READY, SET, EAT

ROSEANNE HARPER

Convenience stores, eager to ring up more substantial customer purchases, are expanding beyond their traditional role as handy way stations for milk, bread and snacks by increasing their investment in fresh-meals options.

More variety, more custom sandwiches, bigger portions, new hot items and more self-service are all directed at turning snacks breaks into mini meals, C-store officials and other industry sources told SN.

Building on their morning coffee business in the last few years, C-stores are looking to take advantage of the traffic they generate by making it just as easy to pick up breakfast, lunch or even dinner as it is to buy milk or a lottery ticket.

"Absolutely, we'll be looking toward that third day part -- dinner. We have a clear advantage in getting that business because we have gasoline pumps," said Bill Reilly, vice president of food and beverage for Sheetz Inc., a C-store chain, based in Altoona, Pa., that operates more than 200 units in five states.

Reilly theorized that people stop on the way home from work to fill their gas tanks and it would be logical for them to pick up something to take home for dinner -- if it's clear that such fare is available. Sheetz recently has made its food-service counters easily visible from its gas pumps. New and remodeled units feature seamless, floor-to-ceiling windows that showcase the action, including some production, inside the store.

"I believe people have to see what's going on. We want them to see from outside that we're in the food-service business. Open production, too, is theatrical," Reilly said. Showing more drama than many in the industry, Sheetz may epitomize the industry's move away from the beer-and-cigarettes image that C-stores projected in years past.

The chain has developed proprietary branded food-service programs that are touted with huge signs and colorful graphics, and it prides itself on a round-the-clock kitchen that attempts to deliver made-to-order food in two minutes.

Although the menu has been kept deliberately simple, the customer can order custom food at a computer touch-screen at the counter. The menu features seven cold sandwiches, five hot sandwiches, nachos and salads.

"We're completely technologically driven. Ordering electronically eliminates confusion. Customers indicate exactly what they want on their sandwich. Then, they can even view a picture of it on the screen before the order is transmitted to the kitchen," Reilly said.

"Customers love it. They particularly like the fact that everything is made to their order. Nothing is out of the question. If we have it, we'll put it on their sandwich. If they want coleslaw on their hot dog, we'll give it to them."

The system must be working, because Sheetz reported 28% of its sales came from food service. That's compared with the C-store industry's average of 12.1% in 1997, as reported by the National Association of Convenience Stores.

Sheetz, like other C-store chains, began its serious plunge into food service by using its breakfast menu as a springboard, folding out programs one segment at a time. For breakfast, it expanded from just coffee, to doughnuts and muffins, and then to hot breakfast sandwiches and hash browns. Then it began to offer hot sandwiches at lunchtime. A quarter-pound hot dog, $1.99, is the most recent addition and self-service soup and chili are coming next, Reilly said.

He said Sheetz's entry into the evening meals business would depend on the success of its expanded lunch menu.

Dinner entrees are on the menu for the future at 7-Eleven stores, said Sharon Powell, vice president of fresh foods, at Southland Corp., Dallas, which operates about 5,000 7-Eleven units across the country.

"We have an outstanding business system that allows us to deliver high-quality products on a daily basis through a cold channel," Powell said in an earlier interview. [see 7-Eleven Taps Former Randalls Exec to Spice up Deli Central, SN 5/3/99].

Southland most recently added to its 7-Eleven breakfast menu hot sandwiches on croissants, biscuits and English muffins. Those items, rolled out earlier this year, have sent sales soaring more than 100%, said Nate Richer, Southland's category manager for fresh breakfast.

Tacos using a hot-dog shaped meat filling are the newest addition to the lunch menu and the company continues to test-market chilled entrees in selected stores. But for the present, menu extensions have been limited to "dashboard dining" items that are very portable and easy-to-eat, Powell pointed out.

"We're continuing to try to define what customers are looking for from 7-Eleven as it relates to entrees. We haven't cracked the code on evening home meal replacement," said Powell.

