CSN - Jan 2016

DAILY INTRODUCING THE NJOY®

REINVIGORATING CONSUMER TRIAL

BY DELIVERING SATISFACTION MORE LIKE A CIGARETTE.

INTRODUCING

NJOY DAILY ®

THE DIFFERENTIATED DISPOSABLE

DESIGNED WITH RETAILERS IN MIND REINVIGORATING CONSUMER TRIAL

• Everyday value - approximately 300 puffs for $5.99 per stick • Quick & strong satisfaction more like a cigarette • Disposable lightweight stick

MAXIMIZE PURCHASE FREQUENCY & PROFITS

• ~40% margins* • 1 count configuration to help restore purchase frequency

NICOTINE DELIVERY CIGARETTE VS TOP C-STORE BRANDS

• Compact 5 count cartons for limited investment and optimal turns

SELL THROUGH RATE SUPPORT

• Robust introductory pricing promotions • Modular merchandising displays and impactful signage • Multi-million dollar consumer advertising campaign • Trial generating activations • Targeted coupon delivery to adult smokers

Mean Nicotine Concentrations (ng/ml)

• ~70% higher gross profit per week vs. leading rechargeable refills**

Combustion Cigarette***

20

• Flavor freshness seal for extended shelf life

NJOY Daily E-Liquid

18

Competitor A

16

Competitor C

Competitor B

Competitor D

14 12 10 8 6 4 2 0

Source: *Margins assume MSRP and cost = NJOY list price

-1

0

Time (minutes)

Recharge = 1 cartomizer; E-Liquid = 1.4 mL E-Liquid and assumes 1 unit purchased per visit *** Measured using participating subject's preferred brand of cigarette Chart Notes: Clinical trial conducted by independent lab measuring nicotine absorption in blood stream represented by mean of test subjects assessed on day 8 of use following 12 hours of abstinence.

WARNING: NJOY® products are not smoking cessation products and have not been tested as such, nor have the long-term efects of using this product been established. NJOY® products are intended for use by adults of legal smoking age (18 or older in California), and not by children, women who are pregnant or breastfeeding, or persons with or at risk of heart disease, high blood pressure, diabetes or taking medicine for depression or asthma. NJOY® products contain nicotine, a chemical known to the State of California to cause birth defects or other reproductive harm. Nicotine is addictive and habit forming, and it is very toxic by inhalation, in contact with the skin, or if swallowed. Ingestion of the non-vaporized concentrated ingredients in the liquid components of NJOY® products can be poisonous. If any liquid is swallowed, seek medical assistance immediately.

5

10

15

30

©2015 Altria Group Distribution Company For Trade Purposes Only

We want to hear about your successes, challenges and feedback on the tobacco categories in your store. The more we understand your perspective, the more AGDC can improve the resources we offer to help your business thrive.

Share your thoughts on how we can better serve your business by sending an email to AGDCTradeRelations@AGDC.com.

VIEWPOINT

By Don Longo, Editorial Director

New Year, New Trends in Food & Beverages From e-cology to e-retailing, these trends will impact convenience store sales

I

t’s a new year, so what better time to take a look at what awaits us in 2016.

This is our annual Forecast Issue, containing the convenience store industry’s only financial analysis of projected product category forecasts — something we’ve been doing exclusively for the past 14 years (see page 32). This issue also contains our long-running national economic forecast by Convenience Store News advising economist Maureen Maguire, as well as our relatively newer Retailer Forecast Study (page 34), measuring c-store operators’ view of the coming year, as well as our brand-new Supplier Forecast Study (page 48), which looks at the convenience channel’s prospects from the vendor’s point-of-view.

In addition, here are a few additional food and beverage trends from experts at market research firms Mintel and The NPD Group that I think will influence c-store retailers and marketers in the year ahead.

Eco is the new reality. Mintel Global Food and Drink Analyst Menny Zegler says consumer worries about drought, food waste and other natural phenomena will not only affect the worldwide food and drink supply, but also influence preparation and production.

In 2016, sustainability will evolve from being good for the bottom line to being a necessary part of new product development for the common good, she predicts.

E-revolution: From carts to clicks. “Online shop-

ping, apps and delivery services are transforming consumers’ access to deals, niche offerings and even full meals,” said Zegler. “While the Internet has not yet vastly changed the landscape of grocery shopping, innovations encourage consumers For comments, please contact to think outside traditional Don Longo, Editorial Director, physical retailers.” at (201) 855-7606 or Success isn’t so sweet. dlongo@stagnitomail.com.

Darren Seifer, food and beverage industry analyst for The NPD Group, noted that since fewer consumers are concerned about avoiding fats, the top ingredient adults avoid now is sugar.

“This is true for both main meal times, as well as snack time,” he said.

Shopping with a cause. In today’s Internet age, it’s easier for consumers to be more aware of how products reach the shelf. “And as more consumers seek humanely raised animals and avoid antibiotics in their meats, for example, we expect more of them to research brands and their production practices,” Seifer predicts.

I expect food and beverages will have a banner year at convenience stores in 2016, especially for those retailers that stay atop these trends.

CSNews has been recognized with more editorial awards, including the prestigious Jesse H. Neal Award for business journalism, in the past six years than any other industry publication.

2013 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2012 2013 Jesse H. Neal National Business Journalism Award Finalist, Best Profile, August 2012 2008 Jesse H. Neal National Business Journalism Award Best Single Issue, October 2007 2010 Trade Association Business Publications Intl.

Tabbie Awards Honorable Mention, Front Cover Illustration, October 2009 2009 Trade Association Business Publications Intl.

Tabbie Awards Gold, Front Cover Illustration, February 2008 Honorable Mention, Best Single Issue, October 2008

2015 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2014 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2013 2014 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Single Article, February 2013 2013 Eddie Award Honorable Mention, Folio: magazine Business to Business, Retail, Full Issue, October 2012 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2010 2011 Silver Eddie Award, Folio: magazine Business to Business, Retail, Best Single Article, October 2010 2009 Gold Ozzie Award, Folio: magazine Best Use of Illustration, October 2008 2009 Silver Eddie Award, Folio: magazine Business to Business, Retail, Full Issue, October 2008 2009 Bronze Eddie Award, Folio: magazine Business to Business, Retail, Website

4 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

2015 American Society of Business Publication Editors, National Silver Azbee Award Best Profile (long form), February 2014 2015 American Society of Business Publication Editors, Midwest Regional Gold Azbee Award Best Special Supplement, November 2014 2015 American Society of Business Publication Editors, Midwest Regional Silver Azbee Award Best Profile (long form), February 2014 2013 American Society of Business Publication Editors, Midwest Regional Bronze Azbee Award Best Editorial/Commentary, July 2012 2010 American Society of Business Publication Editors, Northeast Regional Silver Azbee Award Feature Article Design, November 2010

Net sweeter profits.

Higher profits are in the bag with the Halos 2-pack. Our Californiagrown mandarins are always fresh and always in supply. And what’s

best, they’re sweet, seedless, easy to peel and even easier to grab on the go. Non-GMO Project Verified, these little angels are backed by a $20MM+ ad campaign. Net-net, they’re going to be a huge seller.

halosfun.com

Call your Wonderful Citrus sales rep at 661.720.2500 (CA) or 956.205.7400 (TX).

© 2016 Wonderful Citrus LLC. All Rights Reserved. WONDERFUL, HALOS, PURE GOODNESS, HALOS FUN and the accompanying logos and trade dress are trademarks of Wonderful Citrus LLC or its affiliates. WH14565

CONTENTS JANUARY 2016

VOLUME 52/NUMBER 1

24 | COVER STORY Is This the Golden Age?

Why now may be one of the best times in history to be a convenience store retailer.

FORECAST 2016

32 | Keeping the Good Times Rolling Our exclusive 2016 Industry Forecast Study predicts continued strength in the year ahead.

34 | Positive Predictions C-store retailers are more bullish than last year on how high their sales will rise.

35 | It’s Getting Better The U.S. economy continues to improve despite rising interest rates and terror threats.

48 | A Full Stock of Optimism Suppliers and wholesalers give convenience high marks among its competing channels.

INDUSTRY ROUNDUP 14 | CST Embarks on Three-Year Rebranding Journey 16 | Couche-Tard Moves Into Ireland 18 | Eye on Growth 18 | Competitive Watch 20 | Retailer Tidbits 20 | Supplier Tidbits

HOW TO DO WORLD-CLASS FOODSERVICE 62 | Finding the Next Level for Your Foodservice Program 62 | Call to Action: Foodservice 101 64 | Call to Action: Foodservice 201 68 | Call to Action: Foodservice 301

Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd. Deerfield, IL 60015. Copyright © 2016 by Stagnito Business Information. All rights reserved. Subscriptions: One year, $93; two years, $152. One year, Canada, $110; two years, Canada, $175. One year, foreign, $150. Payable in advance with a bank draft drawn on a U.S. bank in U.S. funds. Single copies, $10, except foreign, where postage will be added. Printed in U.S.A. Periodicals postage paid at Deerfield, IL, and at additional mailing offices. POSTMASTER: Send address changes to Convenience Store News, P.O. Box 1842, Lowell, MA 01853.

6 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

CATEGORYISGROWTH EVERY DAY.

Trusted iconic brands, consumer-focused innovation and

EXPERT CATEGORY MANAGEMENT

deliver sustainable growth.* Another way we’re committed to creating shared success every day.

SUCCESS IS AN EVERYDAY THING.

*Source: Nielsen 12/2012-12/2015

hersheysconvenience.com

CONTENTS FEATURES

111 Town Square Place, Suite 400, Jersey City, NJ 07310 (201) 855-7600 Fax: (201) 855-7373 www.csnews.com

TECHNOLOGY

BRAND MANAGEMENT

82 | Six Things You Need to Know About Payments Knowing how your customers like to pay sheds light on how best to engage them.

Group Brand Director (330) 840-9557

OPERATIONS

84 | A Clean Slate Inside and out, well-maintained and safe stores are a must for attracting and retaining customers.

CATEGORY MANAGEMENT FOODSERVICE

54 | A Sizzling Six Kwik Trip leads the year’s pack of Foodservice Innovators Awards winners.

72 | The Competition for Quick Foodservice Visits Heats Up Consumers have a need for convenient, quick, high-quality prepared foods.

IN-STORE MERCHANDISING

76 | Cashing In on the Fill-In Convenience stores are not the only ones in pursuit of the coveted fill-in shopper.

DEPARTMENTS VIEWPOINT

3 | New Year, New Trends in Food & Beverages From e-cology to e-retailing, these trends will impact convenience store sales.

12 | CSNews Online 22 | New Products STORE SPOTLIGHT

88 | A Monument to Convenience Rutter’s newest and largest c-store marks a first in brand’s continuing evolution.

EXPERT’S VIEW

90 | Closing the Confidence Gap The industry’s most successful women push aside fear and step up.

106 | Getting to the Core

8 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

Ron Lowy rlowy@stagnitomail.com

EDITORIAL Editorial Director (201) 855-7606 Editor-in-Chief (201) 855-7608 Managing Editor (201) 855-7614 Senior Editor (201) 855-7618 Associate Editor (201) 855-7619 Assistant Editor (201) 855-7604 Contributing Editor (303) 741-3377 Contributing Editor (201) 280-2614 Art Director (224) 632-8245 Director of Market Research (201) 855-7605

Don Longo dlongo@stagnitomail.com Linda Lisanti llisanti@stagnitomail.com Brian Berk bberk@stagnitomail.com Melissa Kress mkress@stagnitomail.com Angela Hanson ahanson@stagnitomail.com Danielle Romano dromano@stagnitomail.com Renée M. Covino reneek@aol.com Tammy Mastroberte tmastroberte@gmail.com Michael Escobedo mescobedo@stagnitomail.com Debra Chanil dchanil@stagnitomail.com

MARKETING & PROMOTION Audience Development Manager Shelly Patton (646) 217-1045 spatton@stagnitomail.com List Rental The Information Refinery (800) 529-9020 Brian Clotworthy Reprints and Licensing Wright’s Media (877) 652-5295 sales@wrightsmedia.com Subscriber Services/Single-Copy Purchases (978) 671-0449 Stagnito@e-circ.net

EVENTS • MEDIA • RESEARCH • INFORMATION UNITED STATES MARKETS Convenience • Grocery/Drug/Mass Store Brands • Specialty Gourmet Multicultural • Green

CANADIAN MARKETS Convenience Pharmacy Foodservice

President & CEO Harry Stagnito Chief Information Officer Kollin Stagnito Vice President & CFO Kyle Stagnito Senior Vice President, Partner Ned Bardic Chief Brand Officer Korry Stagnito Vice President/Custom Media Division Pierce Hollingsworth (224) 632-8229 phollingsworth@stagnitomail.com Production Manager Anngail Norris Human Resources Manager Sandy Berndt Strategic Marketing Director Bruce Hendrickson (224) 632-8214 bhendrickson@stagnitomail.com Director of Events Ken Romeo (203) 295-7058 kromeo@stagnitomail.com Director of Digital Strategy Matt McGuire (224) 632-8180 mmcguire@stagnitomail.com

CONVENIENCE STORE NEWS AFFILIATIONS Premier Trade Press Exhibitor

EDITORIAL ADVISORY BOARD Brett L. Atherton Bolla Management Rick Crawford Green Valley Grocery Edward Davidson ER Davidson & Associates (7-Eleven Inc., retired) Ray Johnson Speedee Mart

Jack Lewis Village Pantry LLC

Jonathan Polonsky Plaid Pantries Inc.

Kyle McKeen Alon Brands Inc.

Roy Strasburger Convenience Management Services Inc.

Richard Mione GPM Southeast Matt Paduano Nice N Easy Grocery Shoppes

Jon Urbanik CST Brands Inc.

The contents of this publication may not be reproduced in whole or in part without the consent of the publisher. The publisher is not responsible for product claims and representations.

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CSNEWS.COM TOP 5 Daily News Headlines The most viewed articles online.

ONLINE EXCLUSIVE Year in Review: Most-Read Stories of 2015

1 | Speedway’s Growth Strategy Stays the Course Speedway LLC experienced a major growth spurt in 2014 when it closed on its acquisition of Hess Corp.’s retail network, but the convenience store chain is not stopping there. Calling Speedway’s approach to growth “consistent,” President Tony Kenney explained the retailer plans to build up its presence through an organic growth strategy for both its convenience stores and commercial fueling locations, and through high-quality acquisitions.

2 | 7-Eleven Unlocks Opportunity via Locker Programs Being a traditional brick-and-mortar retailer is not stopping 7-Eleven Inc. from tapping into the opportunities that online shopping can bring. In the past four years, it has expanded its locker pilot program with Amazon Inc. to include other retailers that ship packages through UPS or FedEx. In addition, the company recently announced it will install Walmart lockers in six locations in Toronto.

3 | Stop’n Go Exits Industry, Sells to TravelCenters Stop’n Go became the latest convenience store chain to sell its business and exit the industry. All 10 Stop’n Go stores in Ohio were acquired by fellow Ohio-based company TravelCenters of America LLC, which plans to rebrand the stores as Minit Mart locations.

4 | Get Big, Get Great or Get Out In order to survive, convenience store retailers must “get big, get great or get out,” according to Joe Petrowski, former CEO of The Cumberland Gulf Group and now managing director of private equity group Mercantor Partners. Serving as keynote speaker for the Convenience Store News 2015 Fuels & Tech Summit, Petrowski also discussed the competitive landscape for c-stores, as well as the current mergers and acquisitions environment.

5 | TravelCenters Acquires Quaker Steak & Lube Restaurant Chain TravelCenters of America acquired Quaker Steak & Lube’s restaurant and related assets for $25 million. Quaker Steak & Lube has 50 locations in 16 states. The company submitted a bankruptcy filing that includes the asset purchase and $2-million debtor in possession financing agreements with TravelCenters.

Issues of leadership and company growth captured the interest of Convenience Store News readers in 2015, whether the news involved the latest retailer acquisition or spotlighting industry stars on every level.

Additionally, a court ruling from early in the year drew in many readers for its far-reaching consequences on major chains and single stores alike. Check out our countdown of the top 10 most-read CSNews Online stories for 2015, based on website hits.

For more exclusive stories, visit the Special Features section of www.csnews.com.

PRODUCT HIGHLIGHT The most viewed New Product online.

LED Illuminated Tobacco Display Headers

Beginning in December, ImageWorks Display & Marketing Group replaced the traditional fluorescent illumination in its tobacco displays with LED Illuminated Headers. According to the tobacco display manufacturer, LED technology has been utilized within ImageWorks’ flip signs and is more energy efficient, brighter and has a longer lifespan than traditional bulbs, lasting up to five times longer.

ImageWorks Display & Marketing Group Winston-Salem, N.C. (800) 704-3660 www.imageworksdisplay.com

POLL

How far along are you in tHe eMV transition process?

12 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

•We have not transitioned at all •We completed the POS transition

64% 17% 6%

•We completed the POS transition and are now tackling the forecourt

13%

•We are still in the process of the POS transition

Š2016 Goya Foods, Inc. *Top selling coconut water SKU (in Grocery outlets) Source: Nielsen Strategic Planner, Total US (unit sales), 52 weeks ending 9/27/14

INDUSTRYROUNDUP FAST FACT

CST Embarks on ThreeYear Rebranding Journey Larger stores will carry the new Corner Store Market banner Eighty-two percent of convenience store operators (chains and single stores combined) expect their average sales per store to increase this year vs. 2015.

Source: Convenience Store News 2016 Retailer Forecast Study (page 34)

QUOTABLES

“Every time a customer walks in, it can be challenging to make communication seem genuine, but a successful foodservice staff is able to achieve this on a steady basis.”

— Dean Dirks, Dirks & Associates (page 62)

C

ST Brands Inc. has begun a total brand makeover that started in its hometown and will spread outward, creating a network of rebranded stores within three years.

The San Antonio-based convenience store retailer recently unveiled its first rebranded Corner Store built from the ground up.

The store is in north San Antonio, and the company planned to add four more in San Antonio before the end of 2015.

As CST explained, the Corner Store name has not changed, but a dramatic new look and feel carries out the company’s new service promise: “Simply Fresh.

Always Friendly.”

The color palette and design elements are meant to be refreshing, neighborly and in-touch, and encompass the store logo, signage, interior and exterior.

In addition, larger CST stores will be known as Corner Store Markets and offer an expanded selection of fresh produce, quick meal fixings and a made-to-order food menu with pizzas, sandwich melts, soups, salads and more.

The company plans to debut a total of 21 new and legacy San Antonio stores carrying the new Corner Store logo, signage and color palette in early 2016. The larger of these stores will be Corner Store Market locations.

After opening these new and refreshed

14 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

stores, CST will begin a rollout to all Corner Stores in San Antonio and the surrounding area, with the goal of rebranding the entire network in three years.

“Looking to the future of our industry, it’s crucial that Corner Store continue to establish a clear retail identity broader than our fuel offerings. Inside our stores, food and beverage sales are a vital and stable profit generator. With this exciting brand initiative, we are looking to not only expand those offerings, but to call more attention to the great food, beverages and service we already offer,” said Kim Lubel, chairman and CEO of CST Brands. “Ultimately, we believe this pivotal new direction will energize our existing customers, draw new ones to our stores, increase overall revenues and enhance shareholder value.”

Unifying all Corner Store locations under the new brand will also allow for more effective network-wide advertising, adding a powerful tool to leverage the existing strength, offerings and scope of the convenience retail chain.

UCL FANS CONSUME 38 BEERS A MONTH AND OVER INDEX (132%) WITHIN THE IMPORT CATEGORY.1

86% SALES LIFT

HEINEKEN OUTPERFORMS IN THE BEER CATEGORY WHEN ON FEATURE AND DISPLAY2

MILLENNIAL SHOPPERS OVER INDEX ON SOCCER PASSION3

MARCH 1ST, 2016 – APRIL 30TH, 2016

DON’T MISS A MINUTE, CONTACT YOUR SALES REPRESENTATIVE

INDUSTRYROUNDUP

Couche-Tard Moves Into Ireland Retailer says it shares the same DNA as Topaz, its latest acquisition

C

ircle K is coming to Ireland via the acquisition of Topaz convenience stores and both sides of the deal see the combination as a perfect fit.

“We’re very excited. We’ve been looking at Ireland for six years, since 2009, and we couldn’t be more happy to be coming to Ireland and joining the Topaz network,” said Brian Hannasch, president and CEO of Circle K parent Alimentation Couche-Tard Inc. “We think it is the premier operator in the country and we know a lot about that — acquiring great companies, great management teams that are winning and investing in their stores and winning with the customers. We are here to help further that journey.”

The agreement calls for Couche-Tard to purchase the majority share capital — more than 99.86 percent — of both Topaz Energy Group Limited and Resource Property Investment Fund plc, together with the entire

share capital of Esso Ireland Limited. No price tag was revealed for the transaction, which is expected to close in late February or early March.

Dublin-based Topaz has 464 stations across Ireland, including its recently acquired Esso station network.

Of these stations, 162 are owned by Topaz and 302

16 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

“The last two years have been a period of transformation. We moved from an organization that was challenged and weak and with an uncertain future to the No. 1 operator in the country, extremely well invested, well branded and well respected.”

— Topaz Chief Executive Emmet O’Neill are owned by dealers.

The agreement with Couche-Tard also encompasses a commercial fuels operation with more than 30 depots and two owned terminals.

Topaz has been undergoing a transformation the past two years, but is now positioned as the leading convenience retailer in the country, according to Topaz Chief Executive Emmet O’Neill.

“The last two years have been a period of transformation. We moved from an organization that was challenged and weak and with an uncertain future to the No. 1 operator in the country, extremely well invested, well branded and well respected,” O’Neill said. “We are now joining the world’s No. 1 fuel retail convenience operator, which is also well branded, well invested and strong. It’s a great marriage.”

Couche-Tard’s move into Ireland comes three years after it entered Europe through the acquisition of Statoil Fuel & Retail ASA, which has a presence in eight countries.

“It’s been a great marriage. Three and half years later, we continue to be impressed with our team in Europe. We’ve done a lot of sharing of best practices back and forth, and we’ve learned from each other.

Today, I think we’ve got that platform ready to grow and certainly this is a big first step in growing across Europe,” Hannasch said.

VAPE SHOP PERFORMANCE MEETS C-STORE CONVENIENCE

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VAPOR VOLUME NJOY VS COMPETITION****

• ~40% margins** • 1 count configuration to help restore purchase frequency

• Flavor freshness seal for extended shelf life

SELL THROUGH RATE SUPPORT

• Robust introductory pricing promotions • Modular merchandising displays and impactful signage • Multi-million dollar consumer advertising campaign • Trial generating activations • Targeted coupon delivery to adult smokers

9 8 7 6 5 4 3 2 1

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• Compact 4 count cartons for limited investment and optimal turns

10

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• ~2x the weekly gross profit vs. leading 10mL open system e-liquids***

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Source: * IRI 4 Wks Ending 8/9/15 All Channels = FDMx + C-Store. **Margins assume MSRP and cost = NJOY list price E-Liquid = 1.5 mL E-Liquid and assumes 1 unit purchased per visit charged, if applicable. Voltages: NJOY PFT = 3.7v, Fin = 4.2v, Logic Pro = 3.5v, 24/7 PFT = 3.7v, Nautilus tank = 4.2v (~11 W) ***** Typical vapor output of popular vape shop tank operating at 4.2v.

