For convenience stores, it's food, glorious food

Don't think of them as gas stations. Instead, think of them as the place for pizza, doughnuts and maybe even some banana bread.

With volatile fuel prices continuing to deliver thin profit margins, convenience store chains such as Casey's General Stores, Kum and Go, and Kwik Trip are expanding their prepared food and beverage menus as they battle for the consumer dollar.

Food service accounted for 16.9 percent of  a record $195 billion of in-store sales at convenience stores in 2011, according to the National Association of Convenience Stores. The industry posted sales of $681.9 billion, with motor fuel sales accounting for the largest share at $486.9 billion.

"Food is the future of our industry," said Jeff Lenard, the Alexandria, Va.-based association's vice president.  "Our stores will become food stores that happen to sell gas rather than gas stations that happen to sell food, as they are perceived today. It will be a slow evolution, but it is happening for two important reasons.

"From the retail perspective, the product is there, the distribution is there, the competency is there, the revenue is there and, from the consumer side, the demand is there. People want fresh food on the go and they want food that has value."

Lenard said consumers are more likely to grab food on the run for breakfast or lunch than they would have 10 years ago.

"You don't have the lunch hour anymore. You have the lunch 10 minutes," he said. "Attracting the consumer who is eating their breakfast or lunch in their car before they arrive at their destination is an important growth area for our industry."

Chicago-based Technomic, a  market research firm, found in a survey for its 2011 "Consumer C-Store Brand Metrics Shopper Insights Report" that a significant number of quick-service restaurant (QSR) customers are starting to view convenience stores in the same category as fast-food eateries.

Eighty-two percent of the more than 3,700 people surveyed said they buy prepared foods or beverages from convenience stores once a month, and 52 percent do so once a week.

"BREADTH OF BEVERAGES'

Kum and Go of West Des Moines, a privately owned chain of convenience stores, is building as many as 11 new stores in the Cedar Rapids area, challenging the market dominance of Casey's. The Ankeny-based chain dramatically expanded its Corridor presence  in October 2006 when it acquired 33 HandiMart stores from Nordstrom Oil for $63 million.

The new Kum and Go stores are designed to emphasize fresh food prepared on site. The chain, with more than 400 stores in 11 states,  views food service as a major component in its quest for increasing sales and market share.

"We're proud of the quality of our food service, but we are always looking at it from the standpoint of 'How can we get better,'" said Roman Stone, Kum and Go vice president of food service.

"We have some competitive advantages over the QSRs. You get the breadth of food at QSRs, but you don't get the breadth of beverages.

"When you go into a QSR, you might get a soft drink fountain and bottles of juice or water, but with us you have the whole of our vault. We offer a variety of everything from energy drinks to flavored tea and water that you can't get in a QSR," Stone said.

Casey's General Stores, which began offering pizza in 1984, has secured a spot among the top five pizza retailers in the nation. Doughnut sales also have played a major role in the chain's food service program for decades.

Casey's reported a 16.8 percent jump in same-store sales during the fourth quarter and 14.3 percent increase in the fiscal year for its prepared food and fountain line. Bill Walljasper, senior vice president and chief financial officer, said prepared foods represents about 8 percent of the company's total revenue, but nearly 30 percent of its gross profit.

"Convenience is a very big factor in peoples' everyday lives," Walljasper said. "If you can provide a quality product at a reasonable price, people will purchase those products."

Walljasper said Casey's, which began offering pizza delivery at a single store in 2010, has expanded the program to 125 stores.

"We have another 50 slated to begin delivery in October, and 50 more will be converted over to delivery before the end of our fiscal year," he said. "We've really moving that forward.

"We've also had a great response to our made-to-order sub sandwich bar. We will continue to roll that out to more of our stores."

Walljasper said Casey's has a  goal of increasing same-store prepared food and fountain sales by 11 percent in fiscal 2013 with an average margin of 61 percent.

"FRESH STUFF"

Kum and Go and Casey's are not the only players, of course. Kwik Trip is a 47-year-old chain of Kwik Trip, Kwik Star, Hearty Platter and Tobacco Outlet Plus stores in Iowa, Minnesota and Wisconsin.

The LeCrosse, Wis.-based company rebranded its Iowa locations as Kwik Star stores to cut down onconfusion with QuikTrip, the Tulsa, Okla., convenience store chain that operates locations in central Iowa.

The National Association of Convenience Stores's Lenard said Kwik Trip has a major commitment to offer fresh prepared food and coffee in its convenience stores.

"Among the things they have is a timer on their coffee," he said. "When that timer expires, they change their coffee. The timer is there to tell their employees when too make fresh coffee, but it also sends a real strong signal to customers that 'This is fresh stuff.'"

Jim Bressi, director of food service research and development for Kwik Trip, contended that offering food service doesn't start in the kitchen of a convenience store, but rather in the bathroom.

"You have to have a clean bathroom before you can sell food," Bressi said. "You start with hygiene and food safety."

That assessment is backed up by a January 2011 survey by Harris Interactive. Ninety-five percent of the 1,000 adults  surveyed indicated that dirty restrooms would negatively affect their perception of a store, closely followed by unpleasant odors at 92 percent.

Dave Ring, Kwik Trip community relations coordinator, said the family-owned company maintains total control over a variety of products by having its own bakery, food commissary, dairy, food safety laboratory, ice plant, LP gas facility and distribution center.

"By not relying on third-party suppliers, we can squeeze out costs and pass the savings along to our customers," Ring said. "We also can maintain the quality that our guests expect when they visit our stores."

Kwik Trip purchases large volumes of bananas, baking potatoes and onions, enabling it to sell the produce at 38 cents a pound, according to Ring. That's typically lower than the prices at supermarkets in the communities where Kwik Trip and Kwik Star operate stores.

"It's amazing to see what Kwik Star and Kwik Trip do with bananas," Lenard said. "They have six banana-ripening rooms in their headquarters.

"Their stores sell hundreds of pounds of bananas each day. When they are ready to be made into banana bread, you won't see them on the shelf at Kwik Trip or Kwik Star."