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GLOBAL PERSPECTIVE ON FOODSERVICE AND FTG Strategic Overview

Insight Global Convenience Strategists

NACS Relationship Partner for Europe www.insightresearch.co.uk T: +44 1938 556 090

Channel Blurring - shift vs growth

• Strategic insight has never been more important because retail is

changing so fast. Many retailers are losing big. Online is changing shopping habits. It is driving a big shift in terms of what kind of retail consumers want to do at home, compared with what they want to buy and experience out of home.

Eating Out More and Social Venues

• Convenience retailers are becoming more focused on foodservice

because more and more consumers globally are eating out of home, for breakfast, lunch and dinner too. Coffee is a good example of this shift from in-home to out of home consumption. Coffee shops in the UK for example are booming not because consumers are drinking more coffee (they aren’t) but also because they fill a ‘social venue’ gap in society which would previously have been met by pubs.

Differentiated

• Bricks retail is not disappearing, but it is becoming better: more

disciplined, more articulate, more differentiated.

A new approach to customer service

• Convenience needs to work harder at becoming a retail

destination and it also needs, if it can, to try to satisfy consumer’s demands for more sociability, more connection and a whole new approach to what is meant by good customer service.

Foodservice – own brand or branded partnerships?

• Convenience retailers have little choice but to embrace more complicated

foodservice offers as consumer needs mature and move on from models which worked well for them in the 90’s featuring triangular sandwich + drink on a meal deal.

• The key question for retailers is whether to develop an own brand or a brand

partnership solution to this opportunity and threat? And how this changes their businesses? This is a crucial strategic decision and not an easy one as not only do convenience retailers have to develop a new foodservice offer, they also have to develop a new retail culture to deliver it effectively.

• The US is well known for own brand solutions and these are the models developed

by Wawa, Sheetz and Rutter’s. By contrast in Europe, two of the most interesting models to date are the Euro Garages ‘convenience mall’ brand partnership model and the ‘brand implant’ model being developed by Tesco.

• An evaluation of these European models is a good starting point before we look

closely at the US own brand model. What are the strengths and weaknesses of each approach?

The Euro Garages ‘Convenience Mall’ – a branded partner offer

From 1-200 sites in 10 years and from 1-70 Subways in 5 years!

Euro Garages - Starbucks Roadside Master Franchise Operator

Page 8

From 1-55 Starbuck’s in 3 years!

Euro Garages – different brands for different needs

Page 8

EG Branded Partner Model – advantages?

• Scalability … fast as evidenced by Euro Garage’s growth.
• A ‘Convenience Mall’ of brands catering for different

consumer needs, for every pocket from premium Starbuck’s to value orientated Gregg’s, with Subway mainstream.

• Partner brands are mature, established destination brands

which re-invest to stay in touch with consumer behaviours and come with operational manuals and ‘global’ promotional

• programmes. These brands easily overcome the ‘fuel deficit’,

the problematical associations of petrol for fresh food.

• And consumer behaviours are developing rapidly. What

worked in the 90’s won’t work today. Consumers want hot, fresh & healthy.

• EG can switch out poorly performing brands for the latest

franchises and as they expand geographically, EG can recruit new, appropriate branded partners for new markets.

• EG able to focus on its core expertise of site acquisition,

capitally intensive investment and operational execution.

EG Branded Partner Model – requires operational excellence

• Royalties reduce profit margins.
• EG need to work with a number of different partners, all with

their own brand DNA, guidelines, health & safety and quality

• standards. EG need to make considerable ongoing investment

to roll out the brands individually and then to manage their individual and distinct needs once they are rolled out too.

• This ongoing brand management is not just about serving

customers, its about EG staff managing those brand offers well too. Petrol forecourt managers are not going to look after Subway and Starbuck’s stores too. Dedicated management is required.

• Significant training requirement. All staff at EG super sites are

employees who need to be trained up to respective partners brand standards. Initially this can be done at partner company owned sites. As the business grows EG need to develop their own trainers to cope with the numbers.

• Because many of the brand partners are distinct businesses,

EG probably can’t develop as fast as they’d like to with regard to new technologies which consumers increasingly want such as pre-order and pre-pay. This can also slow down adoption

• f digital signage, etc.