WARNING: NJOY® products are not smoking cessation products and have not been tested as such, nor have the long-term efects of using this product been established. NJOY® products are intended for use by adults of legal smoking age (18 or older in California), and not by children, women who are pregnant or breastfeeding, or persons with or at risk of heart disease, high blood pressure, diabetes or taking medicine for depression or asthma. NJOY® products contain nicotine, a chemical known to the State of California to cause birth defects or other reproductive harm. Nicotine is addictive and habit forming, and it is very toxic by inhalation, in contact with the skin, or if swallowed. Ingestion of the non-vaporized concentrated ingredients in the liquid components of NJOY® products can be poisonous. If any liquid is swallowed, seek medical assistance immediately.

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INDUSTRYROUNDUP

eye on growth n Pemex, Mexico’s state-run oil

company, entered the U.S. market with its first gas station in Houston. A total of five franchised Pemex gas stations were slated to open in the city during the month of December. n Speedway LLC will get nearly $400 mil-

lion this year as part of parent company Marathon Petroleum Corp.’s 2016 capital investment plan. The funds will be focused on store remodels.

chain’s total to 17 stores in the area. n A wholly owned subsidiary of Sunoco LP completed

the purchase of Alta East Inc. Alta East owns or leases 30 convenience stores. n Aloha Petroleum Ltd. completed its

purchase of MFM Inc.’s assets in Hawaii. The acquisition included multiple gas stations and retail outlets on the island of Kauai. n Anabi Oil Corp. purchased the retail outlets of Rebel Oil

Corp. The deal brings Anabi to the Las Vegas market. n Casey’s General Stores Inc. has 26 new

stores under construction. In addition, the retailer reported that it has 39 major store remodels underway.

n BW Gas & Convenience Holdings LLC acquired a

10-store convenience and gas station portfolio in western Iowa. The company said it plans to acquire between 600 and 1,000 more sites over the next few years.

n First Colombia Gold Corp. inked a purchase-and-sale

agreement to acquire 11 stores in Alabama. These locations will be branded Norfleet Markets and are the first in a planned expansion. n Kum & Go LC continues to

grow in the Pikes Peak region of Colorado, with four more stores planned. This will bring the

n Circle K Stores Inc. is returning to San Antonio and

Houston. Construction on the chain’s first new store in San Antonio will begin in February and is expected to be completed in August. Four more stores will be built in Houston later this year.

competitive watch n McDonald’s unveiled the

“McPick 2” menu, which lets customers pick two of select menu items for $2. It became available in locations across the United States for a five-week period beginning Jan. 4.

n Starbucks is teaming up with

on-demand delivery service Postmates to launch a pilot delivery program. It will test the program in the downtown Seattle, South Lake Union, Capitol Hill, Madison Park and Sodo areas. n Dunkin’ Donuts recently

n Wal-Mart has thrown its hat into

the mobile payment ring with the launch of Walmart Pay. The payment solution works with any iOS or Android device, and with any major credit, debit, prepaid or Walmart gift card all through the Walmart mobile app.

18 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

announced it will begin testing mobile On-the-Go Ordering in Portland, Maine. Also, Dunkin’ Delivery will kick off in Dallas, with rollouts in Atlanta, Chicago, Los Angeles and Washington, D.C., to follow.

Now is the time to make a diference in your community and grow your dairy category by helping put milk back into the hands of children who miss it.

With your help, The Great American Milk Drive has accumulated over 620,000 gallons in donations to date. In 2016, we’re looking to make an even bigger impact.

Contact us today to make your store the destination for dairy.

1-800-945-MILK retailers@milkpep.org

©2016 America’s Milk Companies.®

INDUSTRYROUNDUP

retailer tidbits n 7-Eleven Inc. is partnering

with Tapingo to launch ondemand delivery of 7-Eleven products in the college market. The program is initially available in California, Arizona, Pennsylvania, Ohio and Maryland.

n Rutter’s Farm Stores opened

its largest store ever in early December. The 11.5-acre site has seven high-speed truck diesel fueling spaces, 14 lanes for gas and auto diesel, and 23 truck parking spaces. The interior includes a 36-person seating area.

n TravelCenters of America

LLC opened three new restaurant concepts within its TravelCenters network. Petro Café, Metro Deli and TA Café Express are cafe-style eateries. n CST Brands Inc. is offering

employees the chance to buy the company’s stock. U.S. employees who have been with CST for at least six months can participate in the employee stock purchase plan.

n Big Red Stores launched the Big

Red Discount Gas Card. Rewards members earn 1 cent off per gallon for every $5 spent inside the store when using their card. n CEFCO Convenience

Stores opened its first Which Wich sandwich shop. The retailer plans to open more Which Wich locations in 2016.

supplier tidbits n R.J. Reynolds Tobacco Co. is piloting

a digital marketing solution intended to replace paper coupons. “Spot You More” launched in 64 convenience stores in Columbus, Ohio, and Des Moines, Iowa, this summer.

n Kerry completed its acquisition of

Insight Beverages. The combined company is now known as Kerry Convenience and will serve the convenience channel. n Imperial Tobacco Group is

n ConAgra Foods Inc. plans to

separate into two independent public companies: its consumer brands business, to be renamed Conagra Brands Inc., and its frozen potato business, which will operate under the Lamb Weston name. n Anheuser-Busch unveiled Best Damn

Brewing Co., a new brand platform.

Best Damn Root Beer is the brand platform’s first product released nationally.

It is the first hard root beer AnheuserBusch has produced.

20 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

dropping “tobacco” from its name. It will be known as Imperial Brands. The new name better reflects its brandfocused business. n Dos Equis inked a multi-

year deal with ESPN to become the Official Beer Sponsor of the College Football Playoff.

Dos Equis plans to promote a variety of “Drink Responsibly” communications.

SLOW

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That’s $40 per store per delivery.

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SPEED UP YOUR PRODUCT CHECK-IN. SPEND MORE TIME WITH CUSTOMERS. The Store-Level Receiving application for the Smart Handheld allows you to instantly check-in your delivery and process both McLane and non-McLane products with a simple scan. Improve inventory accuracy while saving time and allowing employees to focus on what’s most important— customers.

To learn more visit, mclaneco.com/goto/slr

© 2016 McLane Company, Inc. All rights reserved.

NEWPRODUCTS OREO Churros Filled Varieties

Bud Light Redesign

Following the success of its original OREO Churros snack introduced in 2014, J&J Snack Foods expanded the line to now include two filled varieties: 10-inch Crème Filled OREO Churros and OREO Churros Crème Filled Bites.

Both new varieties are made from real OREO cookie pieces with crème filling inside, and are being introduced to meet consumer demand for a grab-and-go snack experience, according to the company. These new items are available nationwide for the foodservice channel, and the bites are available for purchase at retail locations nationwide. In addition, the company launched an OREO cookie crumb/ sugar topping in which all OREO Churros can be rolled after heating to enhance the OREO cookie flavor.

Bud Light will unveil a fresh, new look in 2016 — the first major overhaul of the brand’s visual identity in eight years. The redesign will include a reimagined Bud Light logo, along with contemporized primary and secondary packaging, as part of a larger brand evolution underway. The brewer will also bring back its historic trademark “AB” crest, which hasn’t been used on Bud Light packaging since 2001. The redesign aims to emphasize the attributes that established the brand as the country’s most popular beer, including premium ingredients; care in brewing; a crisp, clean finish; and a smooth drinkability, according to Anheuser-Busch. The new look will roll out nationwide in cans and glass and aluminum bottles in early spring 2016.

J&J Snack Foods Corp.

Pennsauken, N.J. (800) 486-9533 jjsnack.com

Tyson Crispitos Filled Tortillas Ideal for consumers’ on-the-go lifestyle, Tyson Crispitos Filled Tortillas can be combined with a variety of sauces, garnishes and sides to create signature foodservice offerings. Each tortilla-wrapped mini-meal is packed with a fruit or protein filling to fulfill a range of menu opportunities, including snacks, appetizers, entrees and desserts.

Tyson Convenience Springdale, Ark. (800) 248-9766 tysonconvenience.com

Anheuser-Busch St. Louis (314) 577-2000 anheuser-busch.com

Jumbo Bones The Bone Co. — maker of Nature’s Animals, a specialty brand of gourmet dog biscuits and treats — introduces Jumbo Bones, an 8-inch dog bone. Sold in prepacked displays with each biscuit labeled for individual sale, the spacesaving units are ideal for high-traffic checkout areas and drive strong repeat purchases with high profit margins, according to the company. The beef-flavored Jumbo Bones are American-made with human-grade ingredients.

The Bone Co. Mamaroneck, N.Y. (914) 777-3570 thebonecompany.com

White Owl Brand Redesign White Owl Cigar initiated a brand redesign that includes new packaging, arriving in stores this month. The packaging redesign emphasizes the White Owl brand’s heritage, innovation, flavor and quality, according to the company. Packaging modifications include eye-catching bold pouches that: prominently feature a new White Owl logo; highlight the product’s “slow burn;” draw attention to each specific flavor variety; and call out the brand’s competitive pricing. White Owl Cigar also launched a product website, www.whiteowlcigar.com. The site provides consumer and trade partners with an easy-to-navigate platform for all White Owl products and highlights the latest limited-time offers.

Swedish Match North America Inc. Richmond, Va. (804) 787-5100 swedishmatch.com

22 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

e l p o e P e h T e v i G Wh They W nt. nti oci

r Colors

n o ti

ci l vors

nti oci

rs e n e t e e w S NATURE VALLEY GRANOLA BARS ARE FULL OF GOOD. You may already know that Nature Valley is the #1 bar brand in convenience stores.1 But you may not know that they contain no artificial flavors, colors or sweeteners. Why is that important? Because it makes customers more likely to purchase Nature Valley. 2 So stock up today. Because when customers say no to the bad stuff, they can say yes to the good stuff in Nature Valley.

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generalmillsconvenience.com ©2016 General Mills

1

GMI Consumer Insights C-Store Bar Study, n=315, April 2015.

2

NV Ingredient Conjoint Study. Magid. June 2015.

cover story

Is This the

Golden Age? Why now may be one of the best times in history to be a convenience store retailer

By Brian Berk

“R

etail continues to perform well.”

“Our retail segment performed well, achieving record fuel sales volumes.” “[We] experienced significant sales growth in all major areas of our business, especially inside our stores.”

“In our retail business, we saw an increase in same-store fuel volumes, fuel margins and merchandise sales, resulting in a record quarter from a profit perspective.”

“The U.S. continues to perform better than most of the rest of our geography. Miles traveled are very strong.”

These statements, made by executives at Alon USA Energy Inc., SuperAmerica LLC parent Northern Tier Energy LP, Casey’s General Stores Inc., Western Refining Inc. and Circle K parent Alimentation Couche-Tard Inc., respectively, were just a sampling of the comments CEOs made in November about strong convenience store operations for their 2015 fiscal third quarters.

Despite an economy showing signs of both strength and weakness, several pure-play, publicly traded convenience store operators and retail divisions of larger oil companies alike reported record earnings in the latest quarter for which results were reported. And even for those retailers that did not report record results, most could at least boast that their 2015 third-quarter earnings far outpaced what was achieved in the same quarter the prior year.

Convenience has certainly bucked the trend of

24 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

most other retail channels, which have struggled mightily in recent months. Is this the golden age of c-store retailing? Are low fuel prices the sole reason for these record results, or is something much bigger at play?

Dennis Ruben, executive managing director of Scottsdale, Ariz.-based NRC Realty & Capital Advisors LLC, believes it’s not a stretch at all to say now is one of the best times in history to be a convenience store retailer. C-store operators are taking advantage of perfect conditions in their industry.

Low gas prices are combining with dramatically increasing fuel margins, according to Ruben. Gas prices are expected to remain low for the immediate future, another positive on the side of c-store retailers.

“Everything is coalescing,” he said. “People have more money to spend. Instead of just buying gas and struggling, they are going into the

WWW.CSNEWS.COM | JANUARY 2016 | Convenience Store News 25

cover story

store and buying an extra hot dog or pack of cigarettes. People have more disposable income, so it is providing a dual effect for [c-store] retailers. They are having bigger profits on the fuel side and significantly greater in-store sales.”

Bonnie Herzog, managing director of beverage, tobacco and convenience store research for Wells Fargo Securities LLC, has been bullish on c-store industry pure-play stocks, citing the same factors mentioned by Ruben. “We believe in-store sales continue to benefit from lower retail gas prices, which is driving increased foot traffic for in-store purchases and

BY THE NUMBERS

Here’s how the publicly traded convenience store retailers fared during their 2015 third quarters (or closest reported three-month period) compared to the same quarter a year ago. The metrics operators use to report the strength of their retail divisions varies on a company-by-company basis. Both 2015 and 2014 earnings figures are for the three-month period ended Sept. 30 unless otherwise noted. Acquisitions had an effect on retail earnings figures in multiple cases. And in most instances, the retailers increased sales both in-store and at the forecourt.

PURE-PLAY CONVENIENCE STORE OPERATORS Alimentation Couche-Tard Inc. (Fiscal 2016 second quarter ended October 11, 2015) U.S. Total Revenues Q2 2016: $1.748 billion (+46.9%) U.S. Total Revenues Q2 2015: $1.19 billion U.S. Merchandise Gross Profit Q2 2016: $578 million (+48.2%) U.S. Merchandise Gross Profit Q2 2015: $390 million U.S. Road Transportation Fuel Gross Profit Q2 2016: $432.8 million (+64.6%) U.S. Road Transportation Fuel Gross Profit Q2 2015: $263 million Casey’s General Stores Inc. (Fiscal 2016 second quarter ended October 31, 2015) Net Income Q2 2016: $79 million (+58%) Net Income Q2 2015: $50 million Prepared Food & Fountain Margin Q2 2016: 63.4 percent (+6.9 pts.)

Prepared Food & Fountain Margin Q2 2015: 59.3 percent Fuel Margin per Gallon Q2 2016: 24.7 cents (+26.7%) Fuel Margin per Gallon Q2 2015: 19.5 cents CST Brands Inc. Net Income Q3 2015: $85 million (+34.9%) Net Income Q3 2014: $63 million U.S. Merchandise Gross Profits Q3 2015: $121 million (+13.1%) U.S. Merchandise Gross Profits Q3 2014: $107 million

26 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

consumers’ ‘up-trading’ to premium-branded merchandise,” she said.

During Convenience Store News’ Fuels & Tech Summit in Riviera Beach, Fla., last month, a group of 15 convenience store retailers were asked if now is the best time ever to be a c-store retailer. Although the respondents certainly expressed concerns about stiff competition in their markets and were skeptical how long this excellent environment would last, most agreed today is at worst a “really good” time to be a c-store operator.

“It’s a great time for a lot of retailers,” said one

U.S. Merchandise Sales per Site, per Day Q3 2015: $4,129 (+12%) U.S. Merchandise Sales per Site, per Day Q3 2014: $3,686 U.S. Motor Fuel Gross Profits Q3 2015: $155 million (+32.5%) U.S. Motor Fuel Gross Profits Q3 2014: $117 million Murphy USA Inc. Net Income Q3 2015: $60.5 million (-3.5%) Net Income Q3 2014: $62.7 million Merchandise Revenues Q3 2015: $592 million (+5.5%) Merchandise Revenues Q3 2014: $561 million Merchandise Margin Dollars per Store per Month Q3 2015: $22,418 (+7.5%) Merchandise Margin Dollars per Store per Month Q3 2014: $20,857 Retail Fuel Margins per Gallon Q3 2015: 18.1 cents (+3.4%) Retail Fuel Margins per Gallon Q3 2014: 17.5 cents Sunoco LP Pro Forma Adjusted EBITDA Q3 2015: $148.7 million (+962.1%) Pro Forma Adjusted EBITDA Q3 2014: $14 million Total Merchandise Sales Q3 2015: $429.8 million (+273.7%) Total Merchandise Sales Q3 2014: $115 million Total Retail Motor Fuel Sales Q3 2015: $854.1 million (+143.6%) Total Retail Motor Fuel Sales Q3 2014: $350.6 million Note: Energy Transfer Partners LP dropped down 438 convenience stores to Sunoco LP on Jan. 1. These stores were not included in these results.

TravelCenters of America LLC Net Income Q3 2015: $9.8 million (-23.4%) Net Income Q3 2014: $12.8 million Fuel Gross Margins Q3 2015: $102.6 million (+4.3%) Fuel Gross Margins Q3 2014: $98.3 million Fuel Gross Margins per Gallon Q3 2015: 18.64 cents (-2.7%) Fuel Gross Margins per Gallon Q3 2014: 19.15 cents continued on page 28

cover story

attendee. “We are seeing great margins.” Another remarked, “Warm weather is really helping in-store sales.” And a third retailer summed it up this way: “We knew if we got through the tough times of a few years ago, things would get good.”

COMPETITIVE ADVANTAGE

Unlike other types of retailers, c-stores have one distinct advantage. The industry is what Ruben calls “recession-resistant” and unlike other retailers, c-store

RETAIL DIVISIONS OF LARGER COMPANIES Alon USA Energy Inc. Merchandise Sales Q3 2015: $86.56 million (+2.1%) Merchandise Sales Q3 2014: $84.79 million Per-Site Merchandise Sales per Month Q3 2015: $96,000 (+1.1%) Per-Site Merchandise Sales per Month Q3 2014: $95,000 Per-Site Retail Fuel Sales (Gallons) per Month Q3 2015: 59,000 (+3.5%) Per-Site Retail Fuel Sales (Gallons) per Month Q3 2014: 57,000 Retail Fuel Margins per Gallon Q3 2015: 21.8 cents (+4.8%) Retail Fuel Margins per Gallon Q3 2014: 20.8 cents CrossAmerica Partners LP Total Retail Operating Income Q3 2015: $2.26 million (n/a) Total Retail Operating Income Q3 2014: -$130,000 Merchandise Sales per Site, per Day Q3 2015: $3,625 (+22.9%) Merchandise Sales per Site, per Day Q3 2014: $2,949 Motor Fuel Gross Profit per Gallon, Net of Credit Card Fees Q3 2015: 18 cents (+50%) Motor Fuel Gross Profit per Gallon, Net of Credit Card Fees Q3 2014: 12 cents Delek US Holdings Inc. Contribution Margin Q3 2015: $21.9 million (+33.5%) Contribution Margin Q3 2014: $16.4 million Merchandise Sales Q3 2015: $111.3 million (+4%) Merchandise Sales Q3 2014: $107 million Merchandise Margin Percentage Q3 2015: 28 percent (+1 pts.)

Merchandise Margin Percentage Q3 2014: 27.7 percent Fuel Gallons Sold Q3 2015: 117.9 million (+1.6%) Fuel Gallons Sold Q3 2014: 116.1 million Fuel Margin per Gallon Q3 2015: 21.7 cents (+11.9%) Fuel Margin per Gallon Q3 2014: 19.4 cents Global Partners LP (Gasoline Distribution and Station Operations Segment) Product Margins Q3 2015: $137.3 million (+71.2%) Product Margins Q3 2014: $80.2 million

28 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

operators don’t need to worry about online retailers like Amazon.com disrupting their business models.

“People will always go to the convenience stores,” stated Ruben. “The question is how much they spend there. As long as people need gasoline, they are going to stop and buy some other things. The convenience store industry isn’t as affected by economic trends.”

In fact, c-store operators are doing so well in terms of both forecourt and in-store sales that it could cause a slowdown in merger and acquisition activity,

Par Pacific Holdings Inc. Retail Revenues Q3 2015: $81.43 million (+29.4%) Retail Revenues Q3 2014: $62.92 million Retail Sales Volumes Q3 2015: 23.247 million gallons (+78.8%) Retail Sales Volumes Q3 2014: 13 million gallons Speedway LLC (Division of Marathon Petroleum Corp.)

Operating Income Q3 2015: $243 million (+104.2%) Operating Income Q3 2014: $119 million EBITDA Q3 2015: $306 million (+101.3%) EBITDA Q3 2014: $152 million Motor Fuel Margins per Gallon Q3 2015: 21.46 cents (+34.5%) Motor Fuel Margins per Gallon Q3 2014: 15.96 cents SuperAmerica LLC (Division of Northern Tier Energy LP) Retail Operating Income Q3 2015: $9.4 million (+62.1%) Retail Operating Income Q3 2014: $5.8 million Merchandise Sales Q3 2015: $100.7 million (+5.2%) Merchandise Sales Q3 2014: $95.7 million Fuel Margins per Gallon Q3 2015: 27 cents (+35%) Fuel Margins per Gallon Q3 2014: 20 cents *Merchandise/fuel figures for company-operated locations only.

Tesoro Corp. (Marketing Segment) Operating Income Q3 2015: $379 million (+110.5%) Operating Income Q3 2014: $180 million Western Refining Inc. Operating Income Q3 2015: $16.46 million (+61.3%) Operating Income Q3 2014: $10.203 million Merchandise Sales Q3 2015: $83.1 million (+17.2%) Merchandise Sales Q3 2014: $70.9 million Merchandise Margin Percentage Q3 2015: 29.4 percent (+2.4 pts.)

Merchandise Margin Percentage Q3 2014: 28.7 percent Retail Fuel Gallons Sold Q3 2015: 92.9 million (+15.1%) Retail Fuel Gallons Sold Q3 2014: 80.7 million Fuel Margins per Gallon Q3 2015: 31 cents (+16%) Fuel Margins per Gallon Q3 2014: 26 cents

*based on STW compounded annual growth rate for all NAS cigarette styles from 1999-2014

CIGARETTES ©2016 SFNTC (1)

cover story

Ruben hypothesized.

“Even though purchase price multiples are at an all-time high right now, people are struggling with the idea if they should sell or not,” he explained. “They are making so much money, they don’t want to sell.

Also if they sell, they are questioning how they could get the same kind of returns by investing the cash they receive [from selling]. There are a lot of dilemmas for people because of the success they are having. They want to just ride this wave right now.”

IT’S NOT ONLY ABOUT FUEL

Of course, low fuel prices — corresponding with high fuel margins and more money in consumers’ wallets — is the primary driving force for the record c-store earnings. However, the stores still need to have something customers will want when they enter, or they will choose to use their discretionary funds at local standalone restaurants or fine-dining establishments.

“Looking to the future of our industry, it’s crucial that Corner Store continues to establish a clear retail identity broader than our fuel offerings. Inside our stores, food and beverage sales are a vital and stable profit generator. …We are looking to not only expand those offerings, but to call more attention to the great food, beverages and service we already offer.”

— Kim Lubel, CST Brands Inc.

C-store operators have greatly expanded the size of their newest stores to ensure top-notch foodservice offerings are provided. CST Brands Inc. is just one c-store chain to take this approach. Its large-format stores, which the parent company of Corner Stores calls new-to-industry locations, have continued to outperform legacy stores due to strong foodservice.

The San Antonio-based retailer stepped it up another notch on Nov. 19, when it unveiled a dramatic new look and feel at a San Antonio-area location. The new store model reflects the company’s new service promise: “Simply Fresh. Always Friendly.”

