume leverage —have Ricker Oil Co. exploring drive-thru windows, one of which is slated to open opened mid-summer. According to Mike Jones, director of foodservice for the Anderson, Indiana-based company’s 50 convenience stores, the ?rst store to unveil a drive-thru is a combo Subway location, but "in the future we’re looking at expanding drive-thrus to include c-store products as well...not just QSR food."

As a Subway franchisee in nine stores, Ricker’s has had the bene?t of participating in the QSR’s breakfast program launched about a year ago. "Without question the most heated competition is in the breakfast day-part," Jones said. Everyone wants in because everyone realizes there is a lot of untapped sales opportunity."

Although the Subway breakfast program started off slowly, it is "coming along," Jones said, noting sales increased considerably when Ricker’s expanded its Subway hours of operations, opening at 6:00 am instead of 7:00 am. Jones said he also notices more customers "buying breakfast to eat right away and taking a sandwich to go for lunch later."

Subway sells all menu items all the time, which Ricker’s does at its non-Subway locations as well. Although some QSRs offer all daypart menus all day long, many still remain con?ned to strict daypart offerings —a c-store advantage, Jones said.

Bundling and Social Media
Convinced that convenience stores will never win the deep discounting game against QSRs, Ricker’s is taking a different marketing approach. "In my view, the future is going to be more about day-parting, packaging and bundling items together —foodservice with traditional c-store items like large bags of chips or 2-liter sodas. This is a huge opportunity for c-stores that QSRs just can’t replicate," said Jones.

Technomic’s Powell agrees. Convenience stores can win the price game against QSRs "if they understand the bundling game. Food prices at c-stores are actually less expensive, on average, than at QSRs. One thing that c-stores must do to overcome the gas station image is to back up the quality of their food by charging a 'fair’ price for it," Powell said. "It works along the lines of premium pricing. If a sub at a convenience store is priced a dollar below a QSR, even if margins hold, consumers may view it as a cheaper and inferior product, even though Subway’s ingredients are identical."

Convenience operators also have to remember that consumers are not just looking for low prices. "They also want value, convenience, a clean store and friendly service," Jones said. Although most QSRs have strong fountain programs, "Ricker’s Pop" is unrivalled in the chain’s marketing area in terms of quality and price, he said, noting that their beverage combo deals with Subway sandwiches are typically 50 cents to 75 cents less than traditional Subways.

But something that could even more deeply connect Ricker’s to its customers is a new social media marketing program, which has grown exponentially over the past few months, driven by the launch of the Ricker’s mobile app and text-messaging program, and the retailer’s Facebook page. Myrickers.com also features YouTube videos, Twitter links and e-mail deals. The Ricker’s app was develop six months ago in partnership with GasBuddy.com, an interface that allows customers to ?nd the most competitive gas prices by zip code.

"It’s a platform for us to offer members exclusive deals and coupons and it is building customer loyalty," Jones said. Over a recent six-week period, Ricker’s added 1,800 new app users, and at press time its Facebook page had gathered 10,500 friends. "We see huge opportunity with social media to engage and communicate with customers and develop even deeper customer loyalty. The special offers they receive via our app and social media activity keeps them coming back to the stores and keeps them talking to us and about us," Jones said, noting he plans to extend additional foodservice offers via the Rickers’ app and Facebook page in the future.

Social media could provide convenience operators additional outreach tools to play off their strength as community gathering places, something QSRs have not done as effectively, if at all. While the name of the competitive QSR game is differentiation, convenience operators must also fully leverage natural strengths.

Maureen Azzato is a freelance content developer and editor with 20 years of business publishing experience. Most recently she was the publisher and editorial director of On-the-Go Foodservice, a publication for cross-channel retail foodservice executives.