The critical contributors to big-time profits at commercial convenience stores are hardly a secret: cigarettes, beer and gasoline. So how do c-store operators make money if those three products are excluded from the mix? Noncommercial operators at colleges, universities and hospitals have figured it out.
The single most important factor in assuring profitability in the noncommercial c-store model is the proportion of prepared products to prepackaged. It is of such overriding impact, in fact, that operators insist not only that you can't make it without prepared products but that your profits will rise as your percentage of prepared products increases.
The math is a no-brainer. Prepare products in-house onsite in your central bakery or commissary, price them competitively with other retailers, and your profit margin is likely to be in the 60 to 70 percent range. A deli sandwich, for example, that costs you $2 in ingredients can be priced at $5.95 to $6.25. Even with labor factored in, you've added 30 to 40 percent of value in producing the item yourself.
You've got a lot less leeway in pricing canned sodas and packaged chips and bars, some of which even have the manufacturer's suggested retail price stamped on them. You can't hike that price because you haven't contributed anything of value to those products beyond floor space.
Orlynn Rosaasen, director of dining services at the University of North Dakota (UND), in Grand Forks, says two of his four campus c-stores, both located in residence halls, offer no prepared foods and “they're struggling.” When UND opened a 1,000-sq.ft. c-store adjacent to a new apartment-style residence hall in the fall of 2007, Rosaasen knew the apartments had full-size kitchens and he would need to stock grocery items for students to use in preparing their own meals.
But he also rolled out a whole menu of prepared foods for the facility: freshly made soups, fresh fruit smoothies, made-to-order sandwiches with a choice of four freshly baked breads and fresh pastries produced at the campus bakery.
The cost of those goods is 30 to 40 percent of the selling price. On prepackaged grocery items, on the other hand, the price is very competitive and Rosaasen says “we run about a 35 percent profit margin.”
“You have to have prepared food and you have to keep coming up with creative new products,” says Rick Barber, associate director of San Diego State University (SDSU) Dining Services in California. “We introduced single-serve parfaits and fruit cups that we produce ourselves and we sell hundreds a day. In terms of sales volume, prepared items are number three. But in terms of contribution to profits, they're number one.”
At Pennsylvania College of Technology (PCT), Foodservice Manager Vicki Killian says her grab-and-go salads, wraps, bakery items and parfaits packaged in a centrally located campus kitchen give her 35 to 38 percent profit. Two from-scratch soups daily and items from an onsite roller grill also are highly profitable.
But building in prepared foods is only the beginning. Read on.
A Custom Fit
When the University of Alabama was planning to remodel its busiest campus c-store to make it more customer-friendly, dining services administrators also saw the project as an opportunity to totally overhaul the product mix. Julia's Market, unveiled in August in Julia Tutwiler Hall, a 900-bed women's dormitory, is an upscale, inviting, 2,000-sq.ft. space designed down to the details to appeal to female students. There are wood floors, soft, track lighting and warm colors accented with splashes of University of Alabama crimson. A separate coffee area with high-topped tables sells extensive coffee offerings, since coffee drinks are the biggest contributor to profits. Bakery items from the central campus bakery are unique to the market.
Dining services conducted extensive surveys and hosted numerous tastings in designing and refining the market's menu.
“What we heard from everyone was that it is all about fresh and healthy so you won't see frozen meal replacements at Julia's,” says Dining Services Director Kristina Hopton-Jones. The product mix emphasizes fresh fruit, freshly prepared single-serve entrees, portable dessert and snack items and lots and lots of sushi.
“I campaigned for a long time to get sushi on campus — it finally was introduced in 2005 — and I think we serve some of the best sushi in Tuscaloosa,” says Hopton-Jones.
A Japanese husband and wife team employed full-time by dining services makes sushi for sale in the retail food court and at three campus c-stores. The menu for the extremely popular — and profitable — line was expanded this past summer to include rainbow, shrimp, tempura and eel rolls to complement the California, spicy and veggie rolls already available. The sushi comes in six- and nine-piece packages.
