Breakfast, lunch and dinner mealtimes are being disrupted, David Portalatin, senior vice president and industry advisor of food and foodservice at Circana, said during his presentation at the State of the Industry Summit.

Routines have shifted, the workforce is changing and inflation has increased the price of food drastically—causing traffic shifts not only at c-stores but at QSRs and other restaurants as consumers look for meals that fit their evolving needs at an attractive price.

Convenience used to own coffee and donuts, and now there are so many more players. Maybe breakfast never gets back to its heights, but there are a whole lot of opportunities in snacking—including snacking as replacement for full meals—and dinner.” 

The Foodservice Consumer

Circana measured $3.2 trillion in consumer spending across consumer packaged goods, foodservice and general merchandise retail for 2023. While the firm didn’t capture the entire consumer wallet, Portalatin noted, it covered a vast portion of it.

Consumer spending increased 3.1% overall. The category of complete food and beverage, which is Circana’s measurement of anything that you can eat or drink, whether it came from a grocery store, warehouse club, convenience store, QSR, a fine dining restaurant, school cafeteria, vending machine, etc., came in at around $1.6 trillion.

In Q4 of 2023, “retail food and beverage was growing at 1.8% and foodservice grew at 4.8%. One of the things that’s going to happen throughout 2024 is that when you pick up The Wall Street Journal, or you read things the financial community has put out, or are talking to your board or investors, they’re all going to share the narrative that foodservice is gaining share of wallet—and it is,” Portalatin said.

Consumer behaviors are shifting in what they buy as they look to manage prices, Portalatin said, and consumers are trading down in what they buy from foodservice.

Less visits and channel shifts: Lower income consumers are visiting less often in general, with about five fewer foodservice visits in 2023 compared to 2021 for this part of the population. QSRs have gained 0.3 share points compared to a year ago, while all full-service restaurant channels showed decline.

Gravitating toward cheaper dayparts: Consumers are shifting toward the morning meal and P.M. snack because these dayparts have an average check $3-5 lower than lunch or dinner.

Fewer extras: Consumers are buying fewer extras. Attachment rates for sides, apps, desserts and so on are down slightly.

Cheaper items: Consumers are choosing to buy cheaper items at the same places. For example, Portalatin stated that buyer participation on the Chick-fil-A regular sandwich is up 3.1 points, while its deluxe sandwich (which has an 80 cent premium) declined 0.5 points.

Smaller sizes: To save money, consumers are choosing to buy smaller variations of the same item. For example, the Dairy Queen mini Blizzard gained one share point while the medium/large blizzard lost one share point. In the same vein, more adults are choosing to order kids meals for themselves.

“People are managing their portion sizes. They’re managing their price points,” Portalatin said at the Summit. However, he noted there are opportunities for operators to manage their costs.

Portalatin provided examples of what some operators have been doing, ranging from purchasing reduced portion sizes (7.5 oz beef patties instead of 8 oz), including delivery premiums, ordering cheaper items for their menu and reducing operational hours during slow days and dayparts.

Meals in Flux

As much as inflation has impacted how consumers purchase food, there are other factors that are disrupting traditional store visits.

According to data from Castle, Portalatin said, the estimated office occupancy rate is somewhere around 50%. That decreased in-office rate, along with Boomers continuing to exit the workforce and rise of nontraditional employment, means that daily routines have been disrupted.

“Ultimately, this means that the things that have been used to create our rhythms of the day—What time do we get up? What time is breakfast? When and what time is lunch? How do we get home and make dinner? All of that is up for grabs,” Portalatin said.

P.M. Snack

C-store traffic is down 7.5%, with the afternoon daypart period from 12 p.m. to 3 p.m. accounting for more than half of that loss. Additionally, Portalatin noted, P.M. snack, what he called the most important daypart for convenience stores, declined in traffic by 2% in 2023 compared to 2022.

“C-stores currently dominate that P.M. snack daypart, but over the past year we’ve seen QSRs moving in that direction very, very heavily, growing 5% compared to last year,” Portalatin said, noting that this shows a potential stealing of visits. However, Portalatin also showed that food-forward c-stores experienced a gain in P.M. snack visits.

The real disruption with QSRs compared to convenience stores has been in the evening snack period. A large portion of QSR P.M. snack gains come from the evening hours and continuing into the early morning. In particular, QSRs experienced significant gains in the early morning hours.

Over the past year we’ve seen QSRs moving in that direction very, very heavily.”

This disruption to traffic is important to note for c-stores, as it’s a time of day that convenience stores traditionally do well in. “You’re the ones who own convenience. You’re the ones that own hours of operations as an advantage, as a reason to be there for the consumer. QSRs have come after that,” Portalatin told the Summit audience.

