Foodservice Is Truly A Growth Industry

foodservice chains

If you have visited this space with any regularity, you will recall that I have, on many occasions, discussed how the foodservice industry market is changing and expanding. While the expansion has been happening for the last 5 to 10 years, it now seems to be accelerating at a greater rate. And the competition is wearing different clothes.

For example: In a recent issue of NRN, they described a list of chains and their leaders. My purpose in featuring three of them is not so much to show how well their companies are doing, but to emphasize their objective, which is to expand their foodservice sales.

I have selected three that were interviewed by Mark Hamstra of Nation’s Restaurant News. My first is Mr. Chris Gheysens, president and CEO of Wawa, a company with 712 units and growing. They have been considered by many as convenience stores. Mr. Gheysens’s response to that description which appeared in the Washington Post was: “We’re not thinking about this as a convenience store, but more of a restaurant-style store. … It competes with more of a Panera than a 7-Eleven.” They recently opened their first store in the Washington, DC, area. It is the chain’s largest location and the first with outdoor seating.

Next up is Mr. Rodney McMullen, chairman and CEO of Kroger Co., America’s largest traditional grocery operator. He is spearheading an effort to capture more of the foodservice pie. As further indication of Kroger’s efforts as described in the NRN article in October, he announced their new strategic framework, called Restock Kroger, which will include a focus on gaining more meal occasions. This includes the chain’s freestanding restaurant, Kitchen 1883.

Finally, the third president and CEO who has been moving his company in the direction of more foodservice offerings is Mr. Joseph DePinto, of 7-Eleven. The move comes as the Dallas-based retailer, a division of Tokyo-based Seven & I Holdings Co., implements a restructuring effort to facilitate expansion. This includes the agreement to acquire 1,100 stores from Sunoco, which would give 7-Eleven more than 10,000 locations in the United States.

United Illuminating Sept 2018

In December of 2017, 7-Eleven began testing mobile ordering for delivery and pickup, available through its loyalty app, at 10 Dallas locations. Customers can choose from prepared foods such as pizza and packaged snacks, and other grocery items such as beer and wine. As for the future, Mr. DePinto wants to expand the rollout of mobile ordering and continue to emphasize higher-quality fresh foods and foodservice offerings. I should point out that Mr. DePinto is on the board of directors at Brinker International.

It is obvious that the core business of these chains was not foodservice. However, it has now become a prime objective and they have the deep pockets to make it a reality.

Of all the relatively newcomers to foodservice, the grocerants (supermarkets) are and would seem to be the greatest threat. Why? Purchasing power, locations, visitations, parking, space for seating, and ability to prepare and serve three meals. (No one ever thought McDonald’s would serve breakfast, either.)

Not only are some cousins of foodservice, such as grocery stores, convenience stores, and so on, anxious to become fully fledged relatives, but more and more venture capital groups are buying into the family.

One of the more astonishing changes is the willingness of major financial centers to underwrite this expansion. There was a time when the last thing banks wanted to do was get involved with restaurants. Why, you might ask? Simply because most were individuals with little experience and resources, and this is why the mortality rate was 65% the first year.

What helped reduce the mortality rate was the growth of franchising. The more successful franchisors such as McDonald’s, Burger King, Wendy’s, and now, almost all of them, require applicants to meet the fees and have sufficient resources for everyday operations. In many instances, these requirements acted as a screening device for the lending institutions. How many Burger King or McDonald’s stores have you seen with a closed sign?

One of the more active banks is Wells Fargo. For example, they offer fixed and floating rate term loans, bridge/development financing, and sale-leaseback financing, as well as other restaurant financing options. They are just one of many which are actively involved with the industry.

We as an industry have been and are growing up. Many of our companies are listed on stock exchanges, and many members have operations all over the world. There are culinary schools throughout the United States. Women are enjoying great success not only in the back of the house, but also in many corporate offices at the highest level. I feel privileged to have been able to witness it.

While these are uncertain times, I think you will agree it’s fair to say foodservice is a growth industry. And it will remain a challenge.

Fred G. Sampson
Fred G. Sampson is the retired President Emeritus of the New York State Restaurant Association. He began working with NYSRA in 1961. Within the next four years the NYSRA more than tripled its membership and expanded from one regional chapter to eight. Sampson played roles in representing restaurants on issues including paid sick leave, minimum wage, liquor laws, a state-wide alcohol training program and insurance plans. Comments may be sent to fredgsampson@juno.com