Supermarkets, Convenience Stores Now Woo Diners, Too
They Beef Up Menus With Fresh, Made-to-Order Offerings
Firefighter Jay Wall orders lunch at the Sheetz on US-29 North in Greensboro, N.C. JUSTIN COOK FOR THE WALL STREET JOURNAL
Consumers weighing whether to dine out at a tablecloth restaurant or a fast-food joint now have additional options to consider: the grocery store and the minimart.
Supermarkets have long offered items like rotisserie chicken, and convenience stores have served roller-grill hotdogs and heat-lamp pizza. But in recent years companies in both categories have reformatted their stores and beefed up their menus with fresh, made-to-order offerings that they hope will woo eaters from traditional restaurants and burger joints and lead them to buy other goods the stores sell as well.
Sales of prepared foods and baked goods at Whole Foods Market Inc., which pioneered the sale of fresh-cooked items in its stores, more than doubled to $2.7 billion in fiscal 2014 from $1.3 billion in 2007. That puts Whole Foods on a par with restaurant companies like Chipotle Mexican Grill Inc., whose sales were $3.2 billion last year. Other grocery chains are following suit. Industry giant Kroger Co. is experimenting with putting grilling stations between its meat and seafood areas, and Mariano’s, a Chicago-area unit of Roundy’s Inc., has opened new outlets with sushi counters and oyster bars.
Meanwhile, Sheetz Inc., a chain of 487 convenience stores and gas stations, has rolled out barista stations that offer fruit smoothies and coffee drinks, as well as full-service kitchens that can make items like mozzarella sticks and burritos and provide in-store seating. And Wawa Inc.’s more than 650 convenience stores have counters that make items from French onion soup to custom-ordered sandwiches. The Wawa, Pa., company aims to compete with fast-casual chains like Panera Bread Co. in terms of quality, but at fast-food prices, says Mike Sherlock, vice president of fresh food and beverage.
While sales of dinner are declining at fast-food and casual-dining restaurants, eating dinner at grocery stores has risen 7% over the past five years to 1.8 billion visits annually, according to the market-research firm NPD Group Inc.
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Similarly, the number of meals served at convenience stores in the 12 months ended August 2014 grew 3.1% from the prior year, compared with a 0.4% decline at restaurants, NPD says.
Restaurant chains are taking note: During an investor call this month, Mike Andres,McDonald’s Corp. ’s U.S. president, said convenience stores are among the top competitors it is contending with as it tries to reverse a two-year slump in its U.S. sales.
Both supermarkets and convenience stores are embracing fresh foods to compensate for softer sales of some of their traditional offerings.
“The other things c-stores sell are under pressure,” said Joe Sheetz, chief executive of his namesake chain. “People don’t smoke as much as they used to or use as much gas as they used to.” He added that food is far more profitable for Sheetz than gasoline, with margins of up to 40%, compared with about 5% for gas.
Sheetz makes its entire menu available 24 hours a day rather than segmenting breakfast, lunch and dinner. The CEO says such flexibility is particularly appealing to customers in their mid-teens to mid-30s, who have been defecting from places like McDonald’s.
William Franklin, a 23-year-old graduate of the University of North Carolina at Wilmington, frequents a Sheetz near the Raleigh-Durham International Airport. On a recent morning, he ordered a hamburger.
“It’s pretty good for gas-station food,” he said.
Whole Foods, which opened its first in-store bar in 2009, has been increasing the sophistication of its fresh-food offerings and dining areas. Five years ago, it had no full-service restaurants and fewer than a dozen venues where customers could sit, eat and have a beer or a glass of wine. Now it has more than 100 stores with such venues, and they carry names like Da’Vine Wine Bar or Taylor Street pasta bar. About half of them offer waiter service, Whole Foods said.
“We used to think of food service as this smaller part of the grocery business,” said Paul White, senior prepared-foods coordinator at Whole Foods. “We are turning it on its end.”
The added offerings bring additional complexity and cost. Sheetz today employs an executive chef, a research-and-development team to come up with recipes and cook-time standards, a food-safety department and an analytics team that studies the buying habits of customers to customize food by neighborhood.
Bob Mariano, CEO of Roundy’s, said that running a restaurant is an entirely different business than running grocery stores. It is more complex and requires employees with a different skill set, he said. It’s hard, he added, to get the interior design right, with lighting, ambiance and seating that will encourage customers to stay.
Still, he said, margins are better at the restaurants than at the rest of the grocery store, even when the higher labor costs are taken into account.
“We have regulars who come in to see their favorite bartenders; people roam around or plan to meet people somewhere,” Mr. Mariano said. “They’re using us as a destination.”
