Business
Expansion / Co Branding
According to NACS (National Association of Convenience Stores), foodservice increased 88% in C-Stores from 1995-96. McKinsey and Company in a report titled 'Foodservice 2005: Satisfying America's Changing Appetite,' predicted that the total market for foodservice will grow $100 billion by 2005.
So, where do we find QSRs?
UNFORTUNATELY, OF THOSE QSRs THAT HAVE GONE INTO C-STORES, ABOUT ONE HALF HAVE FAILED.
Before we look at why they failed and why many succeeded, let's take a look at why they were put into C-Stores in the first place.
High Margins:
After labor and cost of goods, margin is 30-40% versus C-Store merchandise of 12-14%.
Reduced Reliance On:
QSK goes with convenience - quick service and convenience
Brand equity - major brands attract Advertising budgets are high
Incremental sales - QSRs will make other merchandise sell Real estate leverage - more than one use of business
QSR learning's
Systems and controls
Customer demand - consolidate trips and makes life easier
Competitive imperative
Necessity to compete - maintain
parity with competition
But
- What Things Could be Wrong With Foodservice?
Lower Revenues
High hopes of revenues,
but does not meet goals.
Lower Foodservice Margins
Not controlling food cost.
Labor, Scheduling and
Recruiting Headaches
Already have problems, why
have more?
Conflicts with Branded Franchise
Increased Store Managing
Workloads
Minimal training with high
expectations.
Training Programs
Turnover being high training
standards are not maintained.
Incredibly Competitive
Even more ferocious than
C-Store.
Highly Saturated
New stores may open up next
to you.
Unforgiving
Minute by minutes management.
Brand food perception or reviews.
Inadequate Support Staff
Support from the branded
QSR.
When
Not to Choose Foodservice
There arc times when a C-Store operation should not choose a foodservice relationship. It is when the owners or management have issues with the following:
However,
If you Do Start Points to Consider
What
Types are Available to Choose From?
Licensed or franchised brands
Proprietary
Manufacturers
Leasing your space
QSR - Quick Service Restaurant
CMS - Convenient Meal Solution
HMR - Home Meal Replacement
(not widely accepted yet because of consumers image of C-Stores)
Answer the following questions with true or false.
1. My typical store is an older store with limited parking
2. My average store is in a suburban location with parking for ten or more cars and pumps gasoline.
3. My average store is a travel center located by a highway, pumping high gasoline volumes.
4. My stores are typically larger, 3,500 square feet or more, located on an acre or more.
5. My stores are primarily freestanding structures on an acre or more of land.
6. I have the capability to provide venting for foodservice equipment.
7. Local zoning laws will allow me to put up as much signage as necessary in most of my locations.
8. My stores typically have been built in the last ten years.
9. Most of my stores sell gasoline.
10. On average, I can dedicate 1,000 to 1,500 square feet or more of store space to foodservice.
11. I can dedicate less than 1 ,000 square feet. to foodservice
12. Most of my business is derived from residential areas.
13. At least 10,000 cars a day go by my typical location.
14. My gasoline stores pump at least 100,000 gallons per month.
15. My stores generate a minimum of $l,000 per day in inside sales.
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| McDonald’s |
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6.65%
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| Burger King |
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4.88%
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| Wendy’s |
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4.61%
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| Hardee’s |
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4.03%
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| Jack in the Box |
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2.68%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| McDonald’s |
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0.60%
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| Burger King |
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1.96%
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| Wendy’s |
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3.21%
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| Hardee’s |
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0.43%
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| Jack in the Box |
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1.39%
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| Source: TECHNOMIC Top 100 | |||
Usually close to demand generators Usually lunch daypart Should have the following close by:
Advantages
Challenges
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Unit Growth 1991-1996 |
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| Pizza Hut |
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3.68%
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| Domino’s Pizza |
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1.75%
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| Little Caesar |
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6.35%
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| Papa John’s |
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60.18%
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| Sbarro |
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7.22%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| Pizza Hut |
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0.23%
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| Domino’s Pizza |
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2.17%
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| Little Caesar |
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2.28%
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| Papa John’s |
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4.47%
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| Sbarro |
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2.25%
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| Source: TECHNOMIC Top 100 | |||
Pizza is usually an evening daypart
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Unit Growth 1991-1996 |
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| Subway |
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13.13%
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| Arby's |
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3.66%
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| Blimpies |
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26.82%
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| Roy Rogers |
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17.11%
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| Schlotsky's Deli |
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17.95%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| Subway |
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0.79%
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| Arby's |
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2.90%
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| Blimpies |
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5.11%
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| Roy Rogers |
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1.39%
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| Schlotsky's Deli |
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11.06%
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| Source: TECHNOMIC Top 100 | |||
Sandwiches are usually lunch and dinner dayparts.
