All Day Breakfast

The Rise Of The Grocerant

There was a time when going to a restaurant was done only on special occasions. But today’s overbooked schedules have people viewing restaurants as a necessary part of their time-crunched lives. In December 2014, for the first time on record, monthly sales at restaurants exceeded grocery store sales, and by April 2015 restaurant sales had moved out in front by $1.5 billion. As the grocery industry watched away from home growth, it made plans to recoup lost revenues.

The main plan was to counter foodservice muscle with foodservice muscle: retail food stores jumped into the foodservice business.

Retail foodservice is not new. A few short decades ago dime-store lunch counters fed office workers and shoppers daily. Grocery stores began introducing prepared meals in the 1970s but it would be three decades before the concept got real traction. Today, consumers reap the benefits of “grocerants,” defined as grocery stores selling wide arrays of prepared meals, either for eating on site or taking home.

Grocers, dismayed at restaurants’ grabbing of market share, aggressively marketed the convenience of prepared foods. And it paid off. Today’s time-strapped consumers are sold on the convenience, item innovation and homemade appearance, which likely decrease their visits to the likely alternative: quick-service restaurants (QSRs). Since most retail operations focus on moderately priced home meal replacement, it appears that away from home lunch and dinner sales may be suffering fallout from grocerants. According to NPD, while QSR dinner sales have declined, eating dinner at grocery stores rose to 1.8 billion visits annually in 2014.

Freshly prepared food items are often the highest-margin products in a supermarket. “Almost every grocery store I walk into now, some of the first things I encounter are their quick-meal solutions, their home-meal replacements,” says Justin Massa, CEO of market research firm Food Genius. In essence, these are modern-day loss leaders with generous margins – a more profitable way to get consumers into a store.

The advent of retail foodservice also coincided with consumers’ increased demands for premium foods in convenient locations. This is the same impulse that drove the creation of fast-casual.

Innovation is evident in both foodservice offerings and operations, attracting customers with heightened expectations. Upscale deli items, trend-responsive prepared foods, soup and salad bars, and dining areas are common at grocerants, but many add even more to keep the experience fresh:

  • Mariano’s (Chicago): in-store branded restaurants; sushi counter with dedicated checkout; oyster and lobster bar; wine bar; huge prepared foods area; pizza bar; coffee shop; frozen yogurt shop
  • H-E-B Grocery (San Antonio): in-store fast casual concept, Table 57, and the 3009 restaurant where street tacos, pizza, small plates, sandwiches, salads and burgers are bought by the pound; sushi counter; trendy cocktails
  • Whole Foods (Austin): ethnic restaurants; burger joint; Parisian café; BBQ shack; coffee bar; wine bar; pasta bar; in-store brewery and restaurant; ramen noodle stations (variety dependent on location)
  • Kings Food Market (Parsippany, NJ): focus on specialty items and gourmet foods; hot bar of international foods; gluten-free, vegan and vegetarian prepared items

Although some in-store restaurants undoubtedly serve breakfast foods, hot breakfast is not well-represented in grocerants’ prepared foods operations. Despite weekday breakfast being largely a handheld grab-and-go affair, this is a major opportunity for grocerants to stand out in their treatment of it. The right equipment is already in-house; it’s just a matter of allocating what it’s to be used for. We see grocerants adding excitement with the following soon:

  • Announcing special brunch days/events, turning the prepared hot foods area into an upscale brunch line for eating in or taking out, using liquid eggs designed for steam table serving use.
  • Renting out facilities for after-hours brunch parties, complete with guests dressed in pajamas; could be used as a fundraising platform.
  • Dedicating a cook to be on duty for specific times on Sunday morning/early afternoon to make made-to-order omelets with customized mix-ins.
  • Promoting “Breakfast for Dinner Tuesdays,” choosing a day of the week when traffic is slow and dedicating the prepared hot foods area to a breakfast buffet line.
  • Preparing date-stamped stratas and other breakfast casseroles, offering them in the heat-and-eat area.

Recent all-day breakfast moves by McDonald’s, White Castle and Golden Corral respond to the 72 percent of consumers who want breakfast available all day. That should serve as a wake-up call for retail foodservice.

