October 5, 2007
CSD: Star’buck’-ing the System
By Kate Quackenbush
Through a special arrangement, what follows is an excerpt of a current article from Convenience Store Decisions magazine presented here for discussion.
It’s no secret that c-stores have “borrowed” ideas from outside channels. Thanks to Starbucks, c-store operators learned that customers would pay $4 for a cup of coffee as long as it was a high-end brew. So it should come as no surprise that drug stores, fast-food chains and, yes, Starbucks are keeping a close eye on the convenience channel for the same reason – increasing market basket rings and reclaiming the consumer dollars that convenience operators have enjoyed.
Below are a few developments among different retail and foodservice formats:
Drug stores: Walgreens Co. is testing a self-service beverage station, called Cafe W, featuring premium coffees and cappuccinos, tea bags, fountain soda, icees and, possibly, pastries and fruit cups.
“We are in the very early stages of developing Cafe W, with a little over 100 of our nearly 6,000 stores having a version,” said Carol Hively, Walgreens’s corporate spokeswoman. “This is an evolving concept, so Cafe W may not stay the same going forward.”
Donut shops: Dunkin’ Brands, the franchisee of Dunkin’ Donuts, launched a store prototype in Clifton Park, N.Y., featuring personal pizzas and flatbread sandwiches at suggested prices of around $4. Pre-made sandwiches are heated in convection-style ovens in 90 seconds. By early next year, all of the Capital Region’s 106 Dunkin’ stores are expected to have the wider menu.
Fast food chains: Jack in the Box Inc., which introduced the first breakfast sandwich at a major fast food chain in 1969, introduced a sirloin steak & egg burrito, a 10-inch flour tortilla stuffed with strips of sirloin steak, scrambled eggs, hash brown sticks, shredded cheddar and pepper jack cheeses, and chipotle sauce, served with a side of fire roasted salsa. The $2.99 item was conceived after the success of the chain’s sirloin burger and steak ‘n’ cheddar ciabatta sandwich. Unlike fast food competitors, Jack in the Box offers the breakfast burrito all day.
Coffee: After eventually finding success with gourmet breakfast items such as eggs Florentine with baby spinach and havarti, Starbucks this summer expanded its salads and sandwich selections to capture more lunch dollars. Newer lunch selections include the tomato mozzarella insalata and the fiesta salad, a fire-roasted corn and black bean salad topped with juicy grilled chicken. The company also offers regional selections in each of its markets.
Discussion Questions: Do you think c-stores are losing their edge as other stores and food-service chains increasingly play up convenience and lunchtime offerings? If so, what are some options available for c-stores to recapture their position? Also, are you concerned about the blurring of retail channels as all formats move to address convenience?
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There are some C-stores like WaWa and Sheetz that will continue to refine their own foodservice offerings. However, the opportunity, long-term, may be in co-branding–a Boar’s Head sandwich program inside a 7-Eleven or combinations of Dunkin’ Donuts, Pizza Hut, Taco Bell.
I guess it’s more co-locating than co-branding. But it’s been going on for some time among foodservice franchises and there’s nothing more convenient than having 3 or 4 fast food choices in one locale. I said convenient–not necessarily good.
Everyone is watching what is happening because of the incredible growth of Starbucks and their ability to get consumers to pay more for products than they normally would. Add to this the shift in quick service restaurants and c-stores to follow in this same example, and we have a retailing effort which is moving from discount products, to high-value premium products, properly positioned in all environments. This is going on despite the continued growth of all of the other channels, with their traditional customers. This indicates that we have segmented our target markets differently based upon the product differentiation of a premium product rather than a value product. Now, we have premium product consumers in addition to all of our other consumer markets.
Tesco alone should be sending shivers through the collective convenience executive’s spine. If not, they’re about to be blindsided by a truck!
Tesco’s initial concept here, with its promise of speed, simplicity (ease of use), freshness and reasonable prices is much more of a threat to the likes of 7-Eleven than it is to the behemoths in Big-Box land (a different proposition altogether), despite what press says.
In any case, we’ll soon find out.
I think that with whatever the category of retail you want to talk about, the key is to change the playing field. It is not about who owns a certain category, such as $4.00 coffee, gasoline, or a quick sandwich. It is the retailer who focuses on the customer experience and what the customer wants, not what we the retailer want to provide.