After extensive taste testing, Julia's Market is also rolling out a branded Boar's Head deli concept, a campus first, as well as ovens to bake fresh bread for the deli line and baguettes, subs, rolls and sliced loaves for retail sale.
Other additions include sorbet and soft-serve yogurt machines and a hot air screen merchandiser for freshly prepared dinners with vegetables, hot dips, grilled vegetarian options, rotisserie chicken, pasta dishes and single-serve hot sandwiches.
An extensive line of single-serve, grab-and-go snack and dessert cups includes banana pudding, strawberry shortcake and carrot cake. At an association conference, Hopton-Jones was delighted to find mini brownies that come in domed containers that act as warming boxes.
Hopton-Jones projects a product mix of 46% c-store items, 32% coffee and 23% Boar's Head products. Food costs for the deli concept are projected at 35%, coffee at 30.5% and c-store items at 68%. She expects a 32% increase in sales and a 7.5% hike in check averages.
C-Store as Destination
Why is Mendota Market — the only c-store at the University of Wisconsin's Hospitals and Clinic, in Madison — so popular?
“We make it a destination by offering visitors and employees items they can't get anywhere else, including Four Lakes Café, the main hospital cafeteria,” says John Hofman, foodservice director. “The Market is the only place to get Starbucks coffee, for example, scooped ice cream and freshly baked pizza. If I offered the same sandwich in the market as I offer in the cafeteria, I would have to price it the same. But if I offer something different in the market — like prosciutto and cheese — when I'm selling bologna and cheese sandwiches in the cafeteria, I can charge more in the Market.”
Inversely, items sold in the Four Lakes Café are also exclusive. The chicken and pasta salad and hummus sold by weight in the cafeteria are not available in Mendota.
The 24-hour c-store (12 hours on Sundays and holidays) also expands service hours and food options for employees when the café is closed in the evening and overnight. The 1,500-sq.ft. store averages 1,700 transactions and $5,500 in sales weekly.
Beverage products are both the top sellers and have the highest margins. The product mix is 54% beverages, 16% prepared foods, 15% snacks, 6% bakery, 6% grocery and 4% “other,” according to Hofman.
The product mix in some ways reflects the fact that “parking is limited and employees must walk some distance to their cars,” he says. “So we don't sell gallons of milk. At the same time, when I go over the sales records every Saturday, I am always surprised. We stock a wide variety of products — 450 items — and sometimes it looks like we are selling one of everything. We sell 10-pound bags of cat litter. Why? I have no idea. But as long as we sell it, we will stock it.”
Where Change is Constant
At San Diego State University, Barber and Cherie Witchell, general manager of c-stores, use their combined seven years of experience with 7-11 to oversee the campus' six c-stores, which account for approximately 50 percent of meal card sales. Each has a unique product mix based on its location, type of customer and other food operations in the area. And each is constantly changing to reflect customer preferences and market trends.
The largest store, at 3,000 sq.ft., is the only one designed and built as a c-store. The product range is extensive: magazines, bulk candy, school supplies and, representing 31% of sales, bottled beverages. A central commissary prepares the large volume of grab-and-go salads and sandwiches.
“We have our own in-house private label with its own logo, ‘Market Fresh,’” Barber says. “We also purchase salads and sandwiches from direct vendors to expand the variety.” A soup bar island custom-designed and built in-house features five soups and one entrée daily. Vegetarian soup and chili are offered every day along with one freshly prepared entrée like spaghetti or ravioli from a rotating menu.
One c-store, near a residence hall with no dining room, has a grill that makes burgers, burritos, grilled cheese and quesadillas in an 1,800-sq.ft. space. The operation does $5,500 sales and serves around 600 daily.