Sometimes used at "time shifted" demand.
Buy early - eat later (especially
travelers)
Considerations
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Unit Growth 1991-1996 |
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| KFC |
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0.19%
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| Boston Market |
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99.96%
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| Popeye's |
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2.64%
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| Chick~Fi11-A |
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8.99%
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| Church's |
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0.46%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| KFC |
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3.23%
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| Boston Market |
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15.43%
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| Popeye’s |
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2.45%
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| Chick~FiI1~A |
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6.97%
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| Church's |
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5.64%
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| Source: TECHNOMIC Top 100 | |||
Daypart is usually dinner
This is over 50% HMR
(Home Meal Replacement)
CONSIDERATIONS
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Unit Growth 1991-1996 |
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| Long John Silver's |
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0.17%
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| Captain D's |
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1.22%
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| Skippers |
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11.84%
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| Arthur Treacher's |
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7.03%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| Long John Silver's |
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2.41%
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| Captain Ds |
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3.81%
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| Skippers |
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2.02%
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| Arthur Treacher's |
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l .48%
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| Source: TECHNOMIC Top 100 | |||
Evening and Lunch Daypart
Traffic should he on going
home side
Good use with two co-brand
concepts, i.e., chicken and sandwiches
CONSIDERATIONS
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Unit Growth 1991-1996 |
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| Taco Bell |
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12.94%
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| Del Taco |
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0.61%
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| Taco Johns |
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0.78%
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| Taco Bueno |
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0.37%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| Taco Bell |
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1.71%
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| Del Taco |
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2.45%
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| Taco Johns |
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7.11%
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| Taco Bueno |
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2.38%
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| Source: TECHNOMIC Top 100 | |||
Usually a lunch or late afternoon day part evening arid late evening.
CONSIDERATIONS
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Unit Growth 1991-1996 |
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| Dairy Queen |
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1.33%
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| Baskin Robbins |
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2.79%
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| TCBY Treats |
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6.92%
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| Mrs. Fields |
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5.53%
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| Carvel |
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6.05%
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| Source: TECHNOMIC Top 100 | |||
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Average Unit Volume 1991-1996 |
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| Dairy Queen |
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2.74%
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| Baskin Robbins |
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2.17%
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| TCBY Treats |
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2.22%
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| Mrs Fields |
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0.57%
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| Carvel |
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0.79%
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| Source: TECHNOMIC Top 100 | |||
Daypart for afternoon and
evenings
CONSIDERATIONS
Most of these are not
car friendly.
Low frequency sales.
Competitive with present
products in c-store.
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| Criteria | Burger | Pizza | Chicken | Sandwich | Seafood | Mexican | Snack |
| Average Unit Volumes (000s) | $1,089.1 | $522.0 | $788.9 | $333.6 | $664.4 | $521.8 | $364.2 |
| Convenience Store Development and Investment Costs' | 10 | 7 | 10 | 6 | 10 | 7 | 5 |
| Equipment Reqnircments2 | 19 | 5 | 19 | 4 | 7 | 5 | 5 |
| Drive-Thru Importance | 10 | 4 | 10 | 5 | 6 | 8 | 4 |
| Encroachment Issues' | 10 | 7 | 7 | 7 | 6 | 7 | 5 |
| Staffing Needs | 10 | 7 | 10 | 5 | 7 | 7 | 5 |
| Operational Complexity | 10 | 5 | 10 | 4 | 7 | 6 | 5 |
| Source: Interviews, 1997 TECHNOMIC Top 100 | |||||||
'Development costs represent fees, equipment, working capital, construction costs, inventories and other costs. It is given only as a guide to comparative costs between segments, and it is not intended to be comprehensive. It excludes real estate costs or occupancy costs. This assumes the convenience store operator is seeking a Top 100 concept.