A Convenient Breakfast

Share of stomach. That’s the rather indelicate term guiding today’s foodservice competition. Quick service restaurants (QSRs) not only compete with other QSRs, but are vying for the same dollar that could go to a sandwich shop, a fast-casual or pizza restaurant, or even a deli. Until recently QSRs had not taken the convenience store (c-store) foodservice market share seriously but it’s time to take a closer look at its potential impact.

According to the National Association of Convenience Stores (NACS) the U.S. was home to 152,794 c-stores in December, 2014. Many of these locations began as gas stations with tobacco being the major moneymaker, but with more fuel-efficient vehicles and fewer people smoking, foodservice sales are increasingly becoming c-stores’ most profitable category. On top of the best margins, NACS says c-store foodservice revenue has grown to $41 billion, or 19.4 percent of the industry’s 2014 sales. That’s a revenue stream worth nurturing.

The c-store segment is understandably serious about growing its foodservice revenues. According to The NPD Group’s Harry Balzer, they’ve already made significant strides in that direction. “The fast-food market is being squeezed from the top and the bottom,” Balzer has said, pointing out that c-stores gained 3 percentage share points in the overall $1.5 trillion food market since 2006.

Economics have evolved convenience stores from gas stations that happen to sell food, to food retailers that happen to sell gas. One strategy for increasing foodservice sales is improving the quality and appeal of fresh morning options. C-store operators have been capitalizing on breakfast’s popularity to transform people stopping for gas on the way to work into breakfast patrons. It seems to be having an effect. Mintel’s 2015 report, Convenience Store Foodservice, found 32 percent of those surveyed had purchased a made-to-order breakfast sandwich at a convenience store in the last three months.

Grab-and-go is still a required part of the c-store equation, with several brands supplying promotional signage and fixtures for premade sandwiches to capture customer attention. But made-to-order has become important in building relationships with new customers. Connections are made when a customized egg biscuit with jalapenos and avocado is handed to a patron by the person who just made it. Managers’ job requirements now often include foodservice experience.

Discussions at the 2015 Convenience Store News Foodservice Summit examined foodservice as an important part of the industry’s future, and a recurring subject was the importance of Millennials and how to attract them. The focus on customization is one answer to that question.

C-stores are beginning to have a significant impact on QSR breakfast sales. Besides offering scrambled egg bowls and regional favorites along with breakfast sandwiches, wraps and burritos, many operations encourage diners to customize items. That’s a strong Millennial-attracting concept that QSRs are watching and working on themselves.

USA Today recently reported that for foodservice, c-stores are almost twice as important to Millennials as fast-casual restaurants. NACS has identified Millennials as more likely to buy foodservice items at convenience stores than any other age group. Confirming Millennials’ importance, NACS spokesman Jeff Lenard has said, “That’s why the future of convenience stores is food – not gas.”

Convenience chains offer broad opportunities for customizing everything from egg and cheese breakfast croissants to pizza slices. Included in the list are:

  • Wawa’s touch screens for complete customization of its 60+ breakfast sandwiches, burritos and bowls
  • Stripes’ add-ins and condiment bar to rev up items like its Potato, Egg, Bean, Cheese and Bacon Q-taco
  • Sheetz’s made-to-order breakfast sandwiches and the dizzying array of sauces and toppings to customize them

Some chains also make entire menus available throughout their business hours. 7-Eleven offers its whole menu throughout the day and night, and Sheetz’s made-to-order breakfast sandwiches are available 24/7/365.

Technomic says 48 percent of consumers enjoy breakfast foods at nontraditional times. It follows then, that no matter the type of operation – c-store, QSR or fast-casual – coupling breakfast items throughout the day with customizability can maximize sales opportunities.

“Fresh food sales in convenience stores is essentially a 30-year overnight success,” says NACS’ Lenard. “It happened sometime between today and 1983 when Chevy Chase’s character in “National Lampoon’s Vacation” said, ‘I’m so hungry I could eat a sandwich from a gas station.’”

That was funny in 1983 because it was likely true. But today those sandwiches have transformed into real competition.