Going forward, the chain’s largest stores will be known as Corner Store Markets and offer an expand-

30 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

ed selection of fresh produce, quick meal fixings, and a made-to-order food menu with pizzas, sandwich melts, soups, salads and more. This will be in addition to Corner Store’s already popular, freshly-prepared kolaches, tacos and whoopie pies.

“Looking to the future of our industry, it’s crucial that Corner Store continues to establish a clear retail identity broader than our fuel offerings. Inside our stores, food and beverage sales are a vital and stable profit generator. With this exciting brand initiative, we are looking to not only expand those offerings, but to call more attention to the great food, beverages and service we already offer,” said Kim Lubel, chairman and CEO of CST Brands. “Ultimately, we believe this pivotal new direction will energize our existing customers, draw new ones to our stores, increase overall revenues and enhance shareholder value.”

Casey’s General Stores has also made foodservice expansion a top priority. Prepared food and fountain beverages continue to achieve double-digit increases year over year for the Midwest convenience store chain, with its most recent quarter no exception.

The Ankeny, Iowa-based company has found another solid source of additional revenue in its pizza delivery service. It continues to expand this program, setting a goal to bring the service to an additional 100 locations by the end of its 2016 fiscal year on April 30.

Just this month, Casey’s made ordering pizza and other foodservice items even more convenient with the launch of a mobile app. This move followed Casey’s recently completed implementation of online ordering across its more than 1,900 convenience stores in 14 states.

“Casey’s values our customers’ time and need for convenience,” said Robert J. Myers, the company’s chairman and CEO. “We consider innovations such as online ordering and a mobile app additional ways we can make our products and services more accessible to our customers.”

GOOD TIMES AHEAD

According to multiple reports, gas prices are expected to remain low at least for the next couple of years, meaning convenience store retailers can keep pumping out record or near-record profits.

Even when the fuel price environment is less favorable, though, c-store retailers will still have some things to fall back on — namely, high-margin foodservice items.

Since economic conditions do not often derail the convenience store industry either, the future for c-stores looks excellent and the golden age of convenience retailing should continue.

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cover story

Keeping the Good Times Rolling Our exclusive 2016 industry Forecast Study predicts continued strength in the year ahead A Convenience Store News Staff Report

O

ne sweeping look at the 2016 Convenience Store News Industry Forecast Study certainly supports the stance that now is one of the best times in history to be a convenience store retailer.

For starters, not one of the in-store categories included in our 14th annual Forecast Study is predicted to see a drop in per-store dollar sales or unit volume this year (see chart below). On the dollar side, packaged beverages leads the pack with a 6.5-percent dollar sales increase forecasted. On the units side, other tobacco products is tops with a 5.7-percent unit volume increase projected.

As in past years, the exclusive CSNews Industry Forecast Study provides dollar and unit volume projections in key c-store product categories based on data from various sources, including Nielsen for category sales history; TDLinx for store counts; and government sources for motor fuel volume and pricing data.

The data is then run through a sophisticated projection model and presented here in summary form. CSNews’ consulting economist Maureen Maguire, founder and CEO of New York-based ThinkResearch, oversees the

FORECAST 2016 SNAPSHOT PER STORE DOllaR SalES UniT VOlUmE

Packaged Beverages Salty Snacks Edible Grocery Other Tobacco Products Candy Beer/Malt Beverages Cigarettes

6.5% 6.0% 4.6% 3.9% 3.6% 3.1% n/a

*Percent change forecasted for 2016 vs. 2015 Source: Convenience Store News Industry Forecast Study, 2016

32 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

5.0% 3.2% 5.4% 5.7% 2.0% 2.1% 0.3%

Forecast Study process.

Along with the individual forecasts for the product categories of most importance to c-store retailers — edible grocery is a brand-new addition to our report this year! — the CSNews Forecast Study once again provides an overall U.S. economic outlook. According to Maguire’s insights, her consensus for 2016 is that “the economy in general is doing quite well.” The economic picture continues to improve despite rising interest rates and terror threats.

We’ve also brought back our second-annual Retailer Forecast Study. The survey, fielded in November, asked convenience store retailers to predict results for their average store sales this year in major categories and to provide reasoning for their answers. They were also asked to rate issues that are expected to have a major impact on the industry, and share initiatives they intend to implement during the year to increase sales and profitability.

This year’s results reveal that 82 percent of c-store operators (chains and single stores combined) expect their average sales per store to increase in 2016 vs. 2015. When asked by how much, the net growth prediction is 5 percent (for in-store and motor fuel combined).

Of course, retailers are only one half of the convenience retail equation; wholesalers and suppliers represent the other half. And so, to deliver more forward-looking insights to help c-store players mobilize for the new year, CSNews for the first time conducted a survey among convenience industry suppliers and wholesalers to get their forecast for 2016.

Read on to discover much more about what the year ahead has in store for your business.

NEW LOOK. SAME SMOKE.

whiteowlcigar.com

FOR MORE INFORMATION, CONTACT YOUR SWEDISH MATCH REPRESENTATIVE. 800-367-3677 or customer.service@smna.com ©2015 SWEDISH MATCH NORTH AMERICA, INC.

retailer forecast

Positive Predictions

Retailer forecast for 2016 total store sales Net change: 5.0%

5.1%

12.8%

C-store retailers are more bullish than last year on how high their sales will rise

T

he second-annual Convenience Store News Retailer Forecast Study shows that 82 percent of c-store operators expect their average sales per store to increase this year vs. 2015. In last year’s study, 86 percent of c-store operators anticipated increased sales in 2015 vs. 2014.

Interestingly, although a smaller percentage of c-store retailers are forecasting higher sales for the new year, the growth prediction among those who are is more bullish — they believe 2016 sales will increase by 5 percent (in-store and motor fuel combined) for the average convenience store. Retailers participating in last year’s study had predicted a 3.7-percent rise.

To increase sales and profitability, many c-store operators are planning to focus on foodservice, increase marketing, and create and/or leverage existing loyalty programs. Also high on the list of planned initiatives for 2016 is remodeling stores and building new ground-up stores featuring a larger footprint. Roughly one in six operators expects to increase store count.

“The marketplace is changing and we have to change with it,” one retailer commented.

When asked about the issues that could have the biggest impact on their sales and profitability in the new year, motor fuel prices once again ranked No. 1, although it was cited by a lower percentage of operators this year (60.5 percent vs. 72.5 percent last year).

Health care costs/regulations jumped up one spot to rank second this year, followed closely by labor issues, which also moved up one spot. When it comes to government regulation, c-store operators have a lot to say.

Comments by Forecast Study respondents included: • “Can’t control what the king does with his pen.”

• “Compliance with government regulations is a huge cost to our business.”

• “Higher wage costs for the first time in over 10 years is outpacing sales.”

Also in the regulation realm, c-store retailers are worried about tobacco regulation, particularly the

34 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

Stay the same

Decrease

Increase

82.1% Motor fuel and in-store combined Source: Convenience Store News Retailer Forecast Study, 2016

What will have the biggest impact on sales and profitability for your convenience store(s) in 2016?

Motor fuel prices Health care costs/regulations Labor issues Tobacco and e-cigarette regulations Competition Healthy eating trends Mobile commerce/marketing Demographic changes Emerging technologies

60.5% 44.2% 41.9% 37.2% 34.9% 25.6% 20.9% 14.0% 7.0%

Multiple responses accepted Source: Convenience Store News Retailer Forecast Study, 2016

Retailer forecast for 2016 store count change We plan to increase our total store count

We plan to decrease our total store count

35.1%

Our store count will remain the same

59.5%

5.4% Source: Convenience Store News Retailer Forecast Study, 2016

new Food and Drug Administration rules pending for electronic cigarettes and vapor products. Respondents expressed concern that new rules will diminish sales.

Several other top-of-mind matters were mentioned by operators for a second consecutive year, including competition, healthy eating trends and demographic changes.

For the first time, mobile commerce/marketing made the list, further proving the power of smartphones.

business forecast

It’s Getting Better The U.S. economy continues to improve despite rising interest rates and terror threats

C

onvenience store retailers’ view of the overall U.S. economy appears to support our forecast that 2016 will be a “good” year for American businesses.

“The economy in general is doing quite well,” said Maureen Maguire, founder and CEO of ThinkResearch and chief analyst for Convenience Store News’ annual Industry Forecast Study.

However, Maguire pointed out that many of the positive economic signals also have downsides. For example, the reduction in the nation’s unemployment rate is offset by the large number of people who have left the labor market or are under-employed. This has provided the Federal Reserve with an impetus to increase interest rates.

Stock market reaction to the interest rate hike last month was muted due to the Fed’s transparent communication policies, Maguire noted. “At this point, most market participants expect the Fed to continue to raise rates over the course of at least the next 12 months by 50 to 100 basis points,” she said. “Of course, that depends on the labor market and the goal for inflation to come in close to the Fed’s annual target of 2 percent. As long as the economy marches toward those two goals, we should expect rate increases.”

Forty-one percent of convenience store retailers polled in CSNews’ exclusive Retailer Forecast Study

said their companies view U.S. economic conditions overall as “slightly positive” for 2016. About 18 percent are “very positive” about the 2016 economic outlook. Almost 30 percent said they feel “neutral” about this new year. However, about 13 percent are “slightly” or “very negative” about business prospects in 2016.

Interestingly, c-store chain respondents are less enthusiastic about the 2016 economic outlook than the industry’s single-store operators, 77.8 percent of whom feel “very” or “slightly positive” about this year vs. 51.7 percent of chain retailers.

A real advantage going into this year is that inflation remains low. Maguire pointed out the U.S. Bureau of Labor Statistics reported last month that the Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in November on a seasonallyadjusted basis. Over the last 12 months, the all items index increased 0.5 percent before seasonal adjustment, with the food index climbing 1.3 percent but the energy index declining 14.7 percent.

“Going forward, we should expect the inflation rate to tick up slightly toward the Fed’s annual target rate of 2 percent,” said Maguire. “This is not necessarily a bad thing. It will encourage consumers to purchase goods and services rather than wait for them to be cheaper in the near term.”

Maguire ticked off several factors that could dim

Retailer Forecast: Motor Fuels Volume will increase

Volume will decrease Net change: 3.5%

38.2%

Industry Forecast: Motor Fuels

Volume will stay the same

52.9%

8.9%

Average retail price per gallon1 Gasoline (all grades) Diesel National billions of gallons C-store billions of gallons National sales of gasoline ($ billions) C-store sales of gasoline ($ billions)

2014 AcTUAl

2015 ESTimATEd

2016 ForEcAST

$3.56 $3.44 $3.93 182.9 148.3 $650.5 $527.5

$2.57* $2.50* $2.72* 186.7* 151.4 $479.8 $389.1

$2.55* $2.46* $2.76* 187.3* 151.9 $477.6 $387.3

1

Weighted average price of all grades and diesel fuel *Prediction from EIA/Department of Energy, Short-Term Outlook, October 2015 Source: EIA/Department of Energy; Convenience Store News Industry Forecast Study, 2016

Source: Convenience Store News Retailer Forecast Study, 2016

WWW.CSNEWS.COM | JANUARY 2016 | Convenience Store News 35

business forecast

the 2016 forecast, including the continued slowing of China’s economy; increased terrorist attacks, particularly in the United States; a drastic slowdown in Europe; and a return to higher oil prices.

Industry Forecast: Cigarettes (% change) 2014

Unit volume per store Industry unit volume

-3.1% -1.9%

2015

2016

0.7% 1.5%

0.3% 1.2%

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

MOTOR FUELS

Falling gas prices are the story when it comes to motor fuels, and this trend is highly likely to continue. Based on CSNews’ Forecast Study estimates for 2015, the average retail price per gallon dropped nearly $1 to $2.57. The low-price environment is expected to last for the entirety of 2016, when the average price per gallon is forecasted to decline an additional 2 cents to $2.55.

Diesel saw an even bigger drop when comparing 2015 estimated figures to actual results posted in 2014. The average price per retail diesel gallon dropped an estimated $1.21 per gallon in 2015. Diesel prices are forecast to increase slightly by 4 cents per gallon to $2.76 this year, however.

As expected with a lower fuel price environment, c-stores continue to sell more gallons of fuel, but the lower price per gallon is causing dollar sales in this category to drop significantly when comparing 2015 estimated data to 2014 actual figures.

Despite fuel dollar sales declining, margins are up and the lower prices are a great boon to operators in other metrics such as in-store sales, as seen in other areas of the CSNews Forecast Study.

On a whole, c-store operators are optimistic about their motor fuel sales in 2016. Fifty-three percent of retailers polled expect their fuel gallon sales to increase this year on a per-store basis, with only 9 percent expecting gallon sales to decrease. This represents a 3.5-percentage-point increase vs. 2015 on a per-store basis.

The low unemployment rate, strong fuel-based loyalty programs, more travel due to lower gas prices and a milder winter throughout much of the country were cited by retailers as the top reasons why fuel gallon sales should remain robust.

Of note, though, c-store chains are more optimistic regarding fuel sales than their single-store counterparts.

Nearly two-thirds of chain retailers expect gallon sales to increase in 2016 on a per-store basis, vs. just 4 percent of chains who expect fuel gallon sales to decrease.

Conversely, only 27 percent of single-store operators expect fuel gallon sales to increase this year. A majority (54.5 percent) expect gallon sales to stay the same as in 2015, while 18 percent expect gallon sales to decline year over year.

Retailer Forecast: Cigarettes Sales will increase

Sales will decrease

Sales will stay the same

Net change: 3.4%

13.9% 44.4%

41.7%

Source: Convenience Store News Retailer Forecast Study, 2016

Industry Forecast: Other Tobacco Products (% change) Unit Volume per Store

Dollar Sales per Store

Industry Dollar Sales

6.9% 5.7% 3.9%

4.8%

6.5% 4.6%

2016

5.4%

2015

4.6%

5.3%

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Retailer Forecast: Other Tobacco Products Sales will increase

Sales will decrease

Sales will stay the same

Net change: 5.3%

13.5% 16.2%

70.3%

Source: Convenience Store News Retailer Forecast Study, 2016

36 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

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business forecast

FOODSERVICE

Convenience store operators continue to view foodservice as a growth category that represents a major point of opportunity in the coming year. A total of 82.4 percent of retailers polled believe their foodservice sales, which include prepared food and hot, cold and frozen dispensed beverages, will increase in 2016. This marks a slight uptick from the 81.3 percent who predicted the same one year ago, showing an increased level of optimism.

Even c-store operators that do not expect to see foodservice growth have an overall positive sentiment, as 17.6 percent of respondents expect sales to stay the same. Zero respondents said they expect their foodservice sales to decrease. “[Foodservice] will only grow for those who do it right,” one retailer commented.

Although larger c-store chains have more resources to commit to a foodservice program, retailers of all sizes view the category positively. In fact, more single-store owners expect to see increased foodservice sales than chain stores, at 87.5 percent vs. 80.8 percent respectively.

This positive view of foodservice stems from improving consumer perceptions coupled with execution, according to survey respondents. Customers increasingly view c-stores as a valid meal destination, increasing the demand for quality prepared food and beverages, which in turn validates their perspective.

Foodservice has a “big upside if performed correctly,” said another retailer.

Some c-stores are approaching the category cautiously, testing items and adding foodservice only to certain stores rather than a full-scale rollout. Others anticipate a high rate of growth and in fact have created new management positions to spearhead the category.

Retailers point to ethnic food as a potential big trend in 2016.

TOBACCO

Any tobacco retailer knows the category has been faced with some challenges over the past few years, especially with cigarette volumes steadily decreasing and alternative products fighting for space. But 2015 told a different story and 2016 is expected to be a continuation of that tale.

After many cycles of decline, cigarettes rebounded slightly in the past year with unit volume growth per store estimated at 0.7 percent and total industry unit volume growth estimated at 1.5 percent for 2015.

That’s quite a jump from 2014 declines of 3.1 percent and 1.9 percent respectively.

38 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

Industry Forecast: Electronic Cigarettes (% change) Unit Volume per Store

Dollar Sales per Store

Industry Dollar Sales

44.3%

27.9%

8.1% 9.1%

9.9% 10.8%

2016

2015

9.1%

5.8% 7.1% 2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Industry Forecast: Beer/Malt Beverages (% change) Unit Volume per Store

2.1%

3.1%

4.1%

Dollar Sales per Store

3.5%

2016

4.2%

Industry Dollar Sales

5.1%

5.0% 3.1%

2015

3.7%

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Retailer Forecast: Beer/Malt Beverages Sales will increase

Sales will decrease

Sales will stay the same

Net change: 3.4%

30.3% 6.1%

63.6%

Source: Convenience Store News Retailer Forecast Study, 2016

The upswing is expected to continue this year, albeit at a slightly lower rate, according to CSNews’ research. Specifically, the 2016 forecast places unit volume growth per store at 0.3 percent and total industry

business forecast

unit volume growth at 1.2 percent.

And no surprise here: Cigarette costs are expected to rise again. Manufacturer list prices are forecast to jump from $36.14 per carton in 2014 to $38.14 this year. Taxes are also increasing. Federal, state and local taxes combined per carton are forecast to rise from $20.92 in 2014 to 21.32 in 2016. New York still has the highest state levy at $4.35 per pack, a number that has held steady over the past few years and almost $3 more than the average state tax.

From the retailer point-of-view, c-store operators are pretty evenly split on what they think will happen with cigarettes in 2016. Only 13.9 percent believe sales will stay the same.

Meanwhile, other tobacco products (OTP) continues to be a shining star behind the register. When the final numbers come in, 2015 is expected to have been a banner year for OTP. Estimates put unit volume per store at a 6.9-percent increase, with dollar sales per store ticking up 4.6 percent and total industry dollar sales increasing 5.4 percent.

Industry Forecast: Micro Beer (% change) Unit Volume per Store

Dollar Sales per Store

Industry Dollar Sales

23.4%

19.0% 19.0% 20.1%

25.2% 26.7%

14.0% 13.3% 14.3%

2016

2015

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Retailer Forecast: Packaged Beverages Sales will increase

Sales will decrease

Sales will stay the same

Net change: 4.0%

27.0% 5.4%

67.6%

Source: Convenience Store News Retailer Forecast Study, 2016

40 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

These coming 12 months call for a similar forecast: a 5.7-percent increase in unit volume per store, 3.9-percent increase in dollar sales per store and 4.8-percent increase in total industry dollar sales.

The one OTP segment that seems to be struggling a bit lately, though, is cigars. Unit volume per store saw

Key Economic Factors for 2016 Labor — Long-term unemployment reached historically high levels following the Great Recession of 2007–2009.

Both the number and share of the unemployed who are longterm unemployed typically continue to increase after a recession ends, before falling during a labor market recovery, explained Maureen Maguire, chief analyst for Convenience Store News’ annual Industry Forecast Study. Following this cyclical pattern, long-term unemployment has fallen in recent years, although it remains high by historical standards. Five years after the Great Recession ended, the number of longterm unemployed still makes up a larger share of unemployment than during any previous recession.

The unemployment rate has dropped to 5 percent, which is five percentage points lower than the cyclical peak reached in October 2009. The last time it registered 5 percent was in April 2008.

“We should see a continuation of moderate strength in the number of jobs created and the unemployment rate ticking down slightly to 4.8 percent by the end of 2016,” predicted Maguire.

GDP — The growth in Gross Domestic Product (GDP) has been very moderate during most of the current recovery and is likely to be constrained going forward by lower exports due to the rising value of the dollar, coupled with slower growth abroad. Economists are looking for GDP growth to come in around 2.6-2.8 percent for 2016.

Income — At the end of 2015, real disposable personal income had grown by approximately 3.5 percent. Economists expect slightly slower growth in 2016 with inflation increasing. However, household net worth is likely to rise slightly given the increasing tightening of the labor market.

Housing — While the housing markets continue to strengthen, many of the statistics are still well below overinflated peaks of the past. Starts are expected to rise by approximately 1.1 million this year and increase by about 100,000 units annually. Although demographics are placing an increased demand for housing, still-tight lending standards are forcing consumers to have exceedingly good credit and income to participate in the market.

business forecast

a 6.6-percent increase in 2014, yet the segment was only estimated to post a 5-percent increase in 2015.

2016 forecasted growth is even lower at 2.6 percent.

Still, c-store retailers remain bullish on OTP. Roughly 70 percent of the retailers CSNews polled expect their OTP sales to increase in 2016, with only 16.2 percent predicting a decrease.

Retailers do agree on one thing: OTP performance in 2016 hinges on regulation, specifically the Food and Drug Administration’s final deeming rule, which will impact electronic cigarettes and cigars as well as other segments of the tobacco category.

Industry Forecast: Packaged Beverages (% change)

(includes carbonated soft drinks, bottled water, sports drinks, energy and other beverages)

Unit Volume per Store

6.5%

CANDY

Expectation that the candy category will grow this year is down sharply from one year ago. Only 46.2

42 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

7.5% 6.3%

7.9% 6.6% 4.6%

4.0%

2016

Industry Dollar Sales

7.2%

5.0%

COLD VAULT

When it comes to their cold vault prospects in 2016, c-store operators hold a largely optimistic view, with nearly one in seven (67.6 percent) believing their packaged beverage sales — including carbonated soft drinks, bottled water, sports and energy drinks — will rise, as opposed to 5.4 percent who expect sales to drop. The net change forecasted by retailers is 4 percent.

Chain retailers have a slightly more favorable outlook on the category, with 70.4 percent expecting to see a sales increase this year, compared to 60 percent of single-store owners.

Retailers note that much of packaged beverages’ success this year will stem from the bottled water segment, for which a 7-percent increase in dollar sales per store is forecasted.

For packaged beverages overall, the per-store prediction for dollar sales is 6.5-percent growth, a little higher than what retailers are anticipating.

C-store operators are pretty equally optimistic about the beer/malt beverages category, as 63.6 percent of those polled expect their sales to increase this year. The net change forecasted by retailers is 3.4 percent. That’s pretty close to what CSNews’ research is forecasting: a 3.1-percent increase in dollar sales per store for 2016.

Delving deeper into the various segments of beer, one retailer commented: “Imports and craft dominate growth. … Premium beer is flat (which is an improvement!).”

As consumers seek more diverse flavor profiles and new beverage innovation, micro beer (a.k.a. craft beer) is generating a lot of growth and excitement, albeit off a still-small base.

Dollar Sales per Store

2015

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Industry Forecast: Candy (% change) Unit Volume per Store

Dollar Sales per Store

Industry Dollar Sales

6.4% 5.2%

4.5% 3.6%

3.3%

4.1%

2.0%

3.9% 1.4%

2016

2015

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Retailer Forecast: Candy Sales will increase

Sales will decrease

Sales will stay the same

Net change: 2.2%

41.0% 12.8%

46.2%

Source: Convenience Store News Retailer Forecast Study, 2016

percent of c-store retailers believe their candy sales will grow in 2016, down from the 60 percent who said the same last year. However, the number of retailers that expect their sales to stay the same jumped from 19.6 percent last year to 41 percent this year.

business forecast

Only 12.8 percent of retailers expect candy sales to decrease within the next 12 months.

Chain retailers hold a more favorable view of the category, as 46.2 percent of chain respondents anticipate a sales increase compared to only 33.3 percent of single-store owners. “[There is] innovation, but nothing to really move the needle,” one c-store operator remarked. “[The] value equation vs. other snacks is getting out of whack.”

