FAST AND FRESH

Matthew Enis

Convenience store operators are hanging up their gas pumps and pumping up their fresh foods.

In fact, convenience stores are looking more and more like supermarkets with an expanding assortment of salads, sandwiches, produce and other fresh prepared foods. The change comes out of necessity. Dwindling profit margins on fuel and steep taxes on cigarettes have forced C-stores to transform their business.

For Dave Carpenter, a third-generation convenience store operator from Iowa, preserving the family business meant selling it. Carpenter recently sold 13 stores that he inherited from his father, and then used the cash to build entirely new stores more focused on fresh foods.

"There were many reasons, but the most significant was that to survive in this difficult environment, we had to be more than just an average convenience store," said Carpenter, explaining the company's need for a radical transformation, rather than a few choice remodels.

Wal-Mart, club stores and many supermarkets sell gasoline, and that's put pressure on margins even as fuel prices skyrocket. Many states have placed stratospheric taxes on tobacco products and the future, on all of these counts, looks bleak. Many C-store operators have gone Carpenter's route, hoping that an improved food-service offer and a small selection of fresh foods might boost business and improve their channel's image.

His four new "ShortStop" stores, based in Des Moines, Iowa, will offer a small selection of fruit, as well as hot and cold sandwiches, wraps and salads, all made fresh in the stores daily. The stores have been under construction for more than a year.

In a nod to the industry's core consumer -- young, blue-collar men -- the food selection will also feature hot dogs and other products made on the roller grill. The goal, Carpenter said, is to broaden the appeal to include health-conscious food shoppers and women without alienating the channel's traditional base of customers.

He pointed to himself as an example.

"Before, I would occasionally buy a fountain drink or a 12-pack of beer, but I was not a food customer [at my own stores]. I didn't want a hot dog and a bag of Doritos. But, would I eat a chicken wrap that was freshly made in a nice package with a nice logo on it with a side of fresh grapes or grapefruit? Absolutely."

Conscious of the facilities, labor and marketing issues faced by quick-service restaurant operators, Carpenter opted to make his initial leap into the fresh-foods business with a simplified program. The inspiration for his "Deli Fresh" concept, he said, came from a Wolfgang Puck kiosk at an airport.

"They had all of these wonderful salads and sandwiches that looked fresh, looked like they had just been made," he recalled. "I thought, if we could just do something like that, it would be great, but they probably have a commissary deliver those. Then, as I was standing there looking at them, a gal came out of the back room and put out about 20 salad trays, pulled out a box of lettuce and literally made 20 salads in about five minutes."

Similarly, at ShortStop locations, a single employee will be dedicated to each store's fresh-food area to prepare fresh salads, sandwiches and wraps while keeping an eye on the store's coffee throughout the day.

Carpenter said, if the format takes off, he may consider developing a made-to-order program. In many ways, his compromise is typical of what's taking place at other C-stores. In general, retailers are looking for ways they can enhance the quality of their fresh foods without jumping headfirst into the restaurant or produce business.

"I don't think convenience store retailers are on purpose getting involved with the grocery store definition of perishables," said David Brewster, a small-format retail and food-service consultant with Dana Point, Calif.-based ISUS Group who helped Carpenter develop his new concept. "But, food that won't 'perish' isn't good food. If they could have food that's both high quality and nonperishable, then they would, but that just doesn't exist yet."

Packaging and cold-chain distribution innovations at the manufacturer level have also improved the channels' ability to source fresh foods, added David Bishop, director at Barrington, Ill.-based Willard Bishop Consulting.

Larger chains, including Bloomington, Minn.-based Holiday Stationstores and Dallas-based 7-Eleven have used a combination of company-operated commissaries and other suppliers to develop enhanced sandwich programs and offer products such as salads and fresh baked goods.

At Louisville, Ky.-based Thornton Oil, for example, Matt Thornton, chief executive officer, broke with tradition after taking the reins at his family business -- the largest privately held company in Kentucky. Rather than rely on profits from Thornton's vertically integrated gasoline distribution and retailing operation, Thornton led development of the company's "QuickCafe and Market" concept. The first store opened in 2003.

The company's newest stores source fresh foods from a variety of suppliers, requiring little work at store level. A small assortment of fruits, vegetables and salads is distributed to stores in the Louisville area by a local produce stand operator. Fresh breads, baguettes and upscale packaged sandwiches are made by Thornton's own commissary, and in several locations, a proprietary made-to-order sub sandwich program offers customized grab-and-go sandwiches in three minutes or less. The stores also feature the top 100 regional grocery stockkeeping units -- most priced at or slightly below the retail offered at local supermarkets and drug stores. Although company officials declined SN's request for an interview, Thornton said after the launch of the concept that its goal was to capture shopping occasions similar to those made in supermarket express lanes. Fifteen of the company's 160 stores have adopted the new format.

