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R&IEditorial Archives2002 — September 15 — Business

Food Fight
7-Eleven has 5,800 stores and its sights on QSRs

With customers spending no more than a few minutes in a convenience store, getting them to notice—and buy—something new is a challenge.

When that product is grab-and-go food, partnering with familiar quick-service chains offers one solution, providing name recognition and consistency assurances. Enon, Ohio-based c-store operator Speedway SuperAmerica has struck alliances with a variety of QSR franchisers—including Baskin-Robbins, Dairy Queen, Pizza Hut, Subway and Taco Bell—to provide nationally branded foods.

Other c-store operators choose to control their own kitchens, believing it provides more flexibility in meeting changing consumer tastes. Oak Brook, Ill.-based Clark Retail’s White Hen Pantry c-stores and the new BP Connect c-store concept rolled out by London-based fuel giant BP PLC feature made-to-order sandwiches at deli-style counters.

The path that convenience retailer 7-Eleven Inc. treads sidesteps both QSR partnerships and the labor and space investments of deli counters while still pushing sales of fresh foods. Rather than assembling sandwiches and other foods in each unit, 7-Eleven developed a system of preparing foods such as sandwiches, salads, breads and baked goods in regional commissaries and delivering them to outlets each morning in temperature-controlled trucks. Stores place orders every evening through 7-Eleven’s computer network.

Daily fresh-food offerings including hot breakfast sandwiches, deli-style subs, prepared salads, muffins and warm snacks—all bearing in-house brand names—are part of 7-Eleven’s plan to boost its foodservice operations.

“The consumer no longer is interested in generic deli sandwiches,” says Des Hague, vice president of fresh foods for Dallas-based 7-Eleven Inc., which with 5,800 stores in North America is the nation’s largest c-store chain. Since assuming the fresh-foods post in April, Hague has worked with many of the largest retail suppliers of meats, cheeses, breads and condiments to broaden 7-Eleven’s fresh-foods menu and compete head-on with QSRs. The chain is confident its World Eats bakery and Big Eats Deli sandwich names can achieve stature equal to QSRs’ with its consumers.

Charting 7-Eleven’s food strategy is a high-stakes undertaking. Foodservice, which includes fresh foods, accounted for $379 million, or 5.4% of the company’s nongasoline merchandise revenues in 2001. Though well below $1.579 billion in revenues from nonalcoholic beverages, including frozen Slurpees, it’s hardly insignificant.

However, foodservice’s share of total merchandise sales has slipped at 7-Eleven, declining from 5.9% in 1999 to 2000’s 5.7% before dipping still more last year.

The chain believes that new food products can halt the slide. In May, 7-Eleven augmented its grill menu with Go-Go Taquitos, crispy tortillas with one of three fillings (beef and cheese; Jack cheese with chicken, or Jack cheese with chicken, spinach, corn and black beans) share space on the roller-grills also used for hot dogs. Hague says 7-Eleven spent 16 months with a grocery-products manufacturer developing Go-Go Taquitos, which sell for 99 cents.

In July, 7-Eleven followed with the national rollout of its Big Eats Deli sandwich line: Classic Chicken Caesar and Smoked Turkey and Jack Cheese with Southwest Mayo served on wheat-berry bread as well as Savory Roast Beef and Bacon, Hearty Ham and Cheddar and Stacked Turkey Club on buttermilk bread. Prepared with specially developed sauces, sandwiches are priced at $3.29. Tested earlier this year in markets in Colorado, Florida, Texas and Virginia, the line boosted sandwich sales as much as 35%, 7-Eleven says.

Along with new flavors, the company hopes, will come new customers—especially women. In a market traditionally weighted toward younger males, 7-Eleven aims to broaden its base. The chicken Caesar on wheat-berry bread, for example, was specifically developed for female customers.

Inside the stores, consumers find 7-Eleven’s fresh offerings in bright upright refrigerated cases labeled “The Deli Market.” Some sandwiches are wrapped in clear plastic, while others are jacketed in green paper wraps decorated with the word “Lunch.” A similar yellow “Breakfast” wrap is used on morning-market sausage biscuits. Information on sandwich labels includes price, specific microwave heating instructions, bar code and “best-eaten-by” date.

The amount of floor space dedicated to fresh foods currently is under review as are signage and store layout. Sales will determine whether floor space will be increased, Hague says.

Two of the biggest challenges facing 7-Eleven’s fresh-foods effort are size and time, says chef and food scientist Allison Brushaber, who works with the Dallas-based company that is 7-Eleven’s partner for product and concept development.

Quality-control measures include date-coded labels and a “strict policy with reference to discarding products,” Brushaber says. 7-Eleven services about 85% of its stores with daily overnight foodservice deliveries, according to Hague.

The company’s other challenge is time. “Everything now is fast,” Brushaber says. “With pay at the pump, customers don’t have to enter the store to buy gas. By the time they get in there, it has got to be a fast transaction.” Food options have to be visible and enticing.

However, Brushaber and Hague agree that marketing, packaging, store placement and signage aren’t much good if not supported by consistent and interesting flavors. With the help of taste tests and focus groups, bolder sauces were created and meats were more highly flavored to get away from perceptions of sandwiches as dry sliced meat and cheese on a piece a bread, Brushaber says.

There are no plans to add in-store food preparation, Hague adds, largely because the present 7-Eleven system works and offers flexibility.

7-Eleven asks food manufacturers it works with to share their market data, Hague says, with information helping to home in on consumer preferences far more accurately than on a regional or even statewide basis. Different fresh-food offerings can be tailored to urban, suburban or cultural preferences within the same metropolitan region.

The result is that mushroom-and-Swiss cheeseburgers are available in some stores while chicken focaccia sandwiches are designated for others.

Since 1994, the increase in foodservice offerings by the nation’s nearly 125,000 c-stores “has been fairly dramatic,” says Jeff Lenard, director of communications for Alexandria, Va.-based National Association of Convenience Stores (NACS). Although there has been some recent leveling off from 20% annual growth in 1998 and 1999, Lenard says foodservice maintains the highest gross-profit margin for in-store sales.

“In the past 20 years there has been a quantum leap in the c-store industry and how it delivers food,” he says. “Instead of buying food from a gas station, customers can now buy food from a restaurant that also sells gasoline.”

Hague doesn’t necessarily think of 7-Eleven operators as restaurateurs, but agrees that the chain’s role changes with the times. “The journey isn’t final,” he says. “It’s an evolution.”

For now, 7-Eleven is focusing primarily on sandwiches, as are many other c-store operators. Of stores sampled in a 2001 NACS report, most partnered with a QSR sandwich chain, followed in order by pizza, chicken, burgers, snacks and Mexican food.

Hague doesn’t see 7-Eleven’s toughest competition coming from any particular food sector, including QSRs, grocery stores or full-service restaurants. C-stores, he believes, have the advantage of being positioned to serve a consumer at least four times a day: on the way to work; lunchtime; after work, and for late-night snacks.

Lenard doesn’t expect c-stores will pull back from their increased foodservice commitments. “You can’t ‘kind of’ get into the restaurant business,” he says. “If you offer foodservice, you’re in the restaurant business. You must go in fully committed.”

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