Retailers predict the net sales change will be 2.2 percent. According to the CSNews forecast numbers, per-store unit volume growth will slow to 2 percent for total candy, gum and mints in 2016, down from the estimated 6.4-percent growth for 2015. However, dollar sales growth per store is forecasted to see a slight increase of 3.6 percent.

Chocolate is expected to have another year of declining unit volume at -2.9 percent. The good news is this decline will still represent an improvement from 2015’s estimated -6.2 percent. Dollar sales are expected to remain flat year over year.

In contrast, while growth of non-chocolate is slowing, unit volume per store is forecasted to increase 7.1 percent while dollar sales per store are forecast to increase 9.2 percent.

Meanwhile, the mints segment is forecasted to increase unit volume per store by less than 1 percent and dollar sales by 2.2 percent, both up from 2015 estimates. Unfortunately, gum is likely to see

Industry Forecast: Salty Snacks (% change) Unit Volume per Store

Dollar Sales per Store

Industry Dollar Sales

9.3% 8.0% 6.0%

6.9%

3.2%

2.8%

2016

3.6%

4.4%

2015

4.7%

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Retailer Forecast: Salty Snacks Sales will increase

Sales will decrease

Sales will stay the same

Net change: 3.1%

25.6% 10.3%

64.1%

Source: Convenience Store News Retailer Forecast Study, 2016

Political Power Looking ahead to the November 2016 presidential election, c-store retailers recently polled in Convenience Store News’ exclusive Retailer Forecast Study expect a contest between Florida Senator Marco Rubio and former Secretary of State Hillary Clinton.

Retailers give the nod on the Republican side to Rubio (29.4 percent), slightly ahead of Ben Carson (23.5 percent) and Donald Trump (17.6 percent). On the Democrat side, Clinton leads by a wide margin with 82.9 percent of respondents, compared with only 14.3 percent for Sen. Bernie Sanders. Of course, the election is still almost a year away.

44 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

another rocky year of largely flat volume and dollar sales.

According to retailer feedback, the introduction of new products is expected to have an impact on the candy category in 2016, as will an increase in health awareness as consumers keep a closer eye on what they put into their bodies.

SNACKS

Consumers’ tendency to replace regular, full meals with on-the-go snacking is nothing but good news for the convenience retail channel. After slower sales growth in 2015, the salty snacks category, which includes potato chips, tortilla chips, pretzels, ready-toeat popcorn, nuts and seeds, is expected to rebound and show stronger growth in 2016.

Total industry dollar sales grew an estimated 4.4 percent in 2015, according to the CSNews Forecast

business forecast

Study. This was a drop from the actual 9.3-percent growth the category saw in 2014, but total dollar sales are forecasted to rebound in 2016 and reach nearly 7-percent growth.

On a per-store basis, unit volume is forecasted to grow 3.2 percent in 2016, marking a slight increase over 2015’s estimated 2.8-percent increase. Higher prices have boosted dollar sales, which are forecasted to show nearly twice the growth at 6 percent per store, up from an estimated 3.6 percent in 2015.

Retailers expect the continued popularity of snacking to contribute to the growth of salty snack sales this year, with 64.1 percent of retailers saying they believe their sales in this category will increase and 25.6 percent expecting sales to stay the same. Chain retailers are even more bullish, with nearly three-quarters believing their sales will increase.

The new year will also bring “increased variety and less dependence on large suppliers with low margins,” one retailer predicted.

Other retailers expect awareness of and innovation in healthy items to have a big impact.

Industry Forecast: Edible Grocery (% change) Unit Volume per Store

5.4%

5.5% 4.6%

46 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

5.0%

4.0%

Industry Dollar Sales

4.8%

1.0% 0.4% 2016

2015

1.6%

2014

Source: Convenience Store News Industry Forecast Study, 2016 2014 figures are actual; 2015 are estimated based on nine months; 2016 are forecast.

Retailer Forecast: Edible Grocery Sales will increase

Sales will decrease

Sales will stay the same

Net change: 1.7%

47.4%

EDIBLE GROCERY

More convenience store retailers are putting an emphasis on fresh and healthy eating and with that comes a focus on expanding edible grocery offerings.

The trajectory over the past few years is noticeable. In 2014, retailers grew the category at a mere 1.6 percent in overall dollar sales and notched only a 0.4-percent uptick in dollar sales per store.

What a difference 12 months made. The numbers for 2015 put the estimated growth at 4.8 percent in total industry dollar sales and 4 percent in dollar sales per store. Unit volume is also estimated to have increased 5 percent last year.

2016 looks to bring more of the same. According to the CSNews results, edible grocery unit volume per store is forecasted to increase 5.4 percent, with dollar sales per store up 4.6 percent and total industry dollar sales growing by a healthy 5.5 percent.

The almost mirror images of 2015 and 2016 follow in line with c-store retailers’ expectations. Nearly half of all retailer respondents to CSNews’ study anticipate their sales in the category to remain the same this year, while only 15.8 percent expect sales to dip.

Within those numbers, approximately one-third of chain operators are penciling in an increase in 2016 sales, and single-store operators are even a little more optimistic.

Dollar Sales per Store

36.8% 15.8%

Source: Convenience Store News Retailer Forecast Study, 2016

Retailer Forecast: Foodservice Sales will increase

Sales will decrease

Sales will stay the same

Net change: 9.1%

17.6% 82.4% Source: Convenience Store News Retailer Forecast Study, 2016

As for which trends retailers see having an effect on the category, many cite an increase in healthy product awareness as a positive trend. On the negative side, some do note that the smaller size of their stores do not allow for much in grocery offerings.

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supplier forecast

A Full Stock of Optimism suppliers and wholesalers give convenience high marks among its competing channels

O

n a broad scale, 2015 was an interesting year for the United States and with the presidential election in full swing now, 2016 promises to be every bit as exciting. The same can be said about the convenience store industry.

Based on the results of an outlook survey conducted in early November by the National Association for Business Economics, the average forecast for growth in 2016 is 2.6 percent, down slightly from 2.7 percent in its previous survey conducted in September.

How does your company view the overall conditions for the U.S. economy in 2016?

Very positive

Positive

Slightly positive

Neutral

Slightly negative

Very negative

3.1% 9.7% 6.5%

41.7%

10.4%

28.6%

Source: Convenience Store News Supplier Forecast Study, 2016

Rate conditions in each of the following retail channels your company works with: Convenience Drug Mass merchandise Grocery

Positive

Neutral

Negative

86.7% 65.4% 57.1% 50.0%

13.3% 23.1% 32.1% 30.8%

0.0% 11.5% 10.8% 19.2%

Source: Convenience Store News Supplier Forecast Study, 2016

48 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

Top Concerns

The CSNews Supplier Forecast Study asked c-store suppliers and wholesalers to list the top concerns for their business in 2016. While some mentioned fad brands and private-label brands, the issues weighing most widely on their minds for this year are: government regulation Political events Consumer confidence gas prices rising costs

The panel of 49 business economists expect the jobs market to continue strengthening this year, with the unemployment rate dropping to 4.7 percent by the end of 2016, down from 5 percent in midDecember. The experts lowered their earlier forecasts on a variety of measures of economic health, including housing starts and industrial production.

Looking further down the road, two-thirds of the business economists surveyed expect potential economic growth of between 2 percent and 2.5 percent over the next five years.

When it comes to the business of convenience and fuel retailing, at least one side of the equation is going into 2016 with an upbeat attitude. As part of this year’s Industry Forecast Study, Convenience Store News conducted its firstever Supplier Forecast

supplier forecast

For your particular product category, how do you view the upcoming year?

Very positive

Positive

Slightly positive

Neutral

Slightly negative

Very negative

6.5% 12.9% 16.4%

What do you believe will be the biggest factor in your company’s success in 2016?

New product development Consumer spending growth Retailer unit expansion

3.2% 6.5%

35.5%

Raw material costs Retailer consolidation Increasing regulation

35.4%

9.7% 28.7%

19.4%

Source: Convenience Store News Supplier Forecast Study, 2016

25.8%

Source: Convenience Store News Supplier Forecast Study, 2016

Study to complement the Retailer or wholesaler communities said they are Forecast Study started last year. The very negative on their product catmajority of c-store suppliers and egory, and only 6.5 percent said wholesalers that participated they’re slightly negative. have a favorable outlook Stacking up the convewhen it comes to the 2016 nience channel against the C-store suppliers and wholesalers are looking economic picture. other retail channels they to put the “new” in new year. Here are their Notably, 41.7 percent serve, c-store suppliers top five responses when asked to list their top hold a “very positive” view and wholesalers gave conreasons for optimism in 2016: of the overall conditions venience high marks for Innovation and new products of the U.S. economy, 28.6 performance. A whopping New or remodeled store locations percent hold a “positive” 86.7 percent of respondents Strong business pipeline view and 10.4 percent hold placed convenience in the Growth across small-format channels a “slightly positive” view. On positive column when asked Category uptick the other hand, only a comto rate conditions in the retail bined 12.8 percent view the U.S. channels where they work. This economy of 2016 negatively. rating placed convenience squarely When asked about their particular in front of all competing channels, product categories, the supply side of with drug coming in second at a the convenience retailing chain does 65.4-percent positive rating. hedge its bets a little. While still overThe inaugural CSNews Supplier whelmingly positive, those indicating Forecast Study also asked particithey are very positive about their parpants to weigh in on what the key facticular product category dipped to 35.5 tors for their business’ success in 2016 percent, followed by 28.7 percent who will be. New product development, are positive and 16.4 percent who are an uptick in consumer spending, and slightly positive. growth in store count were the top No respondents from either the supplier three factors cited. CSN

Bright spots

50 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

A Sizzling Six Kwik Trip leads the year’s pack of Foodservice Innovators Awards winners

By Don Longo

F

or the fourth consecutive year, Convenience Store News is honoring best-in-class retailers who are leading the way in the convenience foodservice category.

Presented in partnership with Tyson Convenience, the Convenience Store News Foodservice Innovators Awards recognize convenience retail chains who are raising the bar on quality, service and innovation in this fast-growing and critically important product category for c-stores.

The year’s winners, chosen by CSNews’ How To Crew panel of foodservice experts from the retailer, supplier, research and consulting fields, are: Foodservice innovator oF the Year KwiK Trip inc., La crosse, wis.

Kwik Trip’s strength in all aspects of the foodservice category was proven by how it was ranked by the year’s judges among the top retailers in almost every award category, from Best Prepared Foods Innovator, to Best Cold & Frozen Beverages Innovator, to Best Foodservice Promotion.

The chain with 14,000-plus coworkers serving guests in more than 475 Kwik Trip, Kwik Star, Tobacco

Outlet Plus stores and Hearty Platter restaurants in Wisconsin, Minnesota and Iowa celebrated its 50th anniversary in 2015. In the past half-century, Kwik Trip has become one of the c-store industry’s leaders in foodservice — noted for owning and operating its own food commissary, dairy, bakery and other food manufacturing facilities, as well as its own trucking fleet. The retailer also has a stellar reputation for its extreme focus on food safety and its aggressive limitedtime offers.

This vertically-integrated retailer is lauded for its Cafe Karuba coffee bar, fresh display case of endcaps or islands (depending on store size), European-style bakery cases for its Kwikery Bake Shoppe proprietary baked goods, robust fountain area, grocery and snacking aisles, a produce department (selling millions of pounds of bananas a year), and even a fresh meat case.

Kwik Trip also offers a wide range of grab-and-go foods for breakfast, lunch, dinner and snacks, most of which are produced and delivered from its own bakery and Kwik Trip Kitchen commissary. Breakfast offerings include bacon croissants, Western English muffins and sausage-and-egg sticks. The bakery supplies Kwik Trip’s signature Glazer doughnuts (think Krispy Kreme),

Kwik Trip’s robust foodservice program includes Kwikery Bake Shoppe proprietary, fresh-baked goods and a Cafe Karuba hot beverage bar.

54 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

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FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

muffins, cookies, Danish, bagels, bars and breads. For lunch and dinner, Kwik Trip sells a variety of takeaway items from its cold case, including packaged salads (in compartmentalized packages that keep the fresh salad separate from all toppings and other ingredients), sandwiches, cheese snacks and wraps. Kwik Trip also makes its own pizzas in its Kwik Trip Kitchen.

Kwik Trip’s hot dispensed beverages include a wide range of coffees, cappuccinos, lattes, steamers and hot cocoa, and the stores feature a huge selection of cold fountain The rollout of QT Kitchens by Tulsa, Okla.-based QuikTrip was a key contributor to drinks as well. its selection as the year’s Best Prepared Foods Innovator.

Kwik Trip has also been a leader in bringing healthier foods to the c-store consumer.

It was one of the first c-store retailers to introduce a perception of fresh foodservice in the c-store industry. low-calorie, healthy menu and last year was the first QuikTrip was the Best Cold & Frozen Beverages c-store chain to join the Partnership for a Healthier Innovator in 2012, the Best Hot Beverages Innovator America (PHA), implementing a new EATSmart proin 2013, and was the silver-medal winner in both the gram and other policies to promote Cold & Frozen Beverages and Best healthy eating habits. Since then, New Program categories last year. other c-store retailers have followed At the beginning of 2015, the Kwik Trip’s example and joined PHA. chain rolled out its highly-praised, CSNews’ How To Crew judges lauded fresh, made-to-order food and beverKwik Trip’s effort to develop healthage concept — QT Kitchens — to ier-for-you foods, citing its use of whole-grain breads more than 90 percent of its stores nationwide. for its sandwiches.

“The complete change from their previous foodserOn the promotion front, Kwik Trip celebrated its vice program to the more fresh-made with touchscreen 50th anniversary by giving back to customers in the ordering Kitchens program is difficult to achieve, espeform of drink discounts and a major giveaway. During cially for a chain their size,” commented How To Crew the summer, all stores offered soda and coffee for just member Jerry Weiner, a long-time industry foodservice 50 cents. In addition, customers entered the Kwik Trip guru who recently retired from Rutter’s Farm Stores.

50th Anniversary Sweepstakes by texting the word QuikTrip CEO Chet Cadieux, in a recent interview “FIFTY” to a number or by mailing a postcard to be with CSNews, acknowledged how proud he is of having eligible for approximately 160 prizes, representing a installed the QT Kitchens concept in almost every store. total value of more than $50,000.

“Of course, that necessitated us hiring a lot of people to Having been awarded the silver medal for Best run those kitchens, which created a 30-percent increase Prepared Foods Innovator in 2014, Kwik Trip clearly in employee count companywide,” he said. QuikTrip deserves its place as the 2015 Foodservice Innovator of has more than 18,600 employees. “And, of course, we the Year. had to train all those newbies as well as our existing employees on how to run those kitchens. To get all of Best PrePared Foods innovator that done in just one year was a real biggie for us.”

QT Kitchens was created in 2006 when the retailer QuiKTrip corp., TuLsa, oKLa. QuikTrip’s creation and launch of its QT Kitchens pro- realized it needed to do something to offset the decline of two of the industry’s biggest categories: gasoline gram positions the Tulsa-based retailer as one of the and cigarettes. “We always thought we were pretty best-in-class foodservice retailers in the convenience good at selling gasoline and convenience store items,” store industry. With more than 700 stores generatsaid Cadieux. “Over time, our goal is to be as good at ing more than $11 billion in revenue across 11 states, selling fresh food as we are at other items.”

QuikTrip is becoming a major factor in improving the

56 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

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As noted by How To Crew member Maurice Minno of the MPM Group, QT innovated its operational systems so that it could use made-to-order customer service as the basis for the new food and drink products. This new offer includes made-to-order breakfast pizza, pizza for lunch and dinner, toasted sandwiches, flatbread sandwiches, kolaches and freshbaked pretzels, among other items.

“QT, which has been known in the past for foodservice innovation, has clearly stepped up its game with its QT Kitchens concept that focuses on fresh, made-to-order, innovative products,” said Minno.

Coinciding with the chainwide rollout, QuikTrip has clearly taken its fresh food business to a new and higher level.

Best hot Beverages innovator sheeTz inc., aLToona, pa.

Sheetz, which operates more than 500 convenience stores throughout Pennsylvania, West Virginia, Virginia, Maryland, Ohio and North Carolina, is no newcomer to the CSNews Foodservice Innovators Awards, having won Best Prepared Foods Innovator in 2012 and taking the runner-up prize in that category in 2013.

Sheetz promises its customers: “Coffee so good, the Sheetz Bros. put their name on it. Coffeehouse coffee without the coffeehouse! From our unique brewed coffee blends to the specialty drinks available through the touchscreen. We know coffee!”

This past summer, Sheetz brought its coffee program up another notch with the launch of an upgraded “Kick in the Beanz” program at its stores chainwide. According to Ryan Sheetz, director of brand strategy, “this new premium coffee elevates the sensory experience for our customers.”

The new program includes four blends, 17 creamer and flavor options, and a full line of latte and mocha beverages — resulting in more than 1,000 different ways Sheetz customers can customize their coffee.

The four signature blends progress from light to dark roast — Breakfast, Classic, Sumatra and French Roast.

The beans, which are freshly ground in every store, are sourced from Central and South America for the Breakfast, Classic and French Roast blends, while the Sumatra bean is sourced from Indonesia. All four blends are served in a

58 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

Best Hot Beverages Innovator Sheetz upgraded its coffee program with the chainwide launch of the “Kick in the Beanz” program.

new, environmentally-friendly cup.

“The updated cups are fully recyclable, BPA-free and made out of No. 5 polypropylene — one of the safest materials used to package foods,” Ryan Sheetz said. “This implementation will divert approximately 2.3 million cups from landfills every year.”

Every Sheetz location has new state-of-the-art grinding and brewing equipment and trained baristas as well.

“Clearly, Sheetz leads as the hot beverages innovator today in the U.S. convenience retail channel,” remarked Minno.

Best cold & Frozen Beverages innovator raceTrac peTroLeum inc., aTLanTa

Although RaceTrac Petroleum introduced its first madeto-order concept, called The Speedy Avocado Southwest Grill, during the year, the more than 600-store Atlantabased c-store chain has a long history of providing innovation in cold beverages in a seemingly unlimited variety of flavors. The retailer’s cold and frozen beverage program includes its innovative Swirl World frozen yogurt concept, in addition to iced teas and a huge selection of fountain and frozen drinks.

RaceTrac is a repeat winner in this category, having won the 2013 Best Cold & Frozen Beverages Innovator award. For 2015, RaceTrac’s cold and frozen beverage program was lauded for: • Celebrating National Frozen Yogurt Day on Feb. 6 with a free frozen yogurt giveaway. RaceTrac’s Swirl World frozen yogurt bars feature 10 flavors, ranging from chocolate and vanilla to cheesecake and raspberry. More than 40 toppings, RaceTrac’s Sodapalooza promotion offers customers the chance to get free refills during the summer.

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

including fruits, candies and hot fudge, are available.

• A refresh of its frozen carbonated beverage offering with the unveiling of a new image for its Numb Skull brand based on feedback from its most loyal customers, called RaceTrac Insiders. “After five years with the same visual branding for Numb Skull, we thought the offering could use a refresh.

We surveyed our RaceTrac Insiders to ensure any changes would resonate with our most loyal guests, and they did not disappoint,” said Melanie Isbill, director of brand communication. More than 4,200 Insiders participated in a survey to select the new logo. The new Numb Skull brand debuted in April in more than 380 RaceTrac stores.

• Another successful summer Sodapalooza beverage promotion in which customers could purchase a Sodapalooza cup for $7.99 and get free fountain and frozen refills (unlimited “CUPacity”) through the end of July.

Best new Foodservice Program (introduced in past year)

Rutter’s latest creation, Basket Meals, cracks the code on the dinner daypart.

One judge also applauded Rutter’s for another new 2015 item, its Rutter’s Short Ribs. “A great item that you do not associate with c-stores. They found a way to use the short rib in multiple carriers and as a snack.”

When it comes to new product innovation, Rutter’s was tops in 2015.

Best Foodservice limited-time oFFer/Promotion

csT Brands inc. (nice n easy), canasToTa, n.y.

CST Brands’ Nice N Easy division is the year’s winner in the Best Foodservice Limited-Time Offer/Promotion category. Interestingly, CST’s former parent company ruTTer’s Farm sTores, yorK, pa.

Valero won this category in 2012 for its highly successful Rutter’s, the York-based chain of roughly 60 conveWhoopie Pie promo that became a permanent program. nience stores, has been a perennial winner in CSNews’ The central New York division of CST Brands, Foodservice Innovators Awards program. The retailer Nice N Easy, celebrated this past fall season with a was the very first Foodservice Innovator of the Year pumpkincredible program, a in 2012. In 2013, Rutter’s won Best limited-time-only promotion Prepared Foods Innovator, while that included pumpkin parfait, the chain was runner-up in the Best pumpkin coffee, pumpkin capPrepared Foods category in 2014. puccino and a pumpkin muffin.

According to Weiner, Rutter’s long(They even had a pumpkin beer, time foodservice director who retired in although that’s not part of the August, the c-store industry’s greatest foodservice offer.) challenge in foodservice is the dinner Since Nice N Easy’s food daypart. “I’ve always felt there was an program was one of the things awful lot of money on the table during that attracted San Antonio, the dinner daypart that c-stores should Texas-based CST to acquire the be getting. When consumers think about retailer, it’s not surprising that dinner, I want Rutter’s on their mind.” many of Nice N Easy’s innovaCSNews How To Crew experts tions from its Easy Street Eatery extolled Rutter’s latest creation, called foodservice concept are finding Basket Meals. Each Rutter’s Basket Meal Nice N Easy’s pumpkincredible program their way to CST’s store footincludes one of five entrees: fried shrimp, celebrated the fall season. print, which stretches from the chicken wings, beef short ribs, mahiSouthwest United States through mahi bites or chicken strips. In addition the Mid-Atlantic region and into Canada. CSN to the entrée, each basket comes with a large order of French fries, coleslaw, dinner roll and a dipping sauce.

For a lively video look at the winning Foodservice Innovators of 2015, According to many, this new foodservice item finally gets go to http://foodserviceinnovators.csnews.index c-stores successfully into the dinner game.

60 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

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HOW TO

Finding the Next Level for Your Foodservice Program

By Bob Phillips

F

oodservice — including fresh food, prepackaged food, cold dispensed beverages, frozen beverages and hot coffee — is a key element of today’s convenience retail environment. After all, “grab and go” has become a c-store mantra, perhaps the most important characFoodservice 101 teristic separating • Make sure to have distinctive point-ofconvenience from sale at the foodservice counter. all other channels • Be prepared to ramp up key dayparts. of trade. Marketed • Remember customers have high effectively, your expectations regarding speed of foodservice program service in a c-store. can draw customers • Solicit feedback from your customers in from the pumps on possible menu additions and/ and is a key tool in or changes. driving incremental sales. With healthy

Call tO aCtIOn:

62 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

margins and high volume, it is only logical that taking your foodservice program to the next level should be an important consideration when designing future plans.

Beverages play an integral role in the foundation of a foodservice venture. “Beverages bring consumers into the store,” said Convenience Store News How To Crew expert Tim Powell, vice president of consulting at Q1 Productions. “This is the distinct advantage most c-stores have over all other foodservice competitors.”

Dispensed and packaged beverages — particularly high-margin items such as sparkling water and fusion beverages — can attract new customers (primarily women and millennials) and foster loyalty to your brand. Beverages also provide incremental revenue when packaged as an add-on in combo meal deals.

