Each May, NACS releases preliminary foodservice State of the Industry data. The data not only tells us how the industry performed but sets a tone for the coming year—especially in an important category such as foodservice.

Of course, the data is just that—preliminary. This data comes before the release of the NACS State of the Industry Report® of 2023 Data, which will be hitting the (online) shelves in mid-June.

However, the NACS 2024 State of the Industry Summit has already come and gone, and you may have heard the news: sales in prepared food once again beat sales of cigarettes, bringing its winning streak over the long-time c-store juggernaut to two years.

At this point, it is easy to drive home the point that foodservice has become one of the most important parts of the convenience business. Foodservice—which consists of prepared food, commissary, hot dispensed beverages, cold dispensed beverages and frozen dispensed beverages—grew to 26.9% of in-store sales.

Foodservice has become one of the most important parts of the convenience business."

Foodservice adds a much-needed opportunity for growth for convenience retailers who face the ongoing challenge of encouraging customers at the pump to go inside the store and make additional purchases. Foodservice, across all its categories, contributed $60,578 in sales per store, per month, a year-over-year increase of 9.3%. In comparison, the other top two best-sellers of packaged beverages and cigarettes brought in $40,339 and $44,765, respectively.

And it’s profitable. Foodservice margins are consistently higher than those of other in-store items, with 2023 margins at 51.34%, a year-over-year increase of 0.65 points. Foodservice gross profit numbers rose to $31,103 per store, per month, a solid 10.7% increase from $28,106 in 2022.

When looking at total profits, which include in-store and at the pump, foodservice is responsible for 21.2% of total gross profit dollars, up from 19.8% the year prior.

Prepared Food

Prepared food accounts for 71.9% of total foodservice sales, by far the largest contributor to the category. It is also continuing to experience growth, increasing sales 12.2%, to $51,500 per store, per month in 2023.

Prepared food gross profit dollars increased 13.9% to $28,627 per store, per month. Margins increased 1.5 percentage points, rising to 55.59%.

Foodservice does more than drive great margins—it also drives frequency among c-store shoppers. According to NACS’ Convenience Voices program, which captures insights from thousands of c-store shoppers, nearly one in nine customers (10.9%) who purchased prepared food said that they shopped more than once a day. Because these customers tend to be store loyal, becoming a prepared food destination creates brand stickiness for core categories other than prepared food. For example, of customers who purchased prepared food at a certain c-store chain, 70.5% of them also purchased a cold dispensed beverage from that chain.

Commissary

Commissary—which includes ready-to-eat meals; sandwiches and wraps; thaw, heat and eat meals; and sides and salads—was 6.0% of foodservice sales in 2023. Sales increased 6.0% to $4,260 per store, per month. Margins had solid growth, rising 1.77 percentage points to 31.62%. Gross profit dollars had even more impressive growth—up 12.3% to $1,347 per store, per month in 2023.

Commissary can be an unsung hero of the c-store foodservice operations—according to NACS’ Convenience Voices program, 27.7% of customers chose a certain site because of the availability of good pre-packaged foods.

Dispensed Beverages

Foodservice, across all its categories, contributed $60,578 in sales per store, per month."

Hot dispensed beverages—including coffee, tea, hot chocolate, cappuccino/specialty coffee, refills and coffee club mugs—were 8.8% of foodservice sales in 2023. In 2023, hot dispensed beverage sales were $6,324 per store, per month, a 5.1% increase from the year prior. Margins decreased by 0.38 percentage points, falling to 63.21%; however, gross profit dollars increased from $3,825 to $3,997.

While hot dispensed beverage margins declined, profits in this category increased because of increased sales—not an easy feat when the morning daypart is still struggling to recover from a decrease in morning commuter traffic related to the pandemic and the resultant work-from-home policies that many office workplaces have at least partially embraced. In 2023, only 27% of workers commuted, a still-significant drop from the 35% who commuted before the pandemic, although the number of commuters has increased over the past few years.

Cold dispensed beverages—carbonated, non-carbonated, refills, sports drinks, club mugs, other non-carbonated—were 7.3% of foodservice sales. This category increased sales by 9.4% to $5,233 per store, per month. Margins, however, decreased 3.53 percentage points to 50.97%, although strong sales helped grow gross profit dollars 2.3% to $2,667, per store, per month.

The smallest contributor to foodservice sales mix is frozen dispensed beverages—which includes the subcategories of frozen-non-carbonated, frozen-carbonated and other. While it was the smallest contributor at 5.8% of sales, it increased the most in sales dollars, surging 18.0% to $4,182. Frozen dispensed beverages historically have the highest margins among foodservice categories, and 2023 was no different. Frozen dispensed margins in 2023 were 64.12%, a year-over-year increase of 0.76 percentage points.

Foodservice Presents More Opportunities in 2024

According to the NACS Convenience Voices program, nearly one of two (46%) shoppers describe their c-store visit as a meal or snack occasion, and three out of the top five reasons why people stopped at convenience stores related to food. Additionally, 23.3% of people reported that they would shop more at convenience stores if they had higher quality food.

To continue to grow sales and customer loyalty, convenience retailers must continue to find ways to connect the needs and wants of the consumers to their offerings. The first step in growing foodservice sales could be to grab the attention of the consumer with the quality of the options.