It can be summed up by a comment I heard 10 years ago that has proven true over and over again: Don’t be against Wal-Mart, be for the the customer. The same rule applies in relationship to all categories and all competitors. The company that works to satisfy the customer’s needs and wants is going to win.
The AM daypart for C-stores is under attack from everyone from McDonald’s with their upgraded coffee program to the explosion of premium coffee/bakery houses who have suddenly become more convenient than convenience stores. While Texaco, Exxon, Wawa and Shell are holding their own, others such as 7-Eleven are experiencing significant traffic declines.
I think at minimum they are going to have to figure out a way to deliver coffeehouse quality beverages that are comparable in quality to Starbucks yet more convenient and a better value.
Food quality/pricing also has to be able to compete with QSR’s. No longer can you charge a premium for convenience.
I agree that segment blurring means nothing to the consumer, which means they will give permission to anyone and everyone who can meet their needs–including Walgreens.
It’s simply a matter of not defining your business by who you are and what you do, but rather by who the people who come through your door are, and what they want and need. This is a radical change in perspective that could lead many retailers to accelerate needed change.
So of course many people going into a C-store “need” a $4 latte. But their is still a “need” for $1+ coffee. The challenge here is to manage the two needs distinctly, so that neither the retailer nor the shopper is confused.
Convenience has become more of the ‘ante’ than a point of differentiation. Everyone desires convenience. In addition to the noted incursions on traditional C-stores, there exists the potential threat from food service operators to offer many of the traditional non-food service items that a C-store offers. An example is Quick Stuff C-stores operated by Jack in the Box.
Also, dollar stores recognize the food advantage of C-stores. Dollar stores are seeking to become the C-store of choice without C-store pricing.
Everybody is selling food. The challenge to C-stores is to find unserved niches. For example, why not act as a depot for Internet orders that customers could pick up on their way home from work?
Regarding channel blurring, I don’t believe the concept of blurring ever existed. Marketers talk in terms of channels. Customers and consumers talk in terms of where they can conveniently go to pick up a quart of milk–supermarket, C-store, drug store, etc. Wherever the desire for food and convenience collide, a channel exists.
From my perspective I agree no doubt that every retail channel borrows ideas and gains knowledge from other retail channels. While the Starbucks analogy works for me to some degree, please understand that this same analogy also illustrates where the concern that one takes business from the other, should NOT be a concern, at all. With all due respect to the premium coffee business in C-stores, rest assured that Starbucks customers are not switching their loyalties to the C-stores because the market is not the same, for any number of reasons, and the reverse is also true. However, I just looked into my crystal ball, and I see where one major C-store chain is about to team up with Starbucks, and will share locations together. That works!
C-stores never had an edge in food service, except convenience. Most c-store food service is mediocre at best. It’s hard to sustain quality 24 hours a day even when you’re a true restaurant. Convenience stores are really more like variety stores, offering a limited selection in multiple retail categories: limited grocery; limited HBA; limited automotive; limited newsstand; and limited food service. Unless the location is unusual, the food service volume won’t be high enough to sustain first class quality 24 hours a day.
It’s all running together. Next thing you know Starbucks will be selling gas. Unfortunately the C-store industry tends to shove it’s best and brightest out the door. Radical operators go on to do other things like found a Trader Joe’s. Isn’t it radical that no other C-store operator has followed? Here is a proven format that works in a small footprint but none in the industry has enough energy to clone Trader Joe’s. There, in a nutshell, is the problem with the C-store industry. They are too tied to Tobacco programs to evolve. Too short on management to innovate. Depend entirely on their suppliers to show them how to market. Basically, you have a box that only requires minimal expertise to operate and is dependent on location for survival.
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There are some C-stores like WaWa and Sheetz that will continue to refine their own foodservice offerings. However, the opportunity, long-term, may be in co-branding–a Boar’s Head sandwich program inside a 7-Eleven or combinations of Dunkin’ Donuts, Pizza Hut, Taco Bell.
I guess it’s more co-locating than co-branding. But it’s been going on for some time among foodservice franchises and there’s nothing more convenient than having 3 or 4 fast food choices in one locale. I said convenient–not necessarily good.
Everyone is watching what is happening because of the incredible growth of Starbucks and their ability to get consumers to pay more for products than they normally would. Add to this the shift in quick service restaurants and c-stores to follow in this same example, and we have a retailing effort which is moving from discount products, to high-value premium products, properly positioned in all environments. This is going on despite the continued growth of all of the other channels, with their traditional customers. This indicates that we have segmented our target markets differently based upon the product differentiation of a premium product rather than a value product. Now, we have premium product consumers in addition to all of our other consumer markets.