“Most operators can price a meal deal so that beverage profits make up for lower food prices,” continued Powell. “As for what share of sales foodservice should generate, that really depends on the

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

strategic focus on each concept. Sheetz obviously is more geared toward it, while Thorntons and Speedway are still trying to master executing foodservice systemwide.”

You can include Murphy USA Inc. in that latter scenario, too. “Our business is different than most convenience stores,” explained How To Crew retailer Chad Prast, senior category manager of fresh foods and dispensed beverages for Murphy USA. “Since we have 1,320 stores, but only 235 have foodservice, the percentage of foodservice to overall sales is much less than a typical operator. But in our large-format stores that do have foodservice, the importance is growing each year.”

Fellow How To Crew panelist Mathew Mandeltort, vice president of foodservice strategy at Naperville, Ill.-based convenience distributor Eby-Brown Co., explained the importance of foodservice to a c-store’s bottom line this way: “With the continued decline of cigarette and fuel purchases as primary traffic and revenue drivers, having a replacement revenue/traffic driver such as foodservice is critical.”

According to CSNews’ 2015 Industry Report, foodservice accounts for 15 percent of in-store sales (excluding fuel). However, Mandeltort pointed out that “top-producing operations should expect to find themselves in the 30-35 percent range.”

“Foodservice is very important,” concurred How To Crew expert Dean Dirks, CEO of Gig Harbor, Wash.-based Dirks & Associates. “The channel has succeeded in overcoming the stigma of being thought of as ‘just gas stations’ and there is a lot of concern these days about the long-term profitability of fuel.

Strategically, foodservice is the most important revenue stream driving profit growth.”

Call tO aCtIOn: Foodservice 201

• Develop a signature by leveraging local sourcing. Local sources are indigenous to specific trade areas, making it difficult for competitors outside of that trade area to leverage the same suppliers.

• Assess your customers’ perception of speed of service, quality and consistency.

• Consider a variety of limited-time offers. Successful LTOs can be reintroduced the following year during the same timeframe, and if there is enough demand, they can become part of the permanent menu.

64 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

IMaGE MattERS

Perhaps the biggest challenge a c-store faces in promoting its foodservice operation to regular and prospective customers and reaching that next level is creating an in-store environment that mirrors a quick-service restaurant (QSR) — on a c-store budget, of course.

Toward that end, there is a wide array of cost-effective strategies available to convenience store retailers, according to our How To Crew panelists. Digital menu boards can be a solid, low-cost option to “upscale” a foodservice operation. “Dressing up the image of the food area can really make a difference with your customers,” explained Murphy USA’s Prast.

Quick-serve is a model that requires serious thought to replicate, advised How To Crew retailer Jack Cushman, director of foodservice for CST Brands Inc. “If you’re going this route, you need to consider things like interior design, staff development and menu engineering.”

For starters, the store must be clean, well-lit and organized. Given the multi-channel competition, foodservice should be front and center in a c-store’s business plan and in the store itself.

“When you walk into a QSR, you know exactly where you are standing and exactly what to expect,” said Mandeltort. Likewise, a c-store’s merchandising executions need to be visually compelling. “Make use of bold graphics and directional signage,” he added.

And if you focus on coffee, make sure your guests are aware of this as soon as they enter the store. In a perfect world, they should be made aware of this even before they enter.

Additionally, a c-store should make liberal use

FOODSERVICE Prepared Food + Hot, Cold, Frozen Dispensed Beverages

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of quality and freshness cues in signage, packaging and processes (e.g., taking product temperatures frequently, having coffee on timers, replacing product on roller grill that has expired, etc.).

“Signage on the foodservice operation gives a QSR look to the unit,” said Dirks. Signage includes everything from branded cups to table tents to signage on the fuel dispensers. “And don’t forget to focus on hiring great employees,” he said.

How might a c-store effectively differentiate its foodservice operation — including cold/frozen dispensed beverages and coffee bar — so that it is truly unique and difficult to copy?

“Price is probably the key, since beverages are inherently a commodity product,” said Powell.

One tool readily available to c-store retailers trying to develop a unique in-store environment is bundling a beverage with a private label or exclusive menu item available only at your store/chain (or at least in your immediate area).

Particularly in coffee, private label can become a musthave product (perhaps price driven or maybe the number of styles, flavors and creamers available), making your store a destination.

“Rutter’s [Farm Stores] has been successful with baristas,” cited Powell. “This is definitely a differentiator. And with only 61 stores, it’s hard for larger chains to emulate.”

COnSIStEnCY OR QUalItY?

Which is more important to a c-store’s foodservice success and its

66 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

ability to jump to the next level: consistency or quality? In many ways, the argument is quite similar to the old Miller Lite campaign, “Tastes Great/Less Filling.”

“Consistent crap or consistent food your customers crave?” joked Powell. “Food must have a solid flavor profile, taste, quality and presentation. After this is achieved at one store, it must be executed systemwide for every customer on every visit.”

A better way to phrase the question might be: quality food or atmosphere?

“The answer is food first, along with service and store appearance,” continued Powell.

“Those are the basic ingredients of

foodservice success.”

Regarding the Miller Lite reference, it should be obvious that consistency and quality are equally critical to the overall success of a c-store’s foodservice operation.

“Consistency is really important because c-stores tend to have customers who visit your store daily,” noted Powell. In order to build brand loyalty, customers must have confidence that your breakfast burritos will taste the same every day.

“Whatever your opinion of McDonald’s may be, they offer the same products day after day,” Powell

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pointed out. “Remember, they are your competitor.”

Eby-Brown’s Mandeltort emphasized that building and maintaining a successful foodservice program is not a game — although what’s at stake is indeed winning or losing. Bottom line: A c-store must consistently deliver quality food.

“Do you really want to position yourself as the chain that consistently puts out poor quality food?” he asked rhetorically. “You certainly don’t want to offer your customers ‘quality surprises.’”

And then there’s the importance of effective brandbuilding. “The value of branding foodservice is the clean look that builds customer loyalty,” explained Dirks. “C-stores are competing with McDonald’s, so you need a crisp, clean brand to compete.”

CST’s Cushman suggests that in order to create a unique brand, a c-store should go through a copywriting and logo design process to develop marketing campaigns that resonate with local customers and literally breathe life into startup brands.

“This is very difficult work,” he conceded. “It

Call tO aCtIOn: Foodservice 301

• Consider a variety of payment executions, including mobile payments, kiosk payments, drive-thru processes and web-based payments. These promote accuracy and fit into the mobile lifestyle of your customers.

• Never ignore the afternoon snacking period. It is the battleground between c-stores and QSRs in competition for business from millennials and Generation Z. • Smaller bites and beverages as snacks (smoothies, enhanced beverages, etc.) will be in demand. The next generation is a “grazing” group of consumers.

takes time, marketing and employee participation.”

But, he added, albeit tedious and time consuming, this step is well worth the effort and an integral component for developing and maintaining a successful foodservice business.

“Our coffee and fountain products are branded

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proprietary names to differentiate us from our competitors,” said Prast, adding that Murphy USA’s dispensed beverages are branded under the ICEE banner because of the enormous brand equity it yields. “For the most part, our fresh foods are private labeled with a note to the item’s brand, since we do not make fresh sandwiches in-store.” lIStEnInG IS KEY

It’s not exactly breaking news, but nonetheless worthy of reinforcing, that soliciting input from your regular customers — and then acting on what they tell you — is a basic, indeed critical, component of Convenience Retailing 101. Customer intercepts is a strategy that can be enormously effective in gathering information about what your shoppers think. But intercepts shouldn’t necessarily be executed by the retailer.

“Customer intercepts can be beneficial, but they are best implemented by an experienced third-party vendor,” suggested Mandeltort. “You want to make sure you have a representative sampling of responses from a diverse

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body of participants. If you only ask questions of older males, you are only going to get one perspective.”

A wide array of information can be gathered via intercepts, including but not limited to: • Demographics • Date/time of visit • Items purchased • Purchase drivers • Visit drivers • Frequency of visits • Distance traveled • Appealing/unappealing location attributes • Attribute awareness Also, never underestimate the value of hospitality when competing with the big boys, a.k.a. the QSRs. Any advantage they have in terms of marketing budgets can be effectively countered with some good, oldfashioned handshaking.

“One of the most critical elements of building a profitable foodservice program is ensuring that your staff demonstrates the requisite levels of hospitality,” explained Dirks. This involves much more than simply nodding or saying “hello” to customers at the door or register.

“Customers are more receptive to spending their money where they feel the service staff is genuinely happy to see them, are accepted for who they are, and are at ease interacting with the staff,” he continued.

“Every time a customer walks in, it can be challenging to make communication seem genuine, but a successful foodservice staff is able to achieve this on a steady basis. It’s all about knowing your customers.” CSn

Our How To Crew David Bishop — Balvor LLC Ed Burcher — Burcher Consulting Joseph Chiovera — XS Foodservice & Marketing Tom Cook — King-Casey Jack W. Cushman — CST Brands Inc. Dean Dirks — Dirks & Associates Eric Giandelone — Mintel Foodservice Ryan Krebs — Rutter’s Farm Stores Mathew Mandeltort — Eby-Brown Co. LLC Larry Miller — Miller Management & Consulting Services Tim Powell — Q1 Productions Chad Prast — Murphy USA Inc. Jennifer Vespole — QuickChek Corp.

FOODSERVICE Category Trends + Insights from

TRENDSIGHTS

The Competition for Quick Foodservice Visits Heats Up Consumers have a need for convenient, quick, high-quality prepared foods

A

s traditional convenience store products slip in demand, c-store operators must place a stronger emphasis on prepared foods to improve profits.

A growing number of c-store chains are providing high-quality, quick food supported by appealing, foodBy Bonnie Riggs Restaurant Industry Analyst, forward marketing.

The NPD Group For quick-service www.npd.com restaurants (QSRs), this means many c-stores are now direct competitors.

Grocery stores are also focusing on prepared foods. Grocery retailers were once very different from restaurants, serving customers’ needs for in-home meal preparation. But today, prepared, readyto-eat meals and snacks are readily available in this channel. Grocery stores’ prepared meals offer quality and are growing in variety.

C-stores and grocery stores, historically different concepts, now compete in the same space as traditional QSRs for the same customer and the same occasion.

And most customers are using multiple channels to purchase food for immediate consumption. Fewer than one in four U.S. consumers

Where do consumers go to buy fast food away from home?

Source: The NPD Group/QSR Plus Retail Market Monitor, March-June 2015

Penetration & Purchase Frequency Nearly half of the population visits a c-store or grocer for a meal

*Results based on past four-week recall Penetration = Percentage of the population purchasing at least once in the past four weeks Source: The NPD Group/QSR Plus Retail Market Monitor, March-June 2015

72 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

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are exclusive QSR users for these meal occasions. Those who are exclusive QSR customers are just as likely to dine in or take away as other QSR users.

Off-premise visits made by exclusive QSR buyers are likely vulnerable to shifts to other channels. The extent of the customer-sharing, as seen through NPD research, demonstrates the channel blurring happening among retail and traditional quick foodservice segments.

Quick and convenient food from c-stores and grocery stores incrementally adds customers to the fast food/foodservice market. Further, the number of fast-food purchases made by customers using these outlets is more than six visits higher in an average four-week period.

Food Category Purchase by Channel

Source: The NPD Group/QSR Plus Retail Market Monitor, March-June 2015

What types of foods are people buying at Wawa, Dunkin’ Donuts and McDonald’s?

(Reported for Last Visit, Philadelphia Area)

REtaIl QSR VS. tRaDItIONal QSR

Traditional QSRs offering morning meals are most likely to feel the impact of c-stores on their customer base. These occasions are likely in-and-out, grab-and-go visits where convenience and fast service trump QSR chain preference.

Between-meal purchases/snacks is another competitive daypart.

C-stores hold their highest share of these product categories: coffee, snacks, breakfast foods and soft drinks. Product offerings vary, with

Source: The NPD Group/QSR Plus Retail Market Monitor, March-June 2015

some c-store chains emphasizing prepared foods more than others.

Grocery stores hold a high share of purchases of chicken, side dishes and salads. They are providing a ready-to-consume meal for the family — easy, convenient and an opportunity to meet the needs of multiple family members.

Retail foodservice at c-stores and grocery stores is growing and expected to continue to grow. This

74 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

growth delivers new and very different insights about the structure of the quick foodservice market from a consumer perspective.

Consumers have a need for convenient, quick, high-quality prepared foods and whichever channel fills that need is where they will visit.

The challenge for c-stores is to find the best way to stand out among a diverse set of competitors in order to grow market share. CSN

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Cashing In on the Fill-In Convenience stores are not the only ones in pursuit of the coveted fill-in shopper

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ou can boil food shopping down to two basic types: filling up vs. filling in. And as consumers become more and more pressed for time, fill-in shoppers — those who only need a few items to carry them over until their next big grocery shopping trip — are in sharp focus lately.

Convenience stores are considered a convenient and quick option by consumers who only need one or two items for fill-in. According to a recent study conducted by General Mills Convenience & Foodservice,

19 percent of consumers report they visit c-stores most often for fill-in trips. This is less than the 32 percent who visit grocery stores most often for fill-in trips, but more than the 11 percent who turn to mass merchants or supercenters most often.

Which c-store operators are doing a particularly good job in this area?

“Wawa is doing well with the fill-in shopper and has been for decades,” said Jon Fiondella, account supervisor at Westport, Conn.-based Catapult Marketing, a conversion marketing agency that specializes in brand strategy, shopper marketing and consumer promotions.

“Wawa is one of the largest convenience store chains in Greater Philadelphia, but it is also one of the largest retailers of food in Greater Philadelphia,” Fiondella noted. “Its history in the dairy industry and

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previous ‘Food Market’ branding could be the reason for its success with the fill-in trip.”

Even though Wawa’s logo no longer reads “Food Market,” shoppers still have a deep-rooted connection with the retailer’s stores as their local market.

“Additionally, from the variety, quality and price of goods, to the squeaky-clean atmosphere, shoppers simply have an overall positive perception of the Wawa shopping experience,” Fiondella added.

Newer to the fill-in arena is CST Brands Inc., which recently introduced 300 new grocery offerings to 50 of its convenience stores in Texas. The San Antonio-based chain plans to offer this expanded grocery selection in all its new store builds, according to CST Chairwoman and CEO Kim Lubel. During the company’s fiscal 2015 second-quarter earnings call, it was revealed that CST plans to offer a variety of produce, meats and perishable items in an attempt to lure supermarket customers who often use the express lane for their fill-in shopping needs.

CST is also going one step further and debuting a new name for its larger stores offering the expanded selection. These stores will be branded Corner Store Market.

The Corner Store Market concept is part of a total Corner Store brand makeover that began at the tail end of 2015 in the company’s hometown and will spread outward. A dramatic new look and feel carries out the company’s new service promise of “Simply Fresh. Always Friendly.” The color palette and design elements are meant to be refreshing, neighborly and in-touch.

Corner Store Market aims to attract more millennials and women looking for on-the-go lunch options or quick dinner solutions without the hassle of navigating a big-box store.

“Our customers lead busy, active lives and Corner Store is here to make things easier. Our goal is to create a simple and streamlined shopping experience from

IN-STORE MERCHANDISING Grocery + General Merchandise + HBC + Periodicals

start to finish so customers can make the most of their time,” explained Hal Adams, CST’s senior vice president and chief marketing officer. “Fresh is about a lot more than food; it’s about delivering an overall refreshing experience — a clean store, quality products, a neighborly atmosphere and team members that genuinely love to serve customers.”

BEyOND THE C-STORE SECTOR

Of course, convenience stores aren’t the only ones looking to compete with grocery stores to better fulfill the fill-in needs of food shoppers.

In the drugstore channel, CVS recently expanded into healthier food options in stores across the nation, expanding into fill-in foods like milk and produce.

“After we stopped selling tobacco, the No. 1 thing customers asked us about was providing healthier food choices, which is why healthy food is now occupying a bigger physical footprint in CVS/pharmacy stores,” Judy Sansone, senior vice president, Front Store Business for CVS Health, told Convenience Store News. “We have increased grocery options like eggs, almond milk, cheese, yogurt, lunch solutions and added brands like Kashi, Cascadian Farms, Amy’s Kitchen and Annie’s Homegrown.” Other healthier brands CVS stores are carrying include Kind, Stacy’s, Chobani, Vita Coco, Naked, Sabra, Brookside and Skinny Pop. Merchandising-wise, CVS has “personalized and cusGrocery Staples = Top tomized” the configuration of aisles and items based on Fill-In Items the community in which the Items most often purchased on a fill-in trip (all channels): store resides. More than 500 locations now feature Milk...57% the layout with hundreds Bread...50% of new fresh, refrigerated Soda...42% and healthier food items.

Eggs...39% Many of the new Salty snacks...28% options are repositioned Ice cream...27% to the front and center Cheese...25% of the store to reportedly Juice...25% “empower and nudge” Paper products...24% customers to make healthy Candy...23% choices when they want to.

Alcohol...23% But CVS is not de-selecting Fresh produce...22% the more indulgent options Cleaning products...22% that customers still want in Boxed cereal...19% moderation; such items are Source: General Mills Convenience & Foodservice

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available in inner aisles. Additionally, wall coolers have been added to some stores to further expand the footprint of new products.

The drugstore chain has even developed an exclusive brand, Gold Emblem Abound, a line of better-foryou snack and grocery items free of artificial flavors and preservatives.

Meanwhile in the specialty food channel, Whole Foods Market Inc. is working on a new streamlined, technology-oriented, value-focused store format geared toward millennial shoppers, to open in 2016 under the banner 365 by Whole Foods Market. The 365 format is meant to be a complementary brand and not an alternative to the current Whole Foods Market stores.

The retailer anticipates shoppers will visit both stores: the traditional, larger Whole Foods Market for typical weekly grocery shopping trips and the new 365 format for fill-in shopping trips. “With a fresh format and unique product assortment, we think 365 will offer convenience and value while providing the quality standards and transparency that consumers love and expect,” stated Jeff Turnas, president of 365 by Whole Foods Market.

The first five 365 stores are slated to open in the second half of 2016, first in the Silver Lake neighborhood of Los Angeles, and then in Bellevue, Wash., Houston, Texas, Portland, Ore., and Santa Monica, Calif. Whole Foods then plans to double the number of 365 by Whole Foods Market store openings in 2017.

Fill-in shopping is likewise on the radar of dollar store operators. This year, Dollar General will roll out a new prototype for all its stores. The new store model will offer speedier checkout and a greater focus on perishables, among other things, according to a recent earnings report.

To emphasize perishables and help consumers find quick meal solutions or fill-in items, the value retailer plans to expand cooler penetration across its entire store base, a move reportedly prompted by research that showed a basket with a perishable item is nearly 50 percent higher than the chain average.

“This is a big opportunity that we know how to capitalize on, as we have already increased the cooler count on average by just over 50 percent since 2008,” Dollar General CEO Todd Vasos said.

FulFIllING THE FIll-IN SHOppER

So, while there are good examples of c-stores and other retailers effectively targeting fill-in shoppers, the convenience sector has been pinpointed to have the biggest

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opportunity to do better with this shopper by leveraging more than just the channel’s convenient factor.

“Convenience is simply not enough anymore,” Catapult Marketing’s Fiondella said. “C-stores need to have the right assortment, keep items in stock, be welcoming, solution-oriented and satisfy needs more.” He added that “digital connections” will continue to be integral to staying top of mind with today’s on-the-go and fill-in shoppers.

Shoppers participating in a recent General Mills study cited lack of variety, low quality and too-high prices as the top barriers to visiting c-stores for fill-in trips.

Recognizing this, plus the fact that convenience stores are more convenient than many of their competitors, General Mills developed a fill-in framework for the channel — aptly named “F.I.L.L.” — with tips to capture and increase the satisfaction of the fill-in shopper: F: Full-Size Staples: Offer full-sized grocery items where it counts — milk, bread, soda, eggs and salty snacks.

I: In & Out: Continue delivering on convenience; shoppers choose c-stores because they can get in and out in less than two minutes.

L: Lift Quality: Focus on quality, especially in regards to perishable grocery items such as cheese and fresh produce.

L: Lower Prices: Offer value with competitively priced staple items.

The way some see it, all c-stores need is a bit of fine-tuning to gain both fill-in shoppers and millennial shoppers, who are often one in C-stores Wellthe same.

Positioned With “The millennial shopFill-In Shoppers per is the thing we’re all Where fill-in trips are made most often: chasing now, but the millennial shopper is already Grocery 32% the perfect c-store shopConvenience store 19% per,” said Mark Singleton, Other store 17% past chairman and curMass merchant 11% rent executive committee Supercenter 11% member of the Snack Dollar store 10% Food Association, as well Source: General Mills Convenience & Foodservice as vice president of sales and marketing for snack

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food supplier Rudolph Foods. He told CSNews that the millennial shopper, by nature, is not going to make a big purchase — in Starbucks, for example, he observes that they are hitting apps and ordering ahead to speedily pick up their coffee.

“This consumer is so different, they won’t even wait in a line. So, the c-store is perfect for them. There are some millennials who may never step foot in a big-box store until they’re raising a family,” Singleton said. He also pointed out they are “too sharp” to fall for the grocery store racetrack design, whereby stores typically lead consumers to the “farthest edge of the world” to find the items they need most, like bread and milk.

Still, while c-stores provide the perfect format, they have to be mindful of directly targeting a millennial fillin shopper’s needs. “If you’re going to get that shopper, you have to do it in a different way and in a different place — the c-store is that place with some product, pricing and full-size tweaks,” Singleton relayed.

Product-wise, Singleton, like many in the food arena, predicts high-protein products will continue to be very big with on-the-go and fill-in shoppers this year. “[2016] will be a super year for proteins and we’re seeing so many different options,” he said.

“Meat-based like pork rinds, but also legume-based and yogurt-based.”

Also hot on the high-protein list are eggs, and one manufacturer, NestFresh, recently expanded its capabilities to deliver foodservice and convenience products to c-stores with the acquisition of a hard-boiled egg facility. The plant is currently undergoing the process to achieve SQF Level 3 certification, as well as other third-party certifications.

NestFresh is getting ready to provide hard-boiled products in a variety of pack sizes for convenience stores and it intends to keep the “packaging consistent with existing NestFresh products, highlighting the high level of animal welfare we provide our hens by showcasing the hens and their cage-free living conditions on the farms,” according to Jasen Urena, director of specialty eggs for NestFresh.

The company is onboard with c-stores catering to the fill-in shopper. “Today, consumers live in a world where they attain their wants and needs right here, right now,” Urena told CSNews. “The digital age has inspired instant gratification in nearly every industry, including the food industry. The fill-in shopper is looking for quick and convenient foods they can grab at a moment’s notice. Between trips to the grocery store, c-stores often provide staples that just cannot wait.”CSN

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EXPERT’S VIEW

Six Things You Need to Know About Payments Knowing how your customers like to pay sheds light on how best to engage them

I

n retail, it is important to know your customer and that includes how they prefer to pay for their purchases. Knowing how consumers like to pay can help convenience store retailers decide the best ways to reach them with promotions and other offerings, and ensure they have the appropriate technology available to make the commerce process simple.