Tesco Express – culture and brand implant for an MTO offer

Page 8

Tesco haven’t got the right culture for foodservice so they are acquiring it, H&H, Giraffe Café, Eurporium, Fred’s

Tesco Express – new use of technology

‘89% of UK consumers use self checkouts, 39% agree that they offer better customer service’*NCR

Tesco Metro – big changes in store design towards customer engagement

Use of the ‘friendly culture’ of partner brands like Eurphorium, Fred’s, giraffe café, Harris & Hoole

Foodservice – Trends in US Market

US is at a more advanced developmental stage, 3-5 years ahead

Social interaction and eating out of home

• US convenience retailers like Wawa and Sheetz are developing an experience around

MTO which can’t be achieved with pre-packed. They are making their stores look as much like restaurants as possible and they have re-evaluated customer service.

Growing foodvenience

• Another interesting US development is the more advanced breakdown of traditional

meal occasions. US retailers may be further advanced in developing options for consumers who no longer want to eat 3 square meals a day. US consumers often eat 5-6 times a day. It’s ‘foodvenience’. We will see how all day eating options are being delivered in the US market.

US – the differences?

• One question to consider - what advantages does the US MTO in –store produced

model offer by comparison with the chilled distribution and re-heat model more common in Europe? Which strategy will win long term?

• And which strategy is the right one for Europe in delivering better foodservice

solutions; branded partner or own brand as in the US?

US Operational efficiency – what has changed?

’Work cell’

• Sophisticated operators like Wawa fine tune every ‘work cell’ of their business in
• rder to maximise the speed for customers

Turning parking spaces

• Wawa focuses on turning parking spaces, just like a good restaurant focuses on

turning tables.

Digital connectivity

• Touchscreen ordering and pre-order mobile communications are developing in

harmony with increasingly developed hot food offerings.

• Mobile ordering and the latest loyalty platforms mean that the most developed

foodservice operators like Rutter’s will soon dispense with drive thru and focus on expansion of the hot food offer into more developed menu items which increase share of stomach in evening meal occasions

• New technologies also make interaction more efficient and rewarding for
• consumers. The latest loyalty programmes allow customers to use cell phone

numbers as ‘unique codes’ to enable touch screens and phones to recognise them, reward them and remind them of their recent top 10 orders

Wawa – a highly disciplined, well defined and marketed offer

Page 8

Convenience retailers like Wawa are developing increasingly sophisticated store designs with a more ambitious food offering. Wawa has come a long way and is becoming a genuine retail destination.

• As the US moves towards more and more eating on the move and out of home,

Wawa has developed new format c-stores which look much more like restaurants. The millennial generation just don’t eat at home much any more and this store is built for them.

• Wawa opened its first, new large store in Florida 2 years ago and are now building

this new store design in its original home market. Wawa has also been busy advancing its foodservice offer with fresh foods and more variety to cater for all the day parts.

• Wawa’s new standard store is 5,600sq ft. Inside, the store features a super sized

customer service counter plus touch screens for ordering, delivering a highly efficient service. Customers refer to the store as a restaurant with gas pumps rather than forecourt with food. This has been a clear aim - to get customers beyond the fuel pumps and to think about fresh food.

• Joe Bona, president of branded environments at CBX, worked with Wawa on the

Florida store format. Bona thinks Wawa’s new store represents the state of the industry and that in future stores will have a more developed food offer. As a result, stores such as Wawa will be competing with retailers like Subway as well as traditional convenience chains.

Wawa – “Eating out is the new eating in”

Wawa – vertically integrated own brand strategy

640 sites (380 with gas). Already 50 sites in Florida in 2 years. 22,000 employees. Pennsylvania, New Jersey, Delaware, Maryland, Virginia and Florida.

Sheetz – creative, high energy, food focused contemporary retail icon

467 sites, growing at 30 p.a. $5B revenue. 14,000 employees. Maryland, North Carolina, Ohio, Pennsylvania, Virginia and West Virginia

• Sheetz are growing fast at 30 stores a year and are also investing heavily in rebuilds

and refresh to bring sites up to the latest brand standards. Sheetz aim for all stores in the future to have drive thru and seating. The regular Sheetz store is 6500 sq ft.

• 90% of product is delivered by Sheetz centralised distribution.
• Sheetz initially dabbled in the brand partnership model but it didn’t work for
• them. They have invested so heavily in building the Sheetz food brand that this is

really where they hang their hats.

• The biggest problem Sheetz perceive is that consumers are still distrusting of

getting restaurant quality food in a gas station, particularly in new markets. Sheetz want to build stores which look more and more like a restaurant and less like a conventional c-store.

• All Sheetz stores sell gas, but Sheetz will soon be opening a new 15,000 sq ft

Sheetz ‘Market’ in Morganstown, Virginia with an expanded grocery offer and a huge fresh food presence.

