Last month’s Chain Store Guide insight focused on foodservice in nontraditional venues such as theme parks, movie theatres, and bowling alleys. This month, I’m going to provide some additional insight into another nontraditional venue: the ever-growing presence of quality foodservice inside convenience stores.

The first location of what we now label as convenience stores was opened in 1927 in Dallas, TX, by the Southland Ice Company, which is better known by its current name of 7-Eleven Inc. Over the years, the number of locations have skyrocketed – according to information provided by the National Association of Convenience Stores (NACS), there were 148,126 c-stores in operation at year end 2011, up more than 11% over the past decade despite the dragging economy of recent years.

Source: NACS

Over the past five years, total sales at convenience stores have reflected the ups-and-downs of the recession and the volatility of gasoline prices. However, in-store sales remained relatively constant for the same time period, accounting for approximately one-third of total sales.

Source: NACS

One of the consistently bright spots for many c-store operators continues to be in-store foodservice, which accounted for 16.9% of in-store sales last year, second only to cigarettes in dollar volume. What makes the category so appealing is the high profit margin – in 2011, foodservice represented 29.4% of in-store gross margin dollars, nearly double that of either cigarettes or packaged beverages.

According to NACS, the average c-store is 2,744 square feet, with newer stores averaging 3,590 square feet. These newer, larger stores devote about a third of their space to non-retail operations such as coffee islands, sit-down foodservice, and financial services kiosks. The association notes the 80% of gasoline purchased in the U.S. is pumped at c-stores, and 97% of all c-stores are selling gas. However, NACS also notes that “more stores are seeking to become restaurants that happen to sell gas.” The average store sells more than $250,000 in foodservice, including prepared food, commissary-packed sandwiches, coffee, and dispensed beverages. In fact, one of the seminars conducted at this year’s National Restaurant Association’s annual show was entitled “How to Do World-Class C-Store Foodservice,” where one of the speakers declared, “The future of the convenience store industry will depend on foodservice.”

Among the trend leaders in the convenience store industry has been Pennsylvania-based Sheetz Inc. The company refers to its operations as convenience restaurants and goes far beyond the typical c-store offerings of pre-made sandwiches and roller hot dogs. Its menu includes made-to-order subs, hamburgers, salads, grilled chicken sandwiches, wraps, and more. In 2001, the company received a Silver Plate award from the International Food Manufacturers Association in the Chain Fast Service category and continues to invest in growing this side of its business. The latest innovation is a $7.5 million coffee brewing technology that will improve consistency and allow patrons to customize their beverage with as many as 20 new flavor shots. (The company also employs trained baristas to prepare hand-made specialty coffee drinks such as lattes, cappuccinos, and mochas.) According to the just-released Nation’s Restaurant News Top 100 Report, Sheetz Inc. ranked 68^th as a company and 90^thas a chain, with annual foodservice sales in excess of $1.1 million per location.

Why is in-store foodservice such a compelling proposition for these retailers? The simplest reason is boosting in-store trafffic. As gasoline prices have exploded in the past decade (according to the U.S. Energy Department, the average annual gasoline pump price was $1.34 per gallon in 2002) and consumers have been rocked by high unemployment rates and declining home prices, customers have been paying at the pump and driving away, depriving retailers of the spontaneous impulse purchases that characterized the typical convenience store customer. Compounding this loss of in-store commerce has been the decline in the number of cigarette smokers resulting from increased awareness of the danger of second-hand smoke, strict no-smoking rules, and record-setting “sin taxes” on tobacco products.

Chain Store Guide long ago recognized the opportunity that exists in this industry for our customers who provide food, products and services to traditional restaurants. We began capturing information on foodservice operated in convenience store chains in 2002 and provide it as part of the Plus version of our database of Chain Restaurant Operators. The following chart reveals the growth that we’ve tracked over the past five years.

Source: Chain Store Guide Database of Convenience Store Operators

The current Plus database of Chain Restaurant Operators includes 700 c-store operators with in-store foodservice, including 260 Subway operators, more than 50 McDonald’s franchisees, over 30 Blimpie and Dunkin’ Donuts operators, and hundreds more. There are also several hundred companies operating their own proprietary brands. All of these companies are using products and equipment that are found in traditional restuarants, making them a prime target for distributors and manufacturers. They may also be of interest to franchisors seeking new outlets for their brand.

If you would like to know more about the Chain Store Guide Chain Restaurant Operators database or any of our other industry-specific databases, please contact us at 800-778-9794.