Do your shoppers like to pay in advance and pick up in-store? Do they prefer to pay by card and would it be helpful to use a mobile point-of-sale (POS) device to check out anywhere in the store? How many of your customers are using

By Teri Llach, mobile wallets?

Blackhawk Network One thing is certain: Making sure customers have a convenient shopping experience — including at checkout — is important.

With this in mind, below are six things convenience store retailers need to know about how America pays, as a result of a recent Blackhawk Network survey of 1,000 Americans.

1. Get your digital/mobile/emerging payments strategy into context.

A good portion of your customer base is using emerging payments in addition to traditional payments like cash, checks and cards. Instead of abandoning traditional payments altogether, shoppers are using a larger variety of payment options, with digital and mobile payments serving as supplements to the traditional cash and cardbased payment tools. As usage of these newer payment tools continues to grow, it will become important to map out a long-term strategy for responding to consumer demands for payments evolution.

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2. Convenience is paramount.

Ninety-three percent of consumers have used cash in the last year and the same percentage ranked cash as the most convenient payment method. Consumers also picked credit cards (92 percent), PayPal (90 percent) and retailer-specific gift cards (87 percent) as the next most convenient payment options. Convenience is the primary driver of consumer behavior. Make sure you keep this in mind as your payment strategy evolves.

3. Don’t abandon your traditional payment processes.

Instead, make them better, faster and more convenient for consumers as you also add in new ways to pay.

This is what people use to pay today: after cash, 68 percent use debit cards, 68 percent use checks, 67 percent use credit cards and 62 percent use PayPal. Legacy payment tools have a lot going for them: widescale consumer awareness and adoption, ingrained behavior, ease of acceptance at the POS, or the only viable option for the payment (some bills/rent payments/small vendors only take checks).

4. There is movement in mobile, digital and emerging payments.

Sixty-eight percent of mobile payment users report they are using alternative payment methods more than last year and mobile wallets are now used by 25 percent of smartphone owners. However, consumers place traditional methods of payment into their mobile wallets: 64 percent of users have debit cards in their mobile wallets, 58 percent have credit cards and 45 percent have gift cards.

Continue to offer a seamless and convenient experience for legacy products while vetting and adopting the acceptance of new ways to pay. Consumers are willing to pay in various ways. It’s an “and” not an “or” situation and digital-savvy consumers are adopting these methods at higher rates than the general population.

5. Gift cards remain extremely popular due to their convenience.

Eighty-seven percent of consumers surveyed think merchant-specific gift cards are convenient to use, even higher than bank-connected debit cards (82 percent).

Additionally, gift cards are now mainstream payment methods, with almost half of consumers (48 percent) using them in the last year.

6. Payment is one of the last steps in the customer journey, providing a strong brand imprint.

No brand wants to see an abandoned cart or poor impression because a consumer wasn’t able to pay in what they consider the most convenient way, so follow research carefully. Payment methods are starting to converge and keeping on top of true trends vs. hype is critical for all retailers today.

Convenience store retailers must keep up with the blended traditional and emerging payment methods that are being utilized by consumers today. CSN Teri Llach is chief marketing officer of Blackhawk Network, a global prepaid and payments company, and brings more than 25 years of consumer marketing expertise. She leads corporate positioning and brand communication efforts for the company.

Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

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OPERATIONS Store Ops + Labor + HR + Real Estate + Financial + Field Ops

A Clean Slate Inside and out, well-maintained and safe stores are a must for attracting and retaining customers

By Renée M. Covino

C

leanliness is next to … convenience. The importance of clean and well-maintained convenience stores is a hot topic lately as the bar is being set higher for operating standards at brickand-mortar retail locations.

The in-store shopping experience, where consumers physically connect with a retail brand, is very much alive and well, especially in the convenience channel where operators have reached new heights, such as in foodservice. As the channel elevates its standards in foodservice, it is imperative it matches those standards in operations, industry experts assert.

Just as consumer health concerns are affecting food choices, they are also affecting where consumers shop. ISSA: The Worldwide Cleaning Industry Association is helping industries to realize the changing ways consumers view “clean.”

“We want to help people to understand that it is no longer good enough to clean for appearance; they have to clean for health,” said John Barrett, executive director of ISSA. According to a survey conducted by the association, 95 percent of shoppers indicated that unclean restrooms and unpleasant odors would influence their shopping decisions, along with dirty floors, spills, stains, dirty shopping carts and other factors.

“Shoppers want to feel comfortable when visiting a retail environment, and ensuring a store is clean and healthy is a crucial part,” noted Dan Wagner, ISSA’s director of facility service programs.

Clearly, the bar has

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been raised on the importance of clean in retail.

“The janitorial landscape has changed dramatically in the last five years,” explained Patricia Dameron, executive director for the Professional Retail Store Maintenance Association (PRSM). “We are entering a new normal for cleaning standards in retail facilities management. Retail brands need to be aware of this under-budgeted area and ensure all stores are meeting brand standards.”

To assist retailers in achieving a higher level of clean, PRSM recently launched a Janitorial Workload tool that utilizes an interactive spreadsheet using information about the store and the desired level of clean to calculate the number of full-time staffers required to accomplish the tasks.

Still, operations excellence goes beyond merely a “clean” store. It also includes maintenance and safety issues. Here are some tips for a more evolved slate of cleanliness and operational excellence at the convenience store level: • Clean starts with restrooms. “We know that if we don’t have clean bathrooms, we won’t have a business,” a spokesperson for La Crosse, Wis.-based Kwik Trip Inc. said.

In the old days, bathrooms in c-stores were “a necessary evil. They were often out of order and not designated for a customer to use it, located in the back room,” recalled Ray Johnson, operations manager for Las Vegas-based Speedee Mart. “Now, they are part of the reason customers stop, much like the truck stop channel, which c-stores can take lessons from in restrooms.”

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• Do the bathroom checklist. Stores with a bathroom checklist have cleaner bathrooms. At each of its sites, Kwik Trip has an employee check the bathrooms every 30 minutes to make sure toilet tissue is on the roll, sinks are wiped down and the overall bathroom appearance is clean.

Speedee Mart employs mystery shoppers for its bathrooms, as well as its stores overall — “and not on a manager shift,” Johnson said of the timing of these shops.

When building a store from the ground up, c-store retailers should design the bathrooms with maintenance in mind. “Anything you can do to reduce maintenance, such as going with larger bathroom tiles instead of smaller ones so there is less grout, should be considered,” noted Johnson. “You also want to be picking out heavy-duty faucets and putting up walls that are difficult to graffiti. So much of it is common sense.”

• Incorporate industrial bathroom cleaning machines. Depending on how frequently the restrooms are used, c-stores can incorporate industrial bathroom cleaning machines two or three times a day that wash down the tile walls and suck up bathroom messes that can then be flushed down the drain.

The process typically takes 20 minutes and can be part of the previously mentioned bathroom checklist.

• For stores located in “problematic” neighborhoods, bathrooms should be accessed by a key at the cashier station. “You still want to make sure it’s accessible for customers, but you can’t ignore the fact that it’s a more challenging neighborhood,” acknowledged Johnson.

• Don’t forget the store’s outside perimeter. C-stores in rural locales can often sit on large pieces of land, sometimes as much as two or three acres.

Kwik Trip has its store-level employees check the outside perimeter of the store property, much as they would the bathrooms, every hour or half hour. They look out for garbage and other debris.

• Well-lit stores are important for a feeling of warmth and security. And so are “open” windows that are not cluttered with signage and stickers.

Seeing into the store from the gas pumps is an

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important aspect of safety for consumers. Well-lit retail environments should be balanced out with “green” illumination aspects, too, such as skylights, the Kwik Trip spokesperson pointed out.

• Safety includes employee physical safety practices when unloading large or heavy pallets of items such as gallons of milk. Many c-stores operate with the principal that safety starts with employees — and that includes making sure they follow good stocking procedures. Kwik Trip has had a dedicated “safety department” in operation for five years, whereby safety and injury reports are generated for each district; employees are trained accordingly.

• Keep a low shelving profile. Don’t fall to the tall side with shelving and racks if you want to keep a safe store. “My average employee is 5’2” and my average customer is 6’2”, so I want to have a low profile with racks,” said Johnson. “We keep to 62 inches — a height I picked arbitrarily — because I want to be able to see across the store. There’s nothing convenient and nothing safe about racks that are 12 feet tall like we’ve been seeing from the dollar store channel.”

• Observe customer movement and make display adjustments where needed. “I like watching people’s behavior and how they shop our stores,” Johnson commented. “For instance, I’ve noticed it’s very hard for people to shop off the bottom shelf in a narrow confine, so we’ve eliminated that. Also, there’s a difference between the way men and women bend to shop. Women are not going to bend over in a tight situation, whereas men are not as sensitive to that. To attract and retain female shoppers, you have to have enough space and lighting or they’re not going to shop in your store.”

• Take note of the competition’s mistakes. This is a good way to learn, according to Johnson, who frequently takes his managers to observe other channels’ stores and even other stores within the company. “You can more easily notice what’s wrong with someone else’s store over your own. The nice thing is, they will usually run right back and change it in their store once they realize it in someone else’s.

This is part of our training and grooming our people to be better managers.” CSN

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STORESPOTLIGHT Rutter’s Farm Stores

A Monument to Convenience Rutter’s newest and largest c-store marks a first in brand’s continuing evolution

By Danielle Romano

A

t 9,100 square feet, with enhanced brand design elements and dedicated facilities for professional drivers, Rutter’s Farm Stores’ 61st location in York Springs, Pa., truly lives up to its billing as “a monument to convenience.”

As a brand with a rich history, innovation has always been a part of Rutter’s DNA, Derek Gaskins, the York, Pa.-based convenience store chain’s chief customer officer, told Convenience Store News. Through the years, Rutter’s has adapted its retail model to better cater to the needs of its shoppers, and its new York Springs site is no exception.

The “monument to convenience” label plays off the store’s location just 10 miles north of famed historic site Gettysburg, Pa., as well as the store’s sheer size.

“By this, we acknowledge the history surrounding

The use of LED lighting technology gives the store a dynamic look by night.

Gettysburg, but we truly mean that customers will be able to get what they need and continue on their way in a store built to high standards,” Gaskins explained.

“Speed of service is key. However, we also understand that after a long day of traveling and sightseeing, there is a need to rest, stretch, refuel and recharge.”

The York Springs store is the brand’s third location in Pennsylvania’s Adams County. When Rutter’s pur-

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chased this parcel of land several years ago, it planned on building a larger site to cater to the needs of visitors to the Gettysburg area and travelers along routes 234 and 15. Situated on a heavily traveled route, the location is ideal for a slightly expanded location given the high volume of trucks and buses, and overall local and tourist traffic through the area, according to Gaskins.

MANIFEST DESTINY

“The new site is the latest evolution [of our retail model] that we have refined the past few years, and we feel we have positioned ourselves well to continue to learn and adapt going forward with new sites,” Gaskins noted.

The overall Rutter’s brand will benefit from the York Springs design.

“With a solid pipeline of new store development, many of the changes debuted at this location will manifest themselves into stores slated for development over the next few years,” he said. “We will also take elements of the store exterior décor and branding and add them to existing sites as we remodel them.”

With a firm belief that everyone is a potential customer, Rutter’s looks to offer an array of options at its convenience stores to meet diverse customer needs.

The brand, as Gaskins further explained, has a vision of true personalization and mass customization. The York Springs site is this ideal come to fruition — built to deliver a world-class customer experience to diverse consumer segments.

The 11.5-acre site is the first store within 5 miles of the region, bringing the Rutter’s value proposition to

the surrounding communities that have longed for the brand’s products and services, according to the executive.

A NEW SIGNATURE

Drawing inspiration from Las Vegas where brands transform their look to appeal to diverse consumers and have a completely different feel by day vs. night, Rutter’s latest store boasts an exterior that’s been sharpened for a dynamic and vital look.

“The redesign of the fuel high-rise, monument sign and gas canopy will become signature elements of our exterior branding,” Gaskins reported. “We used LED lighting technology to give a differentiated experience by day and by night. The final result is a look that appeals to the different consumer segments that shop our stores at various times. … We feel our look is unique and will quickly become a signature component of our brand.”

At 9,100 square feet, the store is the largest of Rutter’s locations and is open 24 hours a day, seven days a week. The retailer aims to fulfill the needs of not only the surrounding community and tourists, but also professional drivers traveling through the area.

Among the store’s amenities are: • Touchscreen kiosks for food ordering and customization of Rutter’s award-winning menu; • A 36-person seating area; • Free Wi-Fi; • Gourmet coffee bar; • 14 fueling lanes for gas and auto diesel; • 7 high-speed truck diesel fueling spaces; • 23 truck parking spaces; • Approximately 2,000 square feet dedicated to professional driving accessories; • Rutter’s private-label dairy products for purchase; and • Large, state-of-the-art restrooms.

Touchscreen ordering kiosks, a 36-person seating area and a special section devoted to professional driving accessories are among the store’s amenities.

WHY GO ANYWHERE ELSE?

While Rutter’s is always exploring new opportunities, Gaskins told CSNews the company doesn’t have another site of this magnitude currently planned.

However, its next store is set to open in Leola, Pa., this month and will measure more than 7,000 square feet.

Gaskins maintains that one of the great things about convenience stores is the channel’s ubiquitous appeal to a wide demographic — from millennials and baby boomers to soccer moms and road warriors. “But the real strength is that virtually everyone needs a convenience store at some point during their routines,” he said.

As Rutter’s continues to evolve its brand identity, the chain keeps this in mind.

“Whether it’s on-the-go consumers looking for high-quality restaurant alternative meals, tour buses looking for a rest stop on their way to regional destinations, or any commuter that desires clean restrooms, convenient products and services, we feel [our York Springs] site delivers against those objectives and answers the question [and the Rutter’s tagline]: ‘Why Go Anywhere Else?’” said Gaskins. CSN

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EXPERT’SVIEW

Closing the Confidence Gap the industry’s most successful women push aside fear and step up

W

omen in convenience need two things to achieve a leadership position: confidence in themselves and, more important, confidence they have a path to leadership in their organization.

While women graduate from college feeling as qualified for success as their

By Joan toth, male peers, their aspiration level drops Network of more than 60 percent over time, accordExecutive Women ing to the Bain & Co. report “Everyday Moments of Truth.”

While women lose confidence in their careers soon after entering the workforce, the confidence level of men remains constant. After two or more years of experience, 34 percent of men are still aiming for the top, while only 16 percent of women are.

Why do female college graduates quickly lose confidence in their career potential? Bain attributed the confidence gap to three main factors: little supervisory support, too few role models in senior-level positons and the widespread perception among men and women that “ideal workers” put in long hours and are adept at self-promotion, networking and maintaining a high profile.

Organizations that address these workplace challenges are able to leverage the power of women’s leadership and the talents, skills and leadership potential of every employee. That’s a huge competitive advantage.

Making the Leap

Transforming our workplace culture is essential to having more inclusive leadership, but change won’t come fast and it won’t come easy. To succeed in today’s environment, women need to believe in themselves, find their own role models and create their own paths to success.

A KPMG survey of more than 3,000 women found their perception of their own leadership skills — and the seeds of self-doubt — are planted in childhood.

While nearly nine in 10 survey respondents said they were taught to be nice to others, only one-third were

90 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

encouraged to share their point-of-view.

At the Network of Executive Women (NEW) Leadership Summit last fall, more than 1,200 Network members were inspired by women executives who overcame such doubts to become powerful and effective leaders. These high-powered women worked through their fears, sought the help of mentors and sponsors, and took on stretch assignments that broadened their skills and built their profile.

During a Summit panel discussion, Kathy Russello, executive vice president, human resources for Ahold USA, shared how early in her career she was hesitant to take on a new role outside her area of expertise. She was given responsibility for labor relations strategy, which included negotiating with mostly male union officials. “I went into that role with a great deal of concern. I wasn’t sure I could do it,” she said. “But it’s the role I learned the most from.”

Convenience Store News is pleased to continue this series of exclusive educational columns by the Network of Executive Women (NEW), leading up to the 2016 CSNews Top Women in Convenience awards this fall. In addition to being a presentation sponsor for the Top Women in Convenience program, NEW and CSNews have partnered to develop this series of columns directed at helping corporate leaders drive more inclusive company cultures.

SPONSORED BY:

Failure Is an OptiOn

For Ellen Junger, Hallmark Cards Inc.’s senior vice president for corporate brand development, “stretch” has meant “jumping in without fully knowing what you’re doing.” But, like Kathy, she learned the most and gained the most confidence when she accepted a role thinking, “I really don’t know if I can do this.”

“Many women think, ‘I need to know what I’m doing before I step out,’” Junger said. “But if you say, ‘I’m 50-percent confident and I’m going to conquer it anyway,’ that is when you grow.”

With stretching comes risk-taking. And some risks fail. Successful women and men don’t let a failure — or two — permanently change their career trajectories.

Summit keynoter Denice Torres, co-chair of Johnson & Johnson Consumer Cos., has faced multiple challenges as a gay, multicultural woman and the mother of a special needs child. During the low times, she said it’s important to remember the situation won’t last forever.

“It’s just for today. Tomorrow can be different.

Every career has highs and lows — and the more highs and lows you go through, the stronger you become,” Torres said.

Industry leaders — men and women — should encourage women to step up with confidence and take risks. Women who feel stuck in the middle must do their part and reach for the brass ring.

The NEW Summit’s closing speaker — Carla Moore, vice president of talent acquisition at HBO — explained why closing the confidence gap that women face is so important. “I believe that when leaders change, businesses change,” she said. “And sometimes it takes a personal transformation to lead a business transformation.”

I’ll quote Junger and offer this advice to women who want to move into leadership roles: “Don’t let the butterflies in your stomach hold you back.” CSn Joan Toth is president and CEO of the Network of Executive Women, Retail and Consumer Goods, a learning and leadership community representing 10,000 members, 750 companies, 100 corporate partners and 20 regional groups in the United States and Canada.

Editor’s note: The opinions expressed in this column are the author’s and do not necessarily reflect the views of Convenience Store News.

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C a l l 816 813 3 3 3 7 w w w . f o r t e p r o d u Cts o l u t i o n s . Co m WWW.CSNEWS.COM | JANUARY 2016 | Convenience Store News 91

HOTPRODUCTS Special Advertising Section

ATMs

General Merchandise

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HOTPRODUCTS Gourmet Pet Treats

Special Advertising Section

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CLASSIFIED Credit Card Processing / Merchant Services

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CLASSIFIED Credit Card Processing / Merchant Services

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CLASSIFIED POS/Equipment/Supplies

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CLASSIFIED ATMs

AIR VACS

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CLASSIFIED Pre-Paid/Cellular Products

ATMs

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CLASSIFIED Air Vacs

ATMs

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CLASSIFIED Services

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CLASSIFIED Plastics

Loss Prevention

C-Store Recruiters

ATMs

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CLASSIFIED Scales

General Merchandise

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who read Convenience Store News do so because they want to find out about new products.

Reach those important hard to reach retailers by advertising here in the Hot Products Section of Convenience Store News by contacting:

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ADINDEX

HOTPRODUCTS Special Advertising Section

Altria Group Distribution Co

2,3

www insightsc3m com

Anheuser-Busch

108

www anheuser-busch com

Anthony International

73

www anthonyintl com

Better4U Foods

70

www better4ufoods com

Cash Depot

83

www cdlatm com

Cheyenne International

49

www cheyenneintl com

Coca Cola

31

www cokesolutions com

Con Agra Foods

27,63

www conagrafoods com

Forte Product Solutions

91

www forteproductsolutions com

General Mills

23

www generalmillsconvenience com

Goya Foods

13

salesinfo@goya com

Heineken

15,71

www enjoyheinekenresponsibly com

Hershey’s

7

www hersheysconvenience com

Home Market Foods

69

www rollerbites com

ITG Brands

39,41,77

J T International

51

www JTI-usa coom

JTM Bakery

68

www jtmbakery net

KT&G

43,45

877 580 5506

Liggett Vector Brands

37

877 415 4100

Logic Technologies

10,11

www logicecig com

McCain Foods

65

www mccain4cstores com

McKee/Little Debbie

52-53

www littledebbiecstore com

McLane

21

www mclaneco com

MilkPep

19

retailers@milkpep org

MTI/Autofry

66

www mtiproducts com

National Confectioners Assoc

75

www sweetsandsnacks com

National Restaurant Assoc

67

www restaurant org/show

NJOY

CV1,17

Pepsico/Gatorade

57

www gatorade com/fuelbar

Perfetti Van Melle

61

800 283 5988

Procter & Gamble

107

R J Reynolds Tobacco Co

9

www engagetradepartners com

R J Reynolds Tobacco Co/Santa Fe 29 Swedish Match

33,47

customer service@smna com

Tillamook Country Smoker

79

www tcsjerky com

Tyson

55,59

www tysonconvenience com

Universal Merchant

Outsert

www nynab com

Vapor Expo/Reuters

85

www vaporexpointernational com

The Wonderful Company/Halos

5

www halosfun com

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Stagnito Business Information U.S. brands: Convenience Store News (ISSN 0194-8733; USPS 515-950) is published 12 times per year, monthly, by Stagnito Business Information, 570 Lake Cook Rd Deerfield, IL 60015 Copyright Š 2016 by Stagnito Business Information All rights reserved Subscriptions: One year, $93; two years, $152 One year, Canada, $110; two years, Canada, $175 One year, foreign, $150 Payable in advance with a bank draft drawn on a U S bank in U S funds Single copies, $10, except foreign, where postage will be added Printed in U S A Periodicals postage paid at Deerfield, IL, and at additional mailing offices POSTMASTER: Send address changes to Convenience Store News, P O Box 1842, Lowell, MA 01853

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GETTINGTOTHECORE What benefits do you get from the loyalty program(s)?

Join the Club

Merchandise discounts are top-of-mind for c-store loyalty program participants

L

oyalty programs are becoming a must-have tool for convenience store operators to build up their customer base. However, retailers may need to rethink how they market their programs, especially to their foodservice shoppers. According to a recent survey by Carbonview Research, a sister company of Convenience Store News, roughly 40 percent of both males and females do not belong to any c-store loyalty program. When asked why, several responded they didn’t even know the program existed.

Does belonging to the loyalty program encourage you to buy more of the following at the store/chain: aNSWeReD yeS:

Cold dispensed beverages Hot dispensed beverages Prepared food Frozen dispensed beverages

ToTal

Male

FeMale

66.6% 59.5% 59.2% 52.3%

66.7% 64.2% 64.2% 54.1%

66.5% 55.2% 54.6% 50.6%

Two-thirds of men who belong to a loyalty program are enticed to add to their baskets.

Base: 333 c-store foodservice shoppers who belong to loyalty programs

55.9%

Discounts on merchandise in-store

45.3%

Free products

41.1%

Exclusive offers

36.6%

Discounts on fuel

12.6%

Priority service

12.3%

Gift cards to spend at that retailer’s store(s)

2.4%

Other

Many c-store loyalty programs are tied to fuel discounts, but saving at the pump is not the foremost benefit cited by shoppers. Rather, in-store merchandise discounts is.

Multiple responses accepted Base: 333 c-store foodservice shoppers who belong to loyalty programs

How many convenience store loyalty programs do you belong to?