“At that store,” says Witchell, “we sell so much grocery and frozen items — microwaveable meals, instant meals, entrees to take back to their rooms, and tons of ice cream in pints — that we run a lower gross profit margin. We can't purchase in volume because there is no storage space. We have to meet our budgeted profit margin, so pricing becomes a big factor in deciding whether to carry a product.”
In another residence hall, a 750-sq.ft. c-store produces the highest sales volume per square foot of any of SDSU's stores.
“We designed it ourselves and it has morphed over time,” says Barber. It features a full coffee counter, a two-pot soup bar, bagels and sandwich ingredients, and two gondolas displaying candy/snacks on one and grocery items on the other.
“We've cut back on snack items and expanded the grocery section so they can buy supplies to make their own meals,” says Witchell. “We also offer soy milk and all-natural cereals.”
You Think You Know?
“When you have student employees, you have the absolute best resource for input on what you should be offering,” says Kathleen Gianquitti, director of dining and retail food services at University of Rhode Island (URI), in Kingston. “All 20 employees in the c-store are students. Only the manager, Sharon Valliere, is a dining services employee. They're the best source of information on what the trends are. It's not just that they come up with their own ideas on what they would like to see and buy, but they go back to their dorms and the other students know where they work so they make suggestions.”
A recent expansion of The Corner Store, URI's only c-store, increased its square footage by almost 400 percent on the site of the old 400-square-foot, street-level location. The store did $570,000 in sales its first September-to-June school year at a check average of $5.50.
Valliere, Gianquitti and staff members conducted extensive surveys in every residence and dining hall, as well as focus groups with the student senate, for input on the new c-store inventory. “You think you know,” laughs Gianquitti. “We thought we would be able to sell hot prepared foods. We thought the staff and apartment residents would want things like rotisserie chicken and mashed potatoes, macaroni and cheese. The food was freshly prepared upstairs in the Hope Commons kitchen. We set up a small steam table and tried it for two months before giving up and removing the steam table.”
So what is working? Hot beverages — the store offers 12 types of coffee and four tea choices — are the biggest money-maker, with over 50% of sales. Other big categories include dairy, candy and magazines/paperbacks/newspapers.
Twenty varieties of wrapped sandwiches are sold in half and full sizes at a price slightly higher than in the student union but competitive with off-campus food vendors.
Valliere says the store is very responsive to student requests. After one suggested wiffle balls and bats, the store ordered them, becoming the supplier of choice for the ball games played all over on campus. Also popular: trimmed, decorated mini Christmas trees and poinsettias, flower bouquets for Valentine's Day, helium balloons filled on-site and single-use cameras. Gift bags and wrap are being considered.
Gianquitti also sees the c-store as a good place to market items “you can't necessarily get in the dining rooms — things like kosher frozen meals and gluten-free mixes and muffins.”
Redefine C-Store
The University of North Dakota (UND) expanded on the c-store concept when it opened a combination c-store/coffee shop in a student apartment complex and added a drive-through window in the fall of 2007. Located across the street from the largest campus dining hall, Rosaasen said the product mix was designed for students, many of them upperclassmen, living in an apartment-style residence hall called University Place. The mix includes “green” cleaning supplies, frozen single-serve entrees, boxes of cereal and pasta and loaves of bread, 12-packs of sodas and several varieties of milk in half-gallon containers. Since the apartments have full kitchens, Rosaasen initially didn't offer made-to-order sandwiches, take-and-bake pizzas and prepackaged cookie dough produced by the central campus bakery, but he added them later and they are both popular and profitable.
“Everything was driven by the input from focus group meetings conducted over a two-year span,” he says. “They weren't unrealistic in their expectations. They wanted individually packaged fresh chicken breasts and ground beef to prepare back in their kitchens, but that was difficult to do. We do sell frozen raw chicken and beef in single-serve packages.”
Rosaasen says the snacks sold tend to be healthier “fairly expensive” brands, and there is only a small selection of candy. He says self-serve brewed gourmet coffees account for 28% of the sales volume at the shop but contribute “substantially more” than that to profits.