Tesco alone should be sending shivers through the collective convenience executive’s spine. If not, they’re about to be blindsided by a truck!
Tesco’s initial concept here, with its promise of speed, simplicity (ease of use), freshness and reasonable prices is much more of a threat to the likes of 7-Eleven than it is to the behemoths in Big-Box land (a different proposition altogether), despite what press says.
In any case, we’ll soon find out.
I think that with whatever the category of retail you want to talk about, the key is to change the playing field. It is not about who owns a certain category, such as $4.00 coffee, gasoline, or a quick sandwich. It is the retailer who focuses on the customer experience and what the customer wants, not what we the retailer want to provide.
It can be summed up by a comment I heard 10 years ago that has proven true over and over again: Don’t be against Wal-Mart, be for the the customer. The same rule applies in relationship to all categories and all competitors. The company that works to satisfy the customer’s needs and wants is going to win.
The AM daypart for C-stores is under attack from everyone from McDonald’s with their upgraded coffee program to the explosion of premium coffee/bakery houses who have suddenly become more convenient than convenience stores. While Texaco, Exxon, Wawa and Shell are holding their own, others such as 7-Eleven are experiencing significant traffic declines.
I think at minimum they are going to have to figure out a way to deliver coffeehouse quality beverages that are comparable in quality to Starbucks yet more convenient and a better value.
Food quality/pricing also has to be able to compete with QSR’s. No longer can you charge a premium for convenience.
I agree that segment blurring means nothing to the consumer, which means they will give permission to anyone and everyone who can meet their needs–including Walgreens.
It’s simply a matter of not defining your business by who you are and what you do, but rather by who the people who come through your door are, and what they want and need. This is a radical change in perspective that could lead many retailers to accelerate needed change.
So of course many people going into a C-store “need” a $4 latte. But their is still a “need” for $1+ coffee. The challenge here is to manage the two needs distinctly, so that neither the retailer nor the shopper is confused.
Convenience has become more of the ‘ante’ than a point of differentiation. Everyone desires convenience. In addition to the noted incursions on traditional C-stores, there exists the potential threat from food service operators to offer many of the traditional non-food service items that a C-store offers. An example is Quick Stuff C-stores operated by Jack in the Box.
Also, dollar stores recognize the food advantage of C-stores. Dollar stores are seeking to become the C-store of choice without C-store pricing.
Everybody is selling food. The challenge to C-stores is to find unserved niches. For example, why not act as a depot for Internet orders that customers could pick up on their way home from work?
Regarding channel blurring, I don’t believe the concept of blurring ever existed. Marketers talk in terms of channels. Customers and consumers talk in terms of where they can conveniently go to pick up a quart of milk–supermarket, C-store, drug store, etc. Wherever the desire for food and convenience collide, a channel exists.
From my perspective I agree no doubt that every retail channel borrows ideas and gains knowledge from other retail channels. While the Starbucks analogy works for me to some degree, please understand that this same analogy also illustrates where the concern that one takes business from the other, should NOT be a concern, at all. With all due respect to the premium coffee business in C-stores, rest assured that Starbucks customers are not switching their loyalties to the C-stores because the market is not the same, for any number of reasons, and the reverse is also true. However, I just looked into my crystal ball, and I see where one major C-store chain is about to team up with Starbucks, and will share locations together. That works!
C-stores never had an edge in food service, except convenience. Most c-store food service is mediocre at best. It’s hard to sustain quality 24 hours a day even when you’re a true restaurant. Convenience stores are really more like variety stores, offering a limited selection in multiple retail categories: limited grocery; limited HBA; limited automotive; limited newsstand; and limited food service. Unless the location is unusual, the food service volume won’t be high enough to sustain first class quality 24 hours a day.
It’s all running together. Next thing you know Starbucks will be selling gas. Unfortunately the C-store industry tends to shove it’s best and brightest out the door. Radical operators go on to do other things like found a Trader Joe’s. Isn’t it radical that no other C-store operator has followed? Here is a proven format that works in a small footprint but none in the industry has enough energy to clone Trader Joe’s. There, in a nutshell, is the problem with the C-store industry. They are too tied to Tobacco programs to evolve. Too short on management to innovate. Depend entirely on their suppliers to show them how to market. Basically, you have a box that only requires minimal expertise to operate and is dependent on location for survival.