ToTal

0 1 2 3 4 5 or more

43.1% 25.3 19.7 6.6 2.9 2.4

By age: 18-24

35.2% 29.5 23.8 7.6 1.0 2.9

25-34

34.2% 27.5 26.7 8.3 2.5 0.8

35-44

45-54

35.7% 19.6 21.4 9.8 7.1 6.3

Base: 589 c-store foodservice shoppers

45.9% 27.9 17.1 4.5 3.6 0.9

55-64

65+

59.5% 23.0 10.8 4.1 0.0 2.7

61.2% 22.4 11.9 3.0 1.5 0.0

While millennials seem to be everyone’s favorite target group lately, it is actually older consumers — those aged 35-44 — who belong to the most loyalty programs.

Why don’t you belong to any convenience store loyalty program?

Not available at the store(s) I usually shop Not interested in the benefits Other Want to collaborate and share expertise with your peers? The Council of Retail Experts (CORE) is an exclusive network of convenience store retail leaders who do just that. For more information on how to join CORE, please visit www.cvcoreinsights.com.

106 Convenience Store News | JANUARY 2016 | WWW.CSNEWS.COM

ToTal

Male

FeMale

44.9% 43.7 11.4

40.8% 52.8 6.4

48.8% 34.9 16.3

Male shoppers and millennials are the least interested in participating in loyalty programs.

Base: 254 c-store foodservice shoppers who do not belong to loyalty programs

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How to maximize foodservice snack opportunities Smart beverage strategies for 'happy hour' Energy products fuel afternoon snacking

Sponsored By:

JANUARY 2016

1

JA N UA RY 2 0 16

4 PM Snacking:

19 Chips Cash in on chips that go beyond the potato.

With afternoon snacking projected to outpace all other dayparts in growth for 2015, here’s why c-stores are in a prime position to execute successful PM snacking programs.

20 Coffee Perk up java sales for quick pick-me-ups.

The Hottest Daypart

7 Energy Products Energy products fuel afternoon snack breaks.

21 Beer Beer and prepared foods make for a perfect

10 Meat Snacks Meaty snacks pack protein into PM snack occasions.

25 Nutrition Bars C-stores belly up to the nutrition bar trend.

12 Produce Fresh fruits, veggies make the cut for PM snacks.

26 Carbonated

14 Pizza/Foodservice Pizza, foodservice products slice into snacking market.

18 Dairy/Juice Drinks Portable beverages provide sippable snacking satisfaction.

PM snack pairing.

Packaged Beverages Carbonated offerings change with the (snacking) times.

27 Bottled Water Bottled water pours into the better-for-you snack market.

28 Confections Sweeten the deal with candy and other treats.

Produced by Stagnito Custom Media

JANUARY 2016

3

PM SNACKING

PM snacking: The hottest c-store daypart Snacking during the 2 to 5 p.m. time period is now the fourth most common daypart in convenience stores after breakfast, lunch and dinner: Forty-six percent of c-store visits occur afer 2 p.m., and 50 percent of c-store snack purchases happen between 2 and 10 p.m., reports a 2015 joint study

by Tyson Convenience Foodservice and Anheuser-Busch.

In fact, the “PM snacking” daypart was projected to outpace all other meal parts in growth for 2015, according to the Convenience Store News Industry Forecast Study for 2015.

C-stores are top choice for snacking Which of the following venues have you visited for a snack in the past 30 days?

38% 31% 24%

Tis explosion in PM snacking is part of a larger overall upward trend for consumer snacking. In 2014, annual “eatings” per capita of snack foods consumed at meal times by individual diners reached 191, compared with 167 in 2011, according to NPD. And from a dollar perspective, U.S. snack sales are expected to reach $47.5 billion in 2015, up from $34.2 billion in 2005, according to Statista.

12%

Convenience store

The role of consumer trends in PM snacking growth Snacks replace meals: Nearly 7 in 10 consumers who snack report they have eaten a snack in place of a meal at

Time of most recent c-store visit

Multiple small meals vs. three main meals: Grazing, or eating multiple small meals, can occur throughout the day but tends to take place more frequently in the late afernoon to early evening between lunch and dinner. Tis is the timeframe when consumers are looking for something indulgent, such as specialty cofees, chocolate or ice cream, or a more substantial dish such as a sandwich, fries or Mexican fare.

15% 10% 5% 0% 2-3:59 PM

7-9:59 PM

SOURCE: TYSON CONVENIENCE FOODSERVICE “CHANNEL CHOICE STUDY,” 2014, CARBONVIEW

4

Sit-down restaurant

least once in the past month, according to Acosta Sales & Marketing research. Younger consumers are least likely to diferentiate between meals and snacks, so this base may be the target market for smaller-portioned entrées ofered as snacks and snack options marketed as meal replacements.

20%

9-10:59 AM

Fast-food restaurant

SOURCE: MARCH 2015 STAGNITO/CARBONVIEW CONSUMER RESEARCH

A number of timely consumer trends are driving PM snacking growth in particular, including:

Before 6 AM

Drug store

Meal accompaniment: As snack options continue to grow and the timeframes in which consumers snack are changing, consumers are choosing certain JANUARY 2016

PM SNACKING snacks to accompany their main meals, especially lunch.

Snack items eaten at main meals will grow by approximately 5 percent during the next few years to 86.4 billion eatings in 2018, as forecast by NPD in its report Te Future of Eating: Who’s Eating What in 2018?

Purchasing for later: In 2008, the recession sent the foodservice industry into a nose-dive. Chains like Subway and Starbucks recognized that trafc would be down, as would basket rings/check averages. To turn this challenge into an opportunity, these chains provided incentives for morning customers to consider the afernoon. Subway, for example, provided customers with discounts for purchasing mutiple food items to account for “dinner,” and Starbucks gave customers discounts for the 2 to 5 p.m. daypart if they returned with a receipt from the morning. C-stores had been the go-to venue for stocking up between meals even before 2008, and this trend continues among consumers today.

Although there are many reasons consumers snack and numerous snacking options for those consumers, several key points about overall snacking stand out: Meal replacements that are low-prep and prepackaged wth little to no clean-up are in high demand.

High-protein snack choices like lean meat, nuts and granola bars are generating more buzz in the social health space.

C-stores are the undisputed afternoon destination for snacking Reason for c-store snacking visit Morning

Afternoon

Evening

It’s on my route.

18%

27%

20%

I realize I’m hungry and fnd someplace to stop.

13%

26%

21%

I stop to buy gas and go inside to buy a snack.

15%

26%

21%

I’m in a hurry and it seems easy.

16%

26%

18%

It’s part of my routine.

13%

17%

14%

7%

15%

13%

It’s part of a larger shopping trip.

SOURCE: TYSON CONVENIENCE FOODSERVICE/ANHEUSER-BUSCH RESEARCH, 2015

JANUARY 2016

5

PM SNACKING Better-for-you snacks like fruit, bars and veggies are replacing snacks with higher fat and sugar content.

Convenient, on-the-go options are the snacks of choice for millennial parents.

C-stores are destinations for PM snack purchases Te fact that PM snacking is on the rise is good news for c-store owners, because it puts their stores in a unique position to be one of the top venues for PM snacking and small meal options. Nearly 40 percent of consumers indicate they have purchased a snack at a c-store in the past 30 days, making it the top choice among drug stores, QSRs and casual dining restaurants.

Several important factors give c-stores an edge in the PM snacking market. Most c-stores are open for business around the clock, making it easy for shif and other workers to stop in and purchase food and beverages throughout the day.

In addition, consumers say they fnd c-stores the most attractive and efcient places to satisfy their PM hunger. When asked when and why they select a c-store for a snack, consumers reveal the channel’s inherent advantages: convenience, gas, location, and ease of in and out.

Consumers also typically use convenience stores as a “fll in” for their grocery trips, so

they’re already used to purchasing foodservice items there, particularly during the afernoon and evening dayparts, according to the Tyson Convenience Foodservice/Anheuser-Busch 2015 research.

How c-stores can maximize the PM snacking dynamic In order to plan, execute and sustain successful PM snacking programs, a c-store must initially identify the specifc types of snack oferings that are most appropriate for its concept. One way to do this is to evaluate the types of snacks consumers purchase at competing locations and then add items that aren’t currently on the shelves. Or, try polling customers to narrow their PM snacking preferences to specifc products, such as roller grill food, breakfast sandwiches and pasta salads.

Using this type of consumer information, a c-store can put into play several specifc strategies to help foodservice programs resonate with snackers in the afernoon and evening hours: Concentrate on portability and ease of snack.

Position PM snacks as their own platform using unique items, sizes and communications.

Use sampling to build awareness.

Leverage trafc from other dayparts to build awareness (i.e., coupons, team selling, etc.).

Employ social media and mobile app rewards.

By developing a new way of thinking outside of traditional meal dayparts, c-stores can set the stage to truly leverage their strong PM snacking position.

—Julie Powell

6

JANUARY 2016

ENERGY PRODUCTS

Energy products fuel afternoon snack breaks The word “energy” is tailor-made for PM snacking: It’s the leading attribute for products that consumers choose as afernoon snacks, reports Mintel, while Nielsen’s 2014 Snack Attack report suggests that 61 percent of its global respondents snack to get an energy boost.

In addition, sales trends for energy drinks remain strong in convenience stores, according to IRI. For the 52 weeks ending Nov. 1, 2015, dollar sales for non-aseptic energy drinks were up 11.3 percent, and unit sales were up 8.5 percent. For energy shots, dollar sales were up 2.4 percent and unit sales were up 2.3 percent.

A new generation of energy snackers Energy products have been long been a pseudo-snack for athletes looking to stay at the top of their game and millennials who lap up energy drinks and shots. Tese consumers are projected to continue their love afair with energy product snacks, but for a host of new reasons.

Older millennials between the ages of 27 and 37, for instance, have shifed from extreme sports and nightlife to family-oriented pursuits but have actually increased their reliance on energy drinks and shots to sustain their

Energy beverage sales climb at c-stores +11.3% +8.5%

Dollar sales change Unit sales change

+2.4% +2.3% Non-aseptic energy drinks

Energy shots SOURCE: IRI DATA FOR 52 WEEKS ENDING NOV. 1, 2015

JANUARY 2016

7

ENERGY PRODUCTS busy lifestyles, according to Mintel’s May 2015 Energy Drinks–US report.

Parenting especially seems to drive consumers to reach for an extra dose of energy; signifcantly greater percentages of moms and dads reported themselves to be users of energy drinks and/or shots vs. those without children.

In the past three months, how has your personal consumption of energy drinks and/ or energy shots that you buy for yourself changed, if at all?

28% Drinking more energy drinks Drinking more energy shots

In the past three months, how has your personal consumption of energy drinks and/ or energy shots that you buy for yourself changed, if at all?

Drinking more energy drinks Drinking more energy shots

16%

29%

18% 11% 6%

18%

Mother

3%

7% 4%

Not a mother

Not a father

1%

Father

*Mothers and fathers were classified as those respondents with children ages 18 and under in their households.

9% iGeneration/younger millennials n n n

SOURCE: LIGHTSPEED GMI/MINTEL

Older millennials

iGeneration: born in 1995 or later Younger millennials: born in 1987-1994 Older millennials: born in 1977-1986 SOURCE: LIGHTSPEED GMI/MINTEL

In addition to targeting athletes, harried parents and other consumers seeking energy to fuel their busy lives, makers of energy products have tapped into another user prime for afernoon snacking occasions: gamers. According to Te New York Times, video game enthusiasts who position themselves as “e-athletes” are using energy drinks to fuel their virtual battling.

Changing with the times Te energy product category continues to evolve with shifing consumer preferences for more sugar-free oferings and products touting natural and even organic ingredients. At the same time, traditional energy drinks are maintaining their appeal: Mintel’s energy drinks report suggests that 90 percent of those who consume natural energy drinks also drink regular energy drinks.

Flavor profles are changing too, with gels and chews in particular showing more unique favor combinations that speak to consumer interest in variety. Another shif on the taste front is movement away from sweet, with new products this year featuring savory favor profles. In addition, the gel market is promoting an additional application for its products that repositions them as potential snacks—spreading gels on toast. —Jenny Anderson

8

JANUARY 2016

WIIINGS FOR EVERY TASTE. Ad title

MEAT SNACKS

Meat snacks pack protein into PM snack occasions The market for meat snacks has expanded rapidly in the United States during the past year. Sales of meat snacks, which include meat sticks and jerky, grew nearly 14 percent in the 52 weeks ending May 2015, according to Nielsen. In fact, consumer demand for dried meat has risen so sharply that it now dwarfs the once high demand for comparable snacks, such as party mixes and pita chips.

Why the big switch? Research suggests it’s because the inherent characteristics of meat snacks meet some of the key criteria consumers use to select snacks in general: to replace a meal, to curb hunger between meals, and to satisfy a craving. And the high protein content of meat snacks makes them an ideal choice for consumers hitting that mid-afernoon slump.

Top reasons consumers choose salty snacks 60% As a treat 58% To satisfy a craving 42% Because my children ask 35% Curb hunger between meals 24% Take the place of a meal 20% Try a new favor 18% Try a new product 12% As a stress reliever 12% As a mood booster SOURCE: MINTEL, SALTY SNACKS, EXECUTIVE SUMMARY, U.S., JANUARY 2015

10

Better-for-you appeal Younger consumers in particular are also putting more emphasis on seeking out better-for-you food oferings such as meat snacks. When asked how important it is to fnd better-for-you products in convenience stores, 63 percent of 18- to 24-year-old consumers rated this very/extremely important, according to recent Carbonview research. Half of the millennial population surveyed also rated this greatly important. Tat’s a monumental change in consumer attitudes, considering that c-store customers, along with vending and sporting event food customers, historically have placed health and wellness at the bottom of the list.

JANUARY 2016

MEAT SNACKS

How important is it for you to fnd better-for-you options in a convenience store?

Importance

Total

Gen Z

Millennial

All male

All female

Extremely Very Total very/extremely important Somewhat Not very Not at all

20% 24% 44% 30% 12% 14%

30% 33% 63% 30% 4% 4%

28% 22% 50% 31% 11% 8%

18% 24% 42% 26% 14% 19%

22% 24% 46% 34% 10% 10%

NOTE: GEN Z ARE AGES 18 TO 24; MILLENNIALS ARE AGES 25 TO 34.

SOURCE: SBI/CARBONVIEW SEPTEMBER 2015 SURVEY

Millennials clamor for meat snacks Millennials—who tend to be the heaviest afernoon snackers, according to IRI’s March 2015 State of the Snack Food Industry report—are also contributing to the boom in meat snacks specifcally: One of the top four food items that millennials said they purchased on their last visit to a convenience store was a meat snack, according to recent Carbonview research. Tat’s equal to the percentage who purchased prepared foods, which have been aggressively promoted by c-stores eager to cash in on the category’s high margins and increasing consumer demand.

Add to this fnding that meat snacks are also one of the top fve purchases for total c-store male consumers, and it’s obvious there’s a void being flled by meat snacks for today’s hurried and mobile consumer looking for a quick energy snack. Meat snack suppliers and category analysts contend the category will continue to see positive growth.

But even as a variety of food companies and restaurants begin to ofer menus of jerky items, c-stores continue to be the top destination for meat snacks.

—Julie Powell

Product innovation contributes to meat snack growth Although beef jerky still accounts for more than three-quarters of meat snack sales, turkey continues to be the fastest-growing type of jerky, and alternative meats, such as bison, deer and elk, are also rising in popularity.

Types of jerky preferred by consumers

Beef jerky 79%

Poultry jerky (chicken and turkey) 8% Game jerky (deer, elk, salmon, buffalo) 7% Pork jerky 6% SOURCE: IBISWORLD, 2015

JANUARY 2016

11

PRODUCE

Fresh fruits, veggies make the cut for PM snacks Vehicle cup holders and c-store beverages have always been good partners, but increasingly shoppers are filling those cup holders with grab-and-go cups of fruits and vegetables.

Refecting an overall interest in eating healthy—a 2015 Nielsen survey revealed that half of global respondents believe they are overweight, half are trying to lose weight, and people are generally seeking fresh, natural and minimally processed foods—today’s c-store buyers are scanning the racks for fresh, better-for-you choices for their afernoon snacking. Convenience store sales of fresh fruits and vegetables (whole commodities like apples, bananas and oranges as well as fresh-cut/value-added produce like prepared salads, fruit cups and other packaged produce) increased 10.3 percent to $362 million in 2014, according to Nielsen data.

U.S. produce sales growth rates in 2014 Convenience stores 10.3% Other 2.7%

SOURCE: NIELSEN DATA

Jef Lenard, spokesperson for the National Association of Convenience Stores (NACS), says produce appeals to all demographics and dayparts.

“Eighty-four percent of items sold in c-stores are consumed within the hour, if not sooner, and afernoon is perfect for millennials. Fresh-cut and value-added vegetables and fruits are incredibly convenient,” he notes. “If you look at the demographics, 20 percent of the population now is single and living alone—they don’t race home to eat dinner at 5 or 6 o’clock. Tey may go home, but then go out again to the gym, a movie or somewhere with friends, and so their afernoon snack tides them over until they eat at 9 or 10 [o’clock] at night.”

Carrying fresh produce can elevate a c-store in discerning consumers’ eyes, adds Beth Bloom, food and drink analyst for Mintel. “About 6 in 10 consumers would like convenience stores to carry more healthy foods. While some c-stores are making inroads in this area, they still have a way to go,” she observes, adding that c-stores must walk a fne line between providing items consumers want while appealing to their health-conscious tastes and preferences.

Adding more fresh-cut fruits and vegetables to their offerings is a good move for c-stores, says retail analyst Burt Flickinger of Strategic Resource Group in New York City.

“Tere is a tremendous opportunity for cut prepared fruit cups and cut prepared vegetables or pre-packaged, readyto-eat fruits and veggies,” he says, citing c-store chains like Sheetz and Wawa that are getting multiple deliveries a day of fresh fruits and vegetables. “Te freshness is well-recognized by shoppers, worker-commuters and students as they go about their afernoon.”

12

“To prevent alienating those who are willing to indulge or are not as concerned with health, c-stores need to ofer a selection of convenience store ‘staples,’ adding in healthier options such as fresh fruit, yogurt and more nutritious oferings,” says Bloom. —Lynn Petrak

C-stores that sell: 77% Fresh fruits and vegetables

57% Packaged salads

44% Cut fruit and vegetables SOURCE: NACS 2015 DATA

Serve the items your customers are craving 64% of consumers have a craving for Asian Foods.1

Consumers crave pizza around the clock making it a perfect meal or snack.

35% of C-store consumers are likely to purchase pizza as an afternoon snack and 40% are likely to purchase pizza as a late night snack.2

98% of Americans eat pizza

at least once a month.2

Egg rolls are the most well-liked Asian appetizer amongst C-store consumers with 77% saying they are very or extremely appealing1 - making them a perfect grab-n-go hot snack.

1 Schwan's Food Service Proprietary Research. Completed in 2014.

2 Schwan's Food Service Proprietary Pizza Insights Study, 2014. Š2015 Schwan’s Food Service, Inc. All Rights Reserved.

To learn more about our products, call 1-888-554-7421 or visit SchwansFoodService.com

PIZZA/FOODSERVICE

Pizza, foodservice slice into snacking market Pizza sales are up at convenience stores, and snacking trends could deserve some of the credit.

According to a May 2015 report from NPD’s SupplyTrack, cases of pizza crust and dough shipped to c-stores from broadline foodservice distributors increased by 27 percent, and servings of pizza ordered by c-store customers increased by more than 20 percent in the 52 weeks ending February 2015.

“Total dollars of pizza crust and dough cases shipped from broadline distributors to convenience stores increased by over 30 percent,” NPD reports. “Complementing the increase in pizza crust and dough case shipments and dollars was a 4 percent increase of pizza box case shipments to convenience stores in the year ending February compared to year ago.”

The foodservice factor It’s no secret that c-stores are competing with quick service restaurants (QSRs) for a slice of the foodservice pie.

Te National Association of Convenience Stores (NACS) calls it “the ongoing food retailing war”—a war that pizza appears to be winning.

“Te popularity of the pizza category at convenience stores is further evidence of the channel’s increasing focus on foodservice and its competitive threat to traditional quick service restaurants,” according to NPD. “Te double-digit growth in pizza servings at convenience stores contrasts to fat servings at quick service pizza restaurants and a 1 percent increase at traditional quick service restaurants.”

Te 2014 NACS State of the Industry Report confrms the important role foodservice plays in the overall c-store proft picture. According to NACS, the prepared food category—of which pizza is a signifcant part—ofers some of the highest margins of all categories for c-store retailers.

Prepared food, in fact, comes in at No. 2 in terms of gross margin percentage (57.6 percent) and is the foodservice category leader, accounting for 65.7 percent of total foodservice sales.

14

More PM snacking opportunities Consumers view snacks as an opportunity to reward themselves with indulgence, according to recent research

by Tyson Convenience Foodservice in partnership with Anheuser-Busch, and are looking for late afernoon and evening snacks that ft the bill. Compared with prepackaged snacks, prepared food snacks in c-stores more strongly fulfll that need, the research suggests. Prepared food quality and freshness were the most important attributes consumers consider, and they look for snacks that are easy to consume on-the-go and that can satisfy without overflling.

Te research from Tyson and Anheuser-Busch also recommends that c-stores target millennial impulse buyers for PM snacking purchases of prepared foods. According to IRI’s March 2015 State of the Snack Food Industry report, more and more millennials and baby boomers in particular are snacking in the late afernoon and early evening hours. IRI research shows that 73 percent of younger millennials (ages 18 to 24), 86 percent of older

JANUARY 2016

PIZZA/FOODSERVICE C-store prepared food dollar sales

12.3% Chicken 6.9% Bakery

Sandwiches 25.7%

4.0% Salads 3.5% Hamburgers Hot dogs 17.0%

2.4% Soup 1.8% Frozen treats

Pizza 16.6%

9.8% All other prepared foods SOURCE:

millennials (25 to 34), 76 percent of younger boomers (45 to 54) and 61 percent of older boomers (55 to 64) surveyed are afernoon snackers, while 61 percent of younger millennials, 57 percent of older millennials, 52 percent of younger boomers and 51 percent of older boomers snack during evening hours.

Millennials snack across the entire day, while boomers tend to start a little later and taper off a little earlier Younger millennials Older millennials Younger boomers Older boomers

In addition, eating snacks as meals at home is becoming the norm among this group: Forty-fve percent of younger millennials, 43 percent of older millennials, 41 percent of younger boomers and 23 percent of older boomers report snacking at home in place of a meal, according to IRI. It all adds up to expanding sales drivers for both foodservice in general and pizza in particular at c-stores. “Pizza by the slice is a great opportunity for stores,” adds Jef Lenard, spokesperson for NACS. “A slice can be a great snack to fll cravings before a meal later in the day. And it is something that convenience retailers can do well, whether with a branded partner or with their own program.” —Kathleen Furore

C-store foodservice sales

Average sales per store

Industry total (in millions)

2014

% change

2014

% change

Prepared foods (prepared on- or off-site) $140,754

+7.2%

$21,077

+8.9%

Hot dispensed beverages

$43,821

-0.6%

$6,562

+1.0%

Cold dispensed beverages

$16,021

-0.7%

$2,399

+0.9%

Frozen dispensed beverages

$8,020

+2.6%

$1,201

+4.3%

$208,616

+4.6%

$31,239

+6.3%

Total SOURCE:

Early morning

Morning

Afternoon

Evening

MARKET RESEARCH, 2015

MARKET RESEARCH, 2015

Late evening SOURCE: IRI

16

JANUARY 2016

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DAIRY/JUICE DRINKS

Juice, dairy drinks provide sippable snacking satisfaction In addition to being convenient and easy to down, portable dairy and juice drinks are well-aligned with the consumer shift toward healthier snacks. Te added nutrition in these drinks, for example, such as protein, vitamins and antioxidants, caters to a preference that is particularly notable among the youngest—and now largest—consumer demographic.