Stephan Kozoumis, president of Entrepreneurial Consulting, Louisville, Ky., praised what he termed Sheetz's "very creative efforts" and said Southland had put together a system that could serve it well far into the future.

"Sheetz is doing a terrific job of it," Kozoumis said.

He pointed out that Sheetz had incorporated features that could work in supermarkets: a simple menu with optional add-ons like interesting sandwich trimmings, an ordering system that's efficient but involves the customer in an interactive process, and colorful graphics and signs.

Commenting on Southland, he said, "They appear to have an excellent distribution system to get fresh product from commissaries to their stores. That would be great for meals if their customers ever say they want them."

Another consultant familiar with the industry said he respected C-stores for knowing their limitations and staying within them.

"Unlike many supermarkets that lurched into the meals business without taking into account all the complexities, convenience stores have kept out of trouble because they knew what they could do and couldn't do. They've designed simple programs they can handle," said Kevin Price, president of The Market Performance Group, Fairfield, Conn.

"They know that trays of beef stroganoff can spell disaster. So they've stuck to making bigger and better sandwiches and to maybe doughnuts and muffins. They're doing more, but still keeping it simple," he added.

Just as Southland did, Sheetz began very slowly to expand its menu with breakfast sandwiches and then kept a close eye on customer response. It found sales reached expected levels only after it began offering self-serve sandwiches as well as made-to-order.

While Sheetz's customers love the company's made-to-order sandwich program because they get to choose their ingredients on a touch-screen monitor, they don't necessarily want to use the system in the morning, Reilly said.

"People cut themselves so short on time in the morning. They didn't want to take time to activate the screen," he said.

Richer told SN that when Southland test-marketed breakfast sandwiches, it found half of the customers who bought them wanted them hot, wrapped and ready to go. Others heated them themselves in the store's microwave or carried them away chilled.

Even with the morning rush, the success of breakfast sandwiches at both Sheetz and Southland could reflect customers' concerns about their eating habits, industry sources said.

"I think people are progressively feeling guilty about the way they eat and that presents an opportunity for us," Reilly said.

He stressed that the made-to-order program, dubbed "MTO," has helped the company carve a successful niche.

Other C-store chains and independents have linked up with established food-service brands such as Taco Bell and Pizza Hut or have launched branded concepts developed by Orion Food Systems, Sioux Falls, S.D., that enable them to offer freshly prepared food.

Although what they're offering at this point may not be "fresh meals" as they are defined in the supermarket industry, there's no doubt C-stores are taking advantage of their convenience to consumers and using it to increase the store's value as a destination for more substantial purposes.

"To me, any one out there who's selling food, no matter what it is or how they're doing it, is our competition," said Jackie Legg, vice president of solution shopping for Ukrop's Super Markets, Richmond, Va. In an earlier interview with SN, Legg said a package of crackers or a cup of yogurt was competition if it took the edge off a consumer's appetite because that consumer would be less likely to buy Ukrop's ready-to-eat or ready-to-heat fare.

However, one consultant who works with supermarkets pointed out that when it comes to prepared foods, convenience stores have all the problems supermarkets have -- and then some.

"I don't see them offering supermarkets a lot of competition. Convenience stores have all the problems supermarkets have, only more so," said Ed DeLuca, a former KFC executive, resterauteur and founder of DeLuca Inc., manufacturer of Ed & Joan DeLuca entrees.

DeLuca now has a consulting business, E.E. DeLuca Entrepreneur LLC, in Milford, Conn. "[C-stores] have labor problems and execution problems just like supermarkets do and they -- just like supermarkets -- have to educate the consumer that they're offering a viable option for a meal," DeLuca said.

Add to those challenges the necessity of living up to their name: convenience. DeLuca said C-store customers expect to get in and out quickly.

C-stores have to be constantly vigilant that they're not slowing down their traffic flow, industry executives told SN.

Sheetz had tried pizza and abandoned it because it didn't fit with the company's dedication to fast service. A made-to-order pizza just took too long to make, Reilly explained.