3Encroachment issues are
the likelihood that a site that would otherwise be approved would be unacceptable
to the franchiser due to being too close to another franchise of the same
chain.
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| Criteria | Burger | Pizza | Chicken | Sandwich | Seafood | Mexican | Snack |
| Breakfast | 20% | 25% | |||||
| Lunch | 50% | 40% | 35% | 60% | 40% | 50% | 30% |
| Dinner (including afternoon and late night) | 30% | 60% | 40% | 40% | 60% | 40% | 70% |
Source: TECHNOMIC Top 100
Considerations:
CONSIDERATIONS
Manufacturing brands
- Sara Lee - Oscar Mayer, etc.
CONSIDERATIONS
CONSIDERATIONS
Multiple Brand Strategies
Selecting
an Operator for Leasing
If you have made the decision to lease out space in your operations as opposed so self-operation, you need to select an appropriate operator. You should follow this process:
2. Identify the segments and concepts most appropriate for your locations.
3. Identify companies in your market area that operate the desired QSR concepts. A good resource for this is the Chain Restaurant Operators Guide available in many libraries.
4. Contact the national brand. Do they recommend specific franchisees in your area?
5. Visit a number of their operations. Evaluate the facilities. Check for cleanliness and maintenance, including:
When negotiating the deal with the operator, ask yourself the following questions.
Typical
Foodservice Lease Structures
There are numerous methods for structuring a lease for QSR operation. In general, QSK operators avoid locations where the leasing costs are more than five or six percent of sales. However, high volume locations can support higher rent percentages. There are basically only two types of QSR leases, with numerous variations. These are:
The
flat square footage lease:
This is a very basic lease
with rent being charged per square foot. There is no connection to the
tenant's QSR sales.
Example:
A convenience store operator
leases 1,400 square feet at $11.00 per square foot to a franchisee of a
national sandwich concept. The lease is for a period of three years, with
an option to renew. This generates $15,400 in revenue per year.
Advantages:
This type of lease is easy
to negotiate and to understand. It allows you to easily predict the cash
flow from the QSR operation.
Disadvantages:
If the operator is successful
arid extremely busy, your financial returns as the host are capped. In
addition, you may suffer additional wear and tear on your facility without
a corresponding increase in your financial return. For instance, your parking
spots may be tied up by your tenant's customers at lunchtime.
Percentage
rent lease:
This lease is based on being
paid a percentage of the operator's sales. This may be a flat percentage
or a graduated percentage that increases as the operator's sales climb.
Example:
A convenience store company
negotiates the following lease with a multiunit franchisee of a major national
QSR chicken concept:
4% of sales under $250K
5% of sales from in $2 50K to $550K
6% of sales from $500K and above
If the operator generated total sales of $450K annually, the convenience store would realize rental revenues of:
4% x $250,000 = $10,000
5% x $200,000 = $10,000
Total lease revenue = $20,000
Advantages:
A percentage rent lease
allows the property owner to participate in the tenant's success and creates
an incentive for the landlord to help the tenant succeed. In addition,
higher volume levels will result in higher rental income, which can offset
the additional wear and tear on the facility.
Disadvantages:
If the operator is less
successful than hoped for, a percentage rent may not provide sufficient
income to cover the 'opportunity cost' of the lost selling space.
As a result of the advantages
and disadvantages of percentage and fiat rent leases, many QSI~ leases
are a combination of both types. A very common lease is a flat rent lease
with a percentage rent that kicks in at the 'break point.' A break point
lease is one in which percentage rent exceeds the per square floor rent.
Example: A convenience store
leases 1,000 sq. ft. of space to a regional QSR pizza concept. the lease
is structured as follows:
| Rent per square foot | $12,000 |
| Annual Rent | $12,000 |
| Percentage Rent: | 6% |
| Break Point
($12,000 divided by 6%) |
$200,000 |
If the tenant generates only $150,000 in sales, the convenience store realizes $12,000 in lease income
If the tenant generates $300,000
in sales, the following would happen:
| Base Rent | $12,000 |
| Percentage Rent | 6% |
| Sales | $300,000 |
| break point | ($200,000) |
| Sales eligible for percentage rent | $100,000 |
| x Percentage rent (6%) | $6,000 |
| Total Lease Income of | $18,000 |
Advantages:
Combination leases offer
flexibility and ability to participate in the tenant's success while ensuring
minimum levels of cash flow in the event that the foodservice operation
is not extremely successful.