• Sheetz have achieved incredible results in terms of creating a customer service

culture and have recently made the top 100 in the US Fortune Best Places to Work competition.

Sheetz – changing industry perceptions

Sheetz – creative, high energy, food focused contemporary retail icon

Rutter’s – highly developed and broad foodservice offer

56 locations in counties of York, Lancaster, Dauphin, Cumberland, Adams and

• Franklin. All in South Central Pennsylvania. 1,250 employees.

• Rutter’s deliver a world-class convenience store through its focus on people,

technology, rewards and food

• It already has an impressive record in people development. In 2013, the retailer

was ranked #1 in Customer Service in Pennsylvania by CSP Magazine and #2 in Customer Service in the US among chains with fewer than 150 locations

• Rutter’s were early developers of an industry-leading mobile app with real time

fuel prices; directions/maps to each site location; coupons, deals, rewards, payments and lottery results; games, social media integration and check-ins plus

• pportunities for customer feedback and store specific menus.
• Rutter’s also have a new ‘Remember Me’ feature which allows the customer to

view there 10 previous orders on touchscreens.

• Rutter’s will take this to the next level soon with its cardless ‘VIP’ system.

Customers to use cell numbers, plus a pin code 4 digit password at the pump, at the touchscreen, on phones on the app and at the cash register to both earn and redeem rewards. The clever thing about this is that it is seamless for the customer.

• Rutter’s vision is to go live with pre-order and pre-pay through its app in 2015.

Customers will use the app to pull up their history, choose what they want, pay for it and tell the store when they will pick it up as well as redeem points.

Rutter’s – NACS Insight International Convenience Retailer of 2014

Rutter’s – facilitated by the most advanced technology

Page 13

• C-stores have a great advantage over restaurants as they already have the

customer traffic and the ability to appeal to a broad, rather than narrow

• demographic. The challenge is on execution.
• Rutter’s, like Euro Garages, have dedicated Restaurant Managers who run their

kitchens in-store. Specialised food lines like Mahi Mahi fish bites, beef short rib, pastrami buger melts and ultimate burgers have really differentiated the Rutter’s food programme taking it into new territory for the c-store business.

• The equipment package in the Rutter’s kitchen is very broad and includes woks,

turbo chef ovens and holding draws. Ultimate burgers take 6 ½ minutes from scratch so Rutter’s prep them and hold them. The whole kitchen concept is made in order to have the capacity to cook anything, equal to any restaurant. Once pre-

• rder comes on line through the Rutter’s app next year, it will be interesting how

much this encourages customers to migrate from grab and go to an MTO mission.

• Creating the right operational culture for the restaurant part of the Rutter;s

business was a major exercise which has taken years of development time.

• Interesting note: sides are a massive growth area for Rutter’s with consumers

regularly coming in 4,5,6 times a day. The era of 3 square meals is yesterday.

• Rutter’s feel they have long past the point where they tell the customer what to
• eat. The customer wants choices, they want personalisation and they want to build

the finished product the way they want it.

Rutter’s – food platform is second to none in channel

Wegman’s – supermarket or all day eatery?

Thoughts to Hold on the Store Tours and in the De-brief Channel Blurring - shift vs growth

• Strategic insight has never been more important because retail is changing so fast. Many

retailers are losing big. Online is changing shopping habits. It is driving a big shift in terms of what kind of retail consumers want to do at home, compared with what they want to buy and experience out of home. What is your experience with this?

Eating Out More and Social Venues

• Convenience retailers are becoming more focused on foodservice because more and more

consumers globally are eating out of home, for breakfast, lunch and dinner too. Coffee is a good example of this shift from in-home to out of home consumption. Coffee shops in the UK for example are booming not because consumers are drinking more coffee (they aren’t) but because they fill a ‘social venue’ gap in society which would previously have been met by pubs. How are you positioned on foodservice and as a social venue?

Differentiated

• Bricks retail is not disappearing, but it is becoming better: more disciplined, more articulate,

more differentiated. What are you doing to become more differentiated?

A new approach to customer service

• Convenience needs to work harder at becoming a retail destination and it also needs, if it can, to

try to satisfy consumer’s demands for more sociability, more connection and a whole new approach to what is meant by good customer service. How are you re-evaluating customer service?

GLOBAL PERSPECTIVE ON FOODSERVICE AND FTG Strategic Overview

Insight Global Convenience Strategists

NACS Relationship Partner for Europe www.insightresearch.co.uk T: +44 1938 556 090