Nevertheless, few supermarket chains seem to acknowledge the potential threat or the broad possibilities of the convenience store format, Brewster noted. Other than Kroger, which operates several hundred C-store chains under various banners, and Royal Ahold, which also acquired and then sold a handful of convenience chains, most supermarkets that have ventured into the C-store business have emulated Wal-Mart. The retailers have installed small stores onto existing lots, sometimes with typical C-store snack and beverage assortments, hoping to draw customers in with the promise of competitively priced gasoline.

One notable exception, Brewster said, is Giant Eagle's GetGo concept. With stores on commuter routes and in other convenient locations, the format serves to expand and enhance the Giant Eagle brand within the company's existing operating area without cannibalizing large-basket shopping trips.

Offering premium salads, fruit platters, veggie cups, bulk fruit, as well as freshly prepared wraps, sandwiches and bakery items, the GetGo stores offer customers a fill-in trip alternative to the company's larger supermarkets.

"We understand that customers have varying shopping needs depending on their lifestyles and available time, be it a destination shopping trip at a much larger and more involved supermarket, or a convenience shopping trip for staples and quick grab-and-go items," said Brian Frey, spokesman for the Pittsburgh-based retailer. "Our GetGo convenience stores allow us to accommodate our time-pressed customers who are in need of an inviting and family-friendly setting to perform their quick food shopping without sacrificing taste or quality."

Giant Eagle continues to explore and test various product mixes at the stores, including categories such as sliced deli meats, cheeses, take-home meal solutions, gourmet cakes and desserts, and an expanded selection of Giant Eagle private-label brand items, Frey said.

One challenge faced by the industry as a whole, Frey noted, is overcoming the long-ingrained perception that C-stores can't do quality prepared food. Although that image has been changing, as a whole, the industry still has a long history of stale coffee and shriveled roller grill dogs to live down. Even companies new to C-store retailing must be prepared to fight those stereotypes.

"Our GetGo marketing focus is on educating our customers on both the breadth of our food offering as well as the promise that the food found in our GetGo locations shares a consistent level of freshness and high quality associated with that of the food found in our Giant Eagle supermarkets," Frey said. "Communication vehicles that utilize engaging food imagery and themes as well as educate our customers that the vast majority of our grab-and-go food items are made fresh daily at our GetGo locations are vital to establishing customer interest, comfort level and trial food purchases."

A Store Is Born

Whether it's purchased down the street or around the corner, gasoline is gasoline. However, the quality of the sandwiches, salads and other prepared foods can make convenience stores stand out.

That's the thinking behind C-store retailing these days, particularly at chains that are relative newcomers to food service.

Many major oil companies, for example, began incorporating food service into their offering during the 1990s. Most of these companies have been satisfied with developing a consistent, upscale coffee program and allowing their franchisees to partner with or lease space to quick-service operators such as Subway. However, London-based BP has continued to tweak an unusually upscale fast-casual sandwich and coffee concept called Wild Bean Cafe, which features panini grills, gourmet breads and even bottles of wine for take-home sale.

After watching the success that its master franchise in Japan had with products ranging from produce to sushi, Dallas-based 7-Eleven began emulating the distribution model and sales data systems employed there. By enhancing and expanding its national network of distribution centers and improving its back office ordering systems, the company has been able to aggressively expand its fresh foods offer without placing too many labor demands on its extensive franchisee network. As a result, stores offer significantly higher-quality sandwiches, wraps, produce and salads, all with a very limited shelf life, based on local demand.

With blue laws restricting the sale of beer to bars, restaurants and state-operated package stores, Pennsylvania convenience store operators are forced to do without one of their industry's top generators of both revenue and in-store traffic. Partly as a result of that handicap, Pennsylvania retailers have been on the forefront of the industry's fresh foods movement. Wawa, Pa.-based Wawa stores, for example, was a dairy company when it entered the c-store business in the 1960s, and a regionally popular deli program has always been a cornerstone of the chain's business model. For many years, the company's more than 500 locations have sold a selection of deli platters, soups and sides more commonly found at supermarket delis. Like many other mom-and-pop companies of that era, Wawa operated for decades without offering gasoline at its stores.

Regardless of their roots, c-stores are converging on a similar model, with gas out front and a selection of fresh foods and food service inside.

"Brand loyalty doesn't really exist very much anymore for gasoline," said David Brewster, a small format retail and food-service consultant with Dana Point, Calif.-based ISUS Group. "Now, often, the c-store is the reason that people stop and the gasoline commodity has become the value add. That's where we have been for the past few years. Now, convenience stores themselves are becoming a commodity. More and more, food service has been improved so that it becomes the distinguishing characteristic, and, the quality of food service becomes the driver at the c-stores."