Many traditional lunch and dinner QSRs have expanded into the snack market through innovation, Portalatin said: “Everybody’s getting in the snack game. Subway is doing pretzels and cookies, Taco Bell is innovating around beverages … the Colonel [KFC] is doing brownies, and Potbelly is in cookies.”

C-stores should look to innovate, and rethink, their ideas of what a snack is. Portalatin asked the audience, “Who thinks of pizza as a snack?”

He continued, “But we’re talking about disruption. We’re talking about the emergence of new occasions with different foods. You wouldn’t traditionally think that, ‘Oh, that’s a snack.’ No, everything’s in play now. Because for that person, maybe it’s not really a snack. Maybe it’s a mini meal that suits their lifestyle more.”

Beverages, and beverages either as a snack or paired with snacks, are doing well right now. “We’ve seen beverage occasions grow, from retail beverage occasions to foodservice. There has been a lot of innovation around beverages,” Portalatin said. “Beverage is a thing right now. It’s hydration, it’s energy, it’s indulgence, it’s a treat. Beverage innovation can deliver all of those things.”

More than 5,300 new coffee and tea restaurants opened in the past year, a 9% increase in unit count.

More than 5,300 new coffee and tea restaurants opened in the past year.

C-stores have a lot of opportunity with beverages, Portalatin said: “There’s still opportunities for growth, especially with coffee, during the P.M. snack daypart.” Additionally, Portalatin noted that cookies, frozen/slushy soft drinks, soft drinks, bottled water and juice are stars for c-stores during P.M. snack and merit further investment.

Morning Meal

The other big daypart for c-stores is the morning. According to Circana data, QSRs and c-stores both increased breakfast performance 2%. The challenge: QSRs gained 4% of traffic during the morning snack timeframe, while c-stores lost 2% of traffic compared to last year. At brunch, QSRs gained 9% compared to last year while convenience stores lost 4%.

“Brunch is where the disruption is. It’s not traditional breakfast,” Portalatin said. “When consumers talk about brunch, they’re talking about ‘Oh crap, I got busy today. I’m hungry. I have a meeting soon. I can’t wait for lunch.”

Where are QSRs exceeding the performance of c-stores? Specialty coffee is a huge one, accounting for 35% of “menu importance” for QSRs in the morning but only 7% for c-stores in the same metric. Importantly, more consumers are seeking these coffees out, with a 12% improvement in servings across all channels compared to a year ago during breakfast snack occasions.

Portalatin pointed out that while QSRs performed better than c-stores in coffee and breakfast sandwiches, convenience stores are still winning with donuts/sweet rolls and carbonated soft drinks.

Lunch

Lunch, Portalatin said, may never recover to what it used to be for convenience stores. The midday meal was the worst performing daypart for c-stores, losing 5% of traffic compared to last year. It should be noted that QSR lunch traffic was also not positive.

When it comes to choosing a place to go for lunch, the top two reasons consumers list as the reason for their visit are “I like it there” and “It’s in a convenient location.” The convenient location is a c-store’s built-in, natural strength. However, the number of consumers who listed “convenient location” as the reason for visiting at lunch decreased 4% since 2022, while the number of consumers who said they chose a restaurant because they like it grew 2%.

With consumers at home during the middle of the day, convenient locations are not the same advantage for c-stores they used to be; deals can help get consumers in the door. “In this disruptive world where somebody may be sitting at home and has to get up and leave to go to lunch, what is the compelling reason to get them to get up and leave?” Portalatin asked the Summit audience.

“If they had to get up and leave before and you were a convenient location on the way, you could earn business based on that,” Portalatin continued. “Now, we’ve got to give them a reason to say ‘No, I’m hungry and I want to go to that store because they make the best taco around.’ That’s where we’ve got to win at lunch.”

A Food-Forward Focus

Circana predicts that total restaurant dollars will increase 4% in 2024. The research firm predicts that traffic in the foodservice space will increase 1%, adding around 579.5 million visits, while the average eater check will increase by 2.9%.

Portalatin pointed out that the 1% traffic increase is not a c-store specific number. He challenged the audience to consider how they will get their fair share of the increased visits this year.

Brunch is where the disruption is.”

He then revisited the idea of the food-forward c-store. Portalatin said that “the share of dollars that are accounted for by food visits are about 10 percentage points higher for food-forward c-stores than traditional c-stores … That’s about a 10% gap for your top performing tier versus everybody else.”

“What would it look like?” Portalatin asked, “if as an industry you collectively closed that 10% gap?”

His answer: Circana believes that the industry would add an incremental $9 billion in sales in 2024 if all c-store locations could receive the same share of visits from food as food-forward c-stores do.