"Made-to-order pizza and a two-minute turnaround don't go together," he said.

An executive at another large C-store chain said his company had lotto machines at one point, but took them out because they caused customer traffic jams.

"When there was a multimillion-dollar jackpot, there would be lines out the door and other customers wouldn't stop by," he said.

The real estate most C-stores sit on could cause traffic problems if customer traffic became clustered at one time of day, DeLuca pointed out.

"As they build their [meals] business, there's going to be a parking problem. They don't have big parking lots," he said.

That's probably why Orion Food Systems has made a drive-through window a prerequisite for C-stores that adopt its new Mean Gene's Burgers, which takes its name from a broadcaster who's known as the dean of wrestling. Mene Gene's was introduced last fall and is ringing up good sales, especially in the evening, according to Orion officials [see Orion to Bring New Branded Burgers into Supermarkets, SN 6/7/99].

At Fast Stop Stores, Peoria, Ill., Mean Gene's has boosted overall sales, an executive there told SN.

"The Mean Gene's burgers are doing very well for us. It's made us a destination, which is great. Some of that success is based on demographics, but it's been a good fit. We're near a college. I think the burgers have added evening business," said Brad Juergens, retail manager for all four units of Fast Stop stores.

At the store that carries Mean Gene's Burgers, Fast Stop also offers Orion's cinnamon roll, Cinnamon Street. "Cinnamon Street doesn't take much investment to get into and it differentiates us from other stores around here," Juergens said.

And differentiation is an important key to success, said consultant Bill Pizzico, president of Prizm Marketing, Blue Bell, Pa.

"My concern is that each time you bring in something new, it should set you apart in your particular area. As C-stores expand their horizons, they don't always look at ways to establish their own presence. They're so successful with hot dogs and hoagies because they're not offered by everybody else in the area," Pizzico said.

He said even dinner could be successful at C-stores, but it would have to be done with "promotions and in-and-outs" -- for example, offering marinated steaks for a few days as a weekend grilling special.

"But the shrink factor has to be in constant focus, and it would be just for a few days," Pizzico explained.

That could set a C-store apart, and so can brands in a sparsely populated area.

Orion has provided King's Chevron, based in Vernal, Utah, with the brands it needs to attract attention. Orion's Mexican concept, Eddie Pepper's, is an eye-catcher at a King's store in Roosevelt, Utah, for example, which has a population of 10,000.

Tim King, owner of four King's Chevron C-stores in Utah, told SN Orion was the perfect solution for him when he decided to add food.

King said he knew he didn't want a branded food-service operation unless he had the control.

"I'm too hands-on [to have a franchise or lease out space to a branded concept]. If you lease space, you don't have enough control, even as to how customers are treated, and word spreads fast if a customer is not treated right," King said.

He said he appreciated the way Orion works.

"For someone like me, who's never been in the quick-service restaurant business, it's great. [Orion representatives] are in here every two or three weeks to see that everything is going all right," King said.

"Orion acts basically as just the supplier, but they also design a combination of concepts to fit into your space. Then they come in and set up your store. And we order supplies from them twice a month.

"We wanted something to add to our image and to our business, and we're pleased with the results," King said. King has Orion's Hot Stuff Pizza, Cinnamon Street and Eddie Pepper's. Besides giving his customers variety, King is committed to giving them memorable treatment. He said he instructs all his employees to make eye contact and greet every customer immediately.

King's opinions on the value of good customer service were echoed by other C-store executives SN talked to.

While officials at WaWa, a WaWa, Pa., C-store chain, declined to be interviewed for this article, former WaWa executive Don Price told SN the chain's success had been built on paying close attention to the customer.

"If they wanted peanut butter on their ham sandwich, we'd give it to them," Price said. Quality and convenience naturally top the priority list at WaWa, he said, but the shopping experience itself is the third dimension that can "keep customers coming back and back."

"Getting a special hello or a pleasant smile from Susie or the young man who's making coffee is what does it."