Foodservice State of the Industry: Top 10 Takeaways

1. Coffee’s Bifurcation

At the height of the recession, when a number of major QSRs began focusing on coffee, convenience stores responded by improving upon their own offerings. Today, many leading c-stores are entering the next stage of coffee evolution, developing barista-manned programs or investing in fleets of super-automatic machines with five-figure price tags.

And what are QSRs up to? Not as much.

C-store operators report regular coffee is the beverage with the highest sales growth potential, at 46% of respondents, compared to just 8% of QSR/fast-casual operators (even though 61% of them already offer coffee). Meanwhile, the restaurateurs indicated made-to-order specialty coffee drinks, at 37%, have the highest sales growth potential, compared to 19% of c-stores.

So will c-stores go on to perfect and dominate sales of regular joe, while QSRs and fast casuals focus on barista-made lattes? The former, maybe, but too many c-stores are rolling out made-to-order programs for restaurateurs to ignore. Sounds like an opportunity for both segments to win—but c-stores to win even more.

2. Consider the Veto Vote

C&U (college and university) is the only segment that is pointedly catering to special dietary needs. Nearly all (95%) offer vegetarian items, compared to 23% of retailers and a little over half of restaurants. Eighty-one percent offer locally sourced foods, compared to a quarter of retailers and just under a third of restaurateurs. As the younger generations have developed more discerning tastes and conscious consumption habits, C&U has become a bellwether of menu trends. So what happens when those students graduate, increase their disposable income, and opt not to frequent your location because the menu does not meet their needs?

3. Breakfast Battleground: Sizzling or Fizzling?

Much like coffee, the morning day-part in recent years has been a contentious battleground. The big QSR players have all strategized around winning more sales at breakfast—from Taco Bell’s morning tacos and burritos to McDonald’s seismic shift into offering breakfast all day. In many ways, c-stores were built for breakfast, given their speed and around-the-clock foodservice offerings. These strategies reveal that the battle for breakfast is all about freedom of choice, making the winner—the consumer—a foregone conclusion.

But the State of Foodservice study indicates a new chapter in this fight for a.m. domination. While 47% of QSR and fast-casual operators serve breakfast, just 16% believe it’s the day-part with the highest sales growth potential, coming behind both lunch and dinner. For c-stores in the study, 94% offer breakfast, and 35% believe it has the highest sales growth potential—beating out all other day-parts.

As Technomic’s Darren Tristano points out (see p. 88), one of the bright spots of the full-service segment is breakfast-and-lunch-only concepts such as First Watch. All of these indicators show operators focusing on their core competencies—whether or not that includes breakfast.

4. Where’s the Competition?

The rhetoric around the growth of retail foodservice continues to rise, yet most QSR and fast-casual operators are more concerned about other restaurateurs than the c-store or grocer down the street. Grocery foodservice sales are expected to increase 6.5% in 2015, according to Technomic, and c-stores saw a 9.7% increase in foodservice sales in 2014, according to preliminary numbers from the NACS State of the Industry Survey of 2014 Data. Yet the size of these segments is still dwarfed by that of traditional restaurants, keeping the competitive threat at bay.

Overall, fast-casual restaurants are seen as the biggest competitive threat to the greatest number of segments. With their captive audiences, most non-commercial operators don’t feel any competitive threat—but when they do, it’s from QSRs and also fast casual.

5. Service Styles Meet in the Middle

Regardless of the segment, foodservice continues to become quicker and more convenient, and the blurring of channel lines and insurgence of retailers into the foodservice game is only propelling that trend. By tracking how operators serve certain menu items, we get a sense of the guest experience, and the data shows c-stores moving closer to a restaurant experience and non-commercial providing more speedy grab-and-go options.

The majority of c-stores in the study offer sandwiches ready to go out of a cooler or hot-holding case, but 43% are also making sandwiches to order. When it comes to sausages, 64% offer such items via self-serve roller grill, but 48% serve them via a team member.

Colleges & universities and hospitals, meanwhile, are offering a notable amount of self-service and grab-and-go items, particularly cold sandwiches (75% of C&U and 74% of hospitals). C&U operators also have the highest percentage (26%) of non-commercial respondents who offer self-service
sausage-type items from a roller grill.