Findings from market research frm Datassential reinforce nutrition as a driver in consumers choosing juice and dairy drinks as afernoon snacks, but its BUZZ beverage tracking program suggests that these drinks also have appeal for their satiation and novelty attributes.

Te idea of sipping nutritious snacks has also gained ground in recent years thanks to cold-pressed juices. Emphasizing health-boosting properties

Consumers indicating that added nutrition is important when eating a snack 2 1

and enhanced nutrients, they also tout interesting favors and combinations of both fruits and vegetables, which helps tie juice to health-oriented PM snacking occasions.

Milk has been playing up its nutrients too, focusing on protein (though dairy milk has been losing ground to non-dairy alternatives that also highlight that beneft). One category of note for c-stores looking to build afernoon snack sales with dairy drinks, however, is kefr.

It’s a small category overall, but IRI reports triple-digit growth for kefr in c-stores for the 52 weeks ending Nov. 1, 2015; dollar sales rose 145 percent over the year prior and unit sales were up 165 percent.

Being recognized as both healthy and satisfying is a strength when it comes to beverages gaining credibility as snacks in their own right. And consumers are embracing the idea. Another key fnding, from Mintel’s 2015 research: More than a quarter of consumers (27 percent) report that they ofen have a beverage as a snack.

—Jenny Anderson

Daily beverage motivations: afternoon (among consumers who indicated that they had each beverage after lunch, but before dinner, the prior day)

2

To give you nutrition/keep you healthy To fll you up/satisfy your hunger Change of pace beverage

1

2

iGeneration/ millennials (18-38)

Generation X (39-50)

Baby boomers Swing generation/ (51-69) World War II (70-plus)

SOURCE: MINTEL, SNACKING MOTIVATIONS AND ATTITUDES–US, APRIL 2015

18

3 2

1

Juice drinks

3 2

Dairy drinks SOURCE: DATASSENTIAL BUZZ

JANUARY 2016

CHIPS

Cashing in on chips “Consumers are still looking to indulge in snacks that taste great; they just don’t want to feel guilty about doing so.”

As consumers continue to snack more frequently, salty snacks such as chips are among the most popular products they’re savoring, especially when they’re looking for more indulgent snacking later in the day.

Although Mintel’s Salty Snacks US 2015 report, for example, suggests that 63 percent of U.S. consumers value the taste of salty snacks more than their nutrition content, Vierhile predicts that chip makers will fnd new ways to appeal to health-conscious consumers.

Ethnic snacks like hummus chips, plantain chips and pita chips are the fastest-growing chips category for new product launches, says Tom Vierhile, innovation insights director for market research frm Canadean. Other snacking trends emerging in the chip category include thin, pufy snacks (for example, chips with a hollowed-out middle); snacks with edgier favor combinations (think chile and lime, Sriracha and ranch); and gluten-free products (14 percent of new snacks made gluten-free claims).

“One trend which goes beyond the chip category is fnding new ways to integrate vegetables into snack foods to add their health credentials, and we think there is more room for innovation with regard to this trend,” he says. “Future growth in potato chips may also take cues from what is happening in the beer category, where craf beer options have exploded.

Innovation in potato chips is nowhere near this level, but the potential exists for products that provide a higher quality experience that consumers are willing to pay more for.”

—Kathleen Furore

“Te big trend is the ‘anything but potatoes’ trend for potato chips, with chip makers experimenting with other ingredients as a base for chips including beans, lentils, grains, seaweed and more,” Vierhile says. “Another part of this trend is taking potato chips and adding a healthful ingredient to give the appearance that the chips are better-for-you. Some examples include chips made with olive oil, and with ingredients like spinach, matcha [tea], pumpkin seeds and more.

“We feel that there are also good opportunities focused on the concept of ‘permissible indulgence,’” adds Vierhile.

2014 snack chip sales Potato chips Tortilla/corn chips

$1,379

$9,209 $963 $6,431 +9.6

% change

+7.8

+6.7

% change

+5.0

% change

% change

Average sales per store

Industry total (in millions) SOURCE:

JANUARY 2016

MARKET RESEARCH, 2015

19

COFFEE

Perking up coffee sales Coffee is the hot beverage of choice in c-stores and the No. 1 subcategory of hot dispensed beverages, according to the National Association of Convenience Stores (NACS). With the right edible accompaniments, java can be the perfect pick-me-up for afernoon customers, notwithstanding the fact that nearly three-quarters of hot beverage category sales currently take place during morning service hours, NACS reports.

IRI’s March 2015 State of the Snack Food Industry report, for example, suggests that 59 percent of consumers indulge when snacking, and that bakery snacks—a traditional accompaniment to hot cofee—are consumed by 81 percent of consumers, and not always in the morning.

“Afernoon and evening hours are popular snacking times for bakery snacks, especially for Millennials and Boomers,” IRI data show.

Pairing cofee with donuts, mufns and other sweet snacks for a mid-day promotion is an efective way for c-stores to boost both cofee and snack sales in the 2 to 5 p.m. daypart.

It can also help the convenience segment compete with Dunkin’ Donuts, Starbucks and other outlets that consumers consider go-to stops for both afernoon snacking and takeout cofee.

“Te majority of Americans are cofee drinkers, drinking a wide variety of types,” says Elizabeth Sisel, beverage analyst at Mintel. “Te category has great opportunity for growth, as long as it continues to evolve to meet drinker demands

Consumed coffee out of home in the past day 45% 18-24

57%

62%

65%

25-39

40-59

60+

AGE GROUP

SOURCE: NATIONAL COFFEE ASSOCIATION, 2015

and innovate with current trends, including alternative preparation methods, premium or artisanal brews and better-for-you options. Traditional roasted cofee remains at the height of market penetration, helping to spark interest in newer format single-cup and ready-to-drink cofees, including cold brew.”

Retail-purchased cold brew cofee, in fact, has taken of recently, with peak appeal for older millennials ages 21 to 38 (55 percent), and men (30 percent), two strong customer groups for c-stores.

“Retail sales of cold brew cofee refect its rising popularity as growth has been steady since 2010, shooting up rapidly from 2014 to 2015,” says Sisel. “While cold brew represents a small portion of the overall category, our research indicates curiosity about trying a new style of cofee is driving current consumer demand.” —Kathleen Furore

Bakery snacks are consumed by 81% of consumers but not all in the morning MORNING

YOUNGER BOOMERS OLDER BOOMERS

LUNCH

AFTERNOON

EVENING

SPECIAL OCCASION/ ENTERTAINMENT

YOUNGER MILLENNIALS OLDER MILLENNIALS YOUNGER BOOMERS OLDER BOOMERS SOURCE: IRI

20

JANUARY 2016

BEER

Beer + prepared foods = perfect PM snack pairing Convenience stores continue to elevate their position as beer destinations. Beer caves attractively showcase a broader variety of icy cold brews, and some operators are bringing a brewpub experience into their stores by offering growlers of tap beer in easily portable half-gallon jugs.

Tis activity provides considerable potential for snack product cross-promotions. Salty snacks are a no-brainer complement for beer, but c-stores may be missing out on another opportunity: prepared food snacks paired with beer as a late afernoon snack. A recent study commissioned by Tyson Convenience Foodservice and Anheuser-Busch reported that although only 5 percent of recent c-store beer purchases included a prepared food item, more than half of those purchases were consumed as snacks.

Indulging in beer and prepared foods together Te research also reinforced the importance of reward and indulgence in afernoon and evening snacking, and went on to note that prepared food snacks fulfll that need more strongly than packaged alternatives. In addition, data from market research frm Datassential’s BUZZ tracking service also points to indulgence as a PM snacking driver—31 percent of consumers who drink beer in the afernoon say they do so to treat/reward themselves.

JANUARY 2016

The beer back story Nearly 80 percent of convenience stores sell beer, accounting for more than 30 percent of all beer purchased in the United States, according to the National Association of Convenience Stores (NACS).

Higher-end priced products, such as craft, are driving most of the growth across the overall beer market, reports Nielsen, with volume growth of craft beer for the 52-week period ending June 20, 2015 at 10.2 percent—on par with the growth of Mexican imports. Nielsen also found the word “craft” inspires consumers, particularly younger legal drinking age males, to buy beer: Thirty-fve percent of adults 21 and older say they’re more interested in trying an adult beverage labeled “craft,” while that fgure jumps to 46 percent among men ages 21 to 24.

“Tis study gave us valuable additional insights on something we already know: that cross-merchandising beer with snacks helps drive additional revenue,” says CJ Watson, vice president–small format at Anheuser-Busch.

“Displaying items together gives retailers an opportunity to potentially create occasions and capture more shopping missions. Displaying beer alongside the prepared food items in the c-store can tap into the key snacking opportunities this study uncovered and capture unplanned sales.”

CONTINUED ON PAGE 24

21

TIME TO RULE THE SNACKING OCCASION

PM 21% INCREASE

ON BEER BASKET SIZE WHEN PREPARED FOOD IS PRESENT

ENJOY RESPONSIBLY © 2015 Anheuser-Busch, Budweiser® Beer, St. Louis, MO

BEER REPRESENTS OF TOTAL REVENUE FROM 3 PM - CLOSE

15%

MAKING BEER THE REVENUE

#2 DRIVER DURING THAT TIME

HOWEVER, ONLY

15 IN

BEER BASKETS

ALSO HAVE A

PREPARED FOOD ITEM

LEVERAGE THE POWER OF BEER TRAFFIC TO GROW YOUR PREPARED FOOD CATEGORY! SOURCES: INFOSCOUT MOBILE PANEL – 52 WKS 9/8/2015; NACS 2013 TOP QUARTILE ANALYSIS

BEER CONTINUED FROM PAGE 21

Bar-focused restaurants, in fact, have long built business in the quiet hours between lunch and dinner by ofering budget-friendly discounts on drink-and-appetizer combos. P.F. Chang’s, for example, highlights tiered value by ofering a collection of appetizers at four price points ($4, $5, $6 and $7) from 3 to 7 p.m. And TGI Friday’s has made its happy hour more of a round-the-clock occasion, which is in line with the shif from three square meals at traditional times to noshing at all hours. Te restaurant’s new Happy Hour Every Hour ofers $5 appetizers and adult beverage specials throughout its hours of operation.

rella sticks, onion rings and other indulgent fnger food.

C-stores can also emulate P.F. Chang’s and create two tiers of late afernoon choices for shoppers to take home and consume: a value menu of small bites and traditional items and beers, and a higher-priced collection that could encourage trading up to more premium and larger-portioned snacks and brews. —Jenny Anderson

C-store beer sales growth

Building an afternoon menu As c-stores increasingly look to restaurants as inspiration for foodservice programs, their version of “happy hour” could be as simple as marketing the occasion by better connecting beer and prepared foods as an afernoon snack occasion, purchased at the c-store for consumption at home.

Percent of c-stores selling beer

2014 75.3%

2013 75.3%

For stores selling beer: Percent of in-store sales Average sales per store

Building a snacking menu of beer-friendly prepared foods gives the concept even better visibility. Traditional happy hour fare at restaurants is not unlike the core of prepared food snacks at many c-stores—wings, mozza-

Percent of in-store gross margin dollars Average gross margin dollars per store SOURCE:

12.8%

12.9%

$174,179

$171,792

8.9%

8.7%

$32,353

$31,173

MARKET RESEARCH, 2015

Beer/malt beverages c-store sales 2014

52.

Premium

Dollar sales

SOURCE:

24

12.0% 9.6% 8.7% 7.8% 3.8% 3.6% 2.3% 0.1%

Imports Budget Popular Flavored malt beverage Microbrews/craft Super premium Malt liquor Non-alcoholic

Flavored malt beverage 12.9% Budget 11.1% Popular 10.2% Imports 9.4% Malt liquor 6.0% Microbrews/craft 2.8% Super premium 2.5% Non-alcoholic 0.1%

Unit volume

Premium

MARKET RESEARCH, 2015

JANUARY 2016

NUTRITION BARS

C-stores belly up to the nutrition bar

Sales of snack, nutrition and protein bars in 2014 SOURCE: MINTEL MARCH 2015 CATEGORY STUDY

Nutrition bar sales at convenience stores and other channels are piping hot—and likely to keep getting hotter, say industry observers.

“Consumers may want something sweet in the afernoon but don’t want to sacrifce health,” she says, noting that Generation X snackers are most likely to eat energizing snacks in the afernoon, compared with other generations.

In a March 2015 study on snack, nutrition and protein bars, Mintel reported that the category reached $6.2 billion in 2014, with even higher projected growth during the next few years. Meanwhile, IRI data for the 52 weeks ending Oct. 4, 2015 show that sales of nutrition bars in the c-store channel surged to more than $577 million, a 16 percent increase over the previous year.

“C-stores have unprecedented opportunities with nutrition bars,” says Burt Flickinger, retail analyst with New York City-based Strategic Resource Group. “[One] key factor is the fact that a majority of employers have reduced full-time employment . . . there are more people working two or three part-time jobs, and as they do that, they don’t have time to prepare a full meal or even stop for fast food. Instead, they are shopping at leading c-stores that have a great depth and range of nutrition bars, as well as foodservice.” —Lynn Petrak

Nutrition bars really do hit the sweet spot between convenience, health and midafernoon cravings, says Beth Bloom, food and drink analyst for Mintel.

C-store bar sales Total snack bars/granola bars Total nutritional/intrinsic health value bars Granola bars Breakfast/cereal/snack bars All other snack/granola bars

Dollar sales

Dollar sales % change vs. year ago

$851,398,015 $577,110,912 $101,567,136 $170,557,440 $2,162,495

+12.56% +16.04% +7.96% +5.84% -44.40%

SOURCE: IRI TOTAL U.S. CONVENIENCE FOR LATEST 52 WEEKS ENDING OCT. 4, 2015

JANUARY 2016

25

CARBONATED BEVERAGES

Carbonated packaged beverages change with the (snacking) times With lower-priced gas having a favorable impact on c-store beverage sales, according to a recent Wells Fargo Securities “Beverage Buzz” survey, packaged soft drinks remain vital in the channel. IRI reports that sales of packaged carbonated drinks in U.S. c-stores were up for the 52-week period ending Nov. 1, 2015, with dollar sales rising 3.7 percent over the prior year and unit sales growing 1.6 percent.

Tose favorable tailwinds put beverages in a better position to capture afernoon sales, but evolution in the category has also made packaged sof drinks more snack-friendly for shoppers seeking products with a healthier halo or a twist on traditional sodas. Smaller portions, for example, in the form of 7.5-ounce mini cans, and bottles with 12.5 or 16 ounces instead of 20, mean fewer calories and less sugar in addition to lower prices.

Another potential bright spot is the rise of craf/natural sodas. Tough a small category that is still quite young, these drinks are piquing consumers’ interest for a variety of reasons, Mintel research indicates.

As c-stores look to leverage beverage opportunities during the afernoon snacking period, one promising concept is a nonalcoholic “happy hour” similar to those at some quick-service restaurants: Taco Bell positions the period from 2 to 5 p.m. as Happier Hour, with fountain drinks and freezes priced at $1.

Sonic, which has had its happy hour program in place nationwide since 2007, ofers fountain sof drinks, slushes and other drinks for half price from 2 to 4 p.m.

Te concept has proven efective in helping to transform an of-peak period into a new afernoon daypart built around snacking. Even without discounting, c-stores ofer such a broad variety of beverages that simply marketing the idea of the nonalcoholic afernoon happy hour may elevate the carbonated packaged drink section (and the fountain) as a destination for beverage-oriented PM snacking. —Jenny Anderson

C-store packaged beverages 2014 dollar sales

What consumers like about craft sodas

54%

Natural/real ingredients

49%

Premium/high-quality ingredients

Carbonated soft drinks 33.0%

Alternative beverages (including energy drinks) 25.1%

42%

Bottled water

Sports drinks

Juice/juice drinks Iced tea (ready-to-drink)

Enhanced water All other packaged beverages

Creative favors

% indicating attribute is appealing SOURCE: MINTEL, CARBONATED SOFT DRINKS: SPOTLIGHT ON NATURAL/CRAFT, JUNE 2015

26

SOURCE:

9.8% 9.7% 8.5% 5.5% 5.5% 4.1%

MARKET RESEARCH, 2015

JANUARY 2016

BOTTLED WATER

Bottled water pours into better-for-you snack market Ninety-six percent of consumers think Americans should be drinking more water, according to a November 2014 Harris Poll conducted for the International Bottled Water Association, so what better beverage to pair with better-for-you afternoon snacks?

Regular bottled water ofers a no-calorie, natural accompaniment to foods eaten as snacks, while functional and favored waters lend themselves to beverage-only snacking occasions. Te latter category continues to enjoy trendy status and diversify, with products like coconut and aloe vera waters migrating from specialty markets to c-stores. And sales of seltzer, sparkling and mineral waters were up double-digits for the 52 weeks ending Nov. 1, 2015, according to IRI: Dollar sales rose 19.2 percent over the prior year to reach $191.7 million, and unit sales grew 17.2 percent to $128.5 million.

U.S. consumers who say:

95%

92% 55%

Bottled water is a healthier beverage choice than soft drinks.

Bottled water should be available wherever other beverages are sold.

Bottled water is among their preferred beverages.

SOURCE: INTERNATIONAL BOTTLED WATER ASSOCIATION

Bottled water products also ft right into the growing consumer demand for healthier snacking. One-third of consumers say they are shifing to healthier options— agreeing that they are snacking on healthier foods than they were a year ago—and 60 percent wish there were more healthy snack options, according to Mintel’s 2015 Snacking Motivations and Attitudes study.

Te infuence of health considerations on snacking likely bodes well for bottled water sales in convenience stores, given water’s now widespread image as the ultimate healthful beverage. In fact, frst lady Michelle Obama and the Partnership for a Healthier America have been helping to spread that message since September 2013, when the Drink Up initiative was launched to encourage consumers to drink more water. —Jenny Anderson

C-store packaged water sales Bottled water Enhanced water

Average sales per store 2014 % change $16,415 +6.3% $4,908 +5.9%

Industry total (in millions) 2014 % change $2,458 +7.9% $735 +7.6% SOURCE:

JANUARY 2016

MARKET RESEARCH, 2015

27

CONFECTIONS

Sweeten the deal with confections Top 10 snack foods consumed in the United States

1. Candy 15% 2. Fruit 13% 3. Gum 10% 4. Chips 8% 5. Breath mints/strips 5% 6. Ice cream 5% 7. Nuts 5% 8. Cookies 4% 9. Bars 4% 10. Crackers 3% SOURCE: INSIDER MONKEY SURVEY, 2015

If candy is dandy, then indulging in confections as an afternoon snack is even sweeter for many on-the-go Americans.

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including chocolate and non-chocolate sweets, according to Nielsen.

Balancing health and indulgence

In fact, candy is the hands-down winner among preferred snacks, accounting for 15 percent of the top snack foods, followed by fruit and gum, according to a recent survey from the stock analysis website Insider Monkey.

And sales of typical morning goodies like donuts, bagels, fresh fruit and mufns give way to craving-driven chocolate bars and candy bars in the afernoon, reports NPD in its SnackTrack research on grab-and-go snacking.

Still, the fact that fruit is within a couple percentage points of candy is a refection of today’s concurrent desires for indulgence and health when it comes to snacking, including afernoon snacking occasions. Beth Bloom, food and drink analyst for Mintel, says c-store operators can work to strike a balance between the diferent types of and occasions for snacking.

Other research confrms that Americans—including shoppers on visits to c-stores—still have a sweet tooth.

Last year, consumers gobbled up $20.8 billion in candy,

“It cannot be denied that chocolate confectionery is a treat. Nearly three-quarters of consumers turn to these products for a treat, meaning the category will need to JANUARY 2016

CONFECTIONS promise and meet this most basic expectation,” says Bloom, adding a confection-related caveat: “Although the category remains a popular indulgence, manufacturers will continue to be pressed to ofer better-for-you options and engage in responsible product positioning as the spotlight on health intensifes.”

Inconsistent consumer patterns Burt Flickinger, retail analyst with Strategic Resource Group in New York City, says consumers really do talk and eat out of both sides of their mouths when it comes to snacking. Tey may choose a healthy, fresh item one day and then opt for a candy bar or other sweet treat on another afernoon occasion, depending on their mood, their taste or other diet concerns.

“Typically, when you talk to shoppers, they want sin and salvation. Tey want pre-cut fruits and vegetables, but they’ll also buy a candy bar,” says Flickinger.

In addition, confectionery products may be purchased in the afernoon but consumed later that day. Explains Bloom: “While snackers focus on health during the day, at night it’s all about indulgence.” —Lynn Petrak

Confections by the numbers Candy is the third top-selling category of the Top 20 food and non-alcoholic beverage categories across all outlets based on dollar sales.

The $46.5 billion in annual confectionery sales accounts for the biggest portion of the overall snack category.

Across income, age and background, more than 90 percent of American households buy candy.

Sales of chocolate increased 2.9 percent in 2014, while sales of non-chocolate confectionery products in the United States rose 2.1 percent during that year.

Gum sales topped $3.1 billion in 2014; sugarless gum accounted for 84 percent of all gum sales.

Seasonal candy accounts for more than $7.2 billion in sales each year.

SOURCES: NIELSEN, NATIONAL CONFECTIONERS ASSOCIATION

C-store confection sales (Total U.S. convenience for latest 52 weeks ending Oct. 4, 2015)

Dollar sales

Total gum category

$1,111,902,976

+1.44%

$206,771,280 $905,131,776

+4.43% +0.78%

$2,747,429,632

+5.63%

$2,218,803,968 $375,106,752 $4,048,786 $621,486 $253,289

+4.23% +12.18% -4.69% -29.48% -10.49%

$2,092,671,232

+9.20%

$247,607,680 $273,860 $103,149,632 $123,941,640 $1,198,818,944 $200,405,728 $88,198,656 $122,956,775 $2,143,059

+9.35% +9.14% +7.33% +2.42% +10.92% +5.92% +12.72% +4.87% -10.04%

Regular gum (no sugarless) Sugarless gum

Total chocolate category Chocolate candy box/bag/bar (less than 3.5 oz.)

Chocolate candy box/bag/bar (more than 3.5 oz.)

Chocolate candy snack size Novelty chocolate candy Sugar-free chocolate candy

Total non-chocolate category Breath freshener Caramel/taffy apples/kits/dips Hard sugar candy/pkg. and roll candy Licorice box/bag Non-chocolate chewy candy Novelty non-chocolate candy Plain mints Specialty nut/coconut candy Sugar-free diet candy

% change vs. year ago

SOURCE: INFOSCAN REVIEWS, IRI

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