When evaluating the capability of an existing site to accommodate foodservice, you must determine its parking capacity. Your local municipality may require a minimum amount of parking depending on the square footage dedicated to foodservice or by the number of seats. A national QSR concept will also require minimum parking levels. For your internal analysis the following methodology can be used.
Parking Calculations
Please note that these
numbers are only for purposes of this example and are not intended
as representative.
| QSR Restaurant projected Annual Sales | $250,000 |
| LACSS Percent through Drive Thru (35%) x | 35% |
| Inside Foodservice Sales | $162,500 |
| Divided by Average Check | $3.95 |
| Annual Customers | 41,139 |
| Weekly Customers | 791 |
If the busiest days of the
week are projected to be Thursday and Friday, 18 percent and 22 percent
of sales, respectively, then
| 791 customers X 18% | 142 customers per avg. Thursday |
| 791 customers x 22% | 174 customers per avg. Friday |
If the QSR concept typically generates
50
percent
of daily sales between 12:00 p.m. and 2:00 p.m. and the peak hour is 75
percent of lunch sales, then
| 142 customers x 50% lunch demand | 71 peak day lunch customers |
| 71 peak day customers x 75% peak hour | 53 peak lunch hour customers |
Finally, if, on average, the concept attracts 1.5 customers per car, then
53 customers divided by 1.5 per car = 35 cars per hour
If the average 'carload'
is in the restaurant for ten minutes (between takeout and seating in the
restaurant), then
| 35 cars per hour divided by ten minutes per car = | 6 required parking spots |
Given these parameters, the foodservice concept would require a minimum of six spaces, before adding employee and convenience store customer parking.
| Daytime
Trade Areas
Office Complexes Shopping Centers College Campuses Other Hospital Transient highway Total Daytime Population % in primary demographic Potential Customers |
10,000 50,000 7,500
1,500 10,500 79,500 25% 19,875 |
Nighttime
Trade Areas
Rental Complexes Residential Areas Shopping Centers College Campuses Other Transient Highway Total PM Population % in primary demographic Potential Customers |
15,000 10,750 4,500 2,500
15,000 47,750 15% 7,163 |
Competitive
Analysis Worksheet
AM Competitive Environment
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Primary Competitors (AM) |
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| Burger King |
$3.75
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$1,200,000
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60%
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$720,000
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$1,973
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526
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| McDonald's |
3.98
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1,500,000
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65%
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975,000
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2,671
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671
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| De Angelo's |
3.75
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1,200,000
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60%
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720,000
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1,973
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526
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| Subway |
3.95
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350,000
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75%
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262,500
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719
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182
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| Pizza Hut Express |
2.95
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400,000
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60%
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240,000
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658
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223
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| Taco Bell |
2.50
|
750,000
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60%
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450,000
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1,233
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493
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Subtotal AM Daily Primary
Competitors 2,621
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| Concept Name | Avg. Check | Sales/Yr | AM % | AM Sales | AM Sales/Day | Cust./Day |
| Jackson's |
$4.50
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$700,000
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70%
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$490,000
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$1,342
|
298
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| Bob's |
2.98
|
400,000
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65%
|
260,000
|
712
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239
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| ARAMARK |
3.75
|
500,000
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65%
|
325,000
|
890
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237
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| Taco Steve's |
2.25
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200,000
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75%
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150,000
|
411
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183
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| Wendy's |
2.95
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400,000
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65%
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260,000
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712
|
241
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Subtotal AM Daily Secondary
Competitor 1,199
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Total Daily Area AM Customers
3,820
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AM Competitive Environment
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Primary Competitors (AM) |
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| Burger King |
$3.75
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$1,200,000
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40%
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$480,000
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$1,315
|
351
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| McDonald's |
3.98
|
1,500,000
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35%
|
525,000
|
1,438
|
361
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| De Angelo's |
4.50
|
1,200,000
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40%
|
480,000
|
1,315
|
191
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| Subway |
3.95
|
350,000
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25%
|
87,500
|
240
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