U-Gas shows the possibilities of a small-scale

U-Gas shows the possibilities of a small-scale foodservice commissary
By Samantha Oller || soller@cspnet.com
T
he commissary at U-Gas Inc. was born six years ago
with a board-meeting pronouncement from company
founder Paul Taylor: “Let’s open a commissary and
make a good sandwich.”
The company had been supplied with sandwiches from a third
party. But unhappy with the product quality, U-Gas hired two
deli managers from a local grocery chain to develop a sandwich
program from scratch. “We started off with two ladies doing it
themselves, making and delivering it, going to stores and ordering
what they needed,” says Curtis Springer, director of foodservice for
the St. Louis-based chain.
The commissary initially filled 1,000 square feet of a strip
Move It or Lose It: With its 19 sites no more than 40
miles apart from each other, U-Gas has been able to
create an efficient distribution setup for its commissary.
mall in Arnold, Mo. As foodservice sales grew, so did the facility,
absorbing an 800-square-foot space next door. Around this time,
U-Gas opened the restaurant GiGi’s Fresh Café at one of its sites,
and from there a foodservice program—GiGi’s Café Express,
featuring sandwiches, wraps and salads—was born.
Its point of differentiation? Freshness. “We’re all fresh product,”
Springer says. “We make everything from scratch, we crack our
eggs every morning, cook turkeys, beef and chicken fresh, and
cook everything each day. Everything’s made from fresh ingredients and never frozen.”
This past February, U-Gas went big time, expanding into an
11,000-square-foot commissary staffed by 35 production workers,
four managers, three sanitation workers, a quality-control technician and three drivers. The venue cranks out sandwiches, fried
foods, ravioli, potato chips, fruit cups, yogurt, salads, car snacks
… “You name it, we make it,” Springer says.
The dissatisfied retailer that takes control of its own destiny and
product is a common foodservice narrative. What’s different here
is U-Gas’ size: 19 sites. This immediately begs the question: Can a
chain of this rank truly realize a return on its investment?
“At the threshold of 10 to 15 stores, you’re really dancing
around it to make it work,” says Deborah Holand, president of
Food Sense Inc. and a consulting partner in b2b Solutions LLC,
Lake Forest, Ill. As store count increases, a commissary becomes
more doable, she says, but it requires several factors: short distances between sites, an established distribution chain and robust
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“At the threshold of 10 to
15 stores, you’re really
dancing around it to
make it work.”
foodservice sales.
“Fifty stores makes more sense to
have their own commissary than if
there are only 20 stores, because you can
spread the costs out,” concurs Tim Powell, principal at Technomic Inc., Chicago.
“And not every c-store [justifies it]. You
will have different consumers and different stores that may not want turkey
sandwiches; they might just want roller
grill. It’s not one size fits all.”
For U-Gas, the commissary has not
been a home run—yet. “The ROI has
been very challenging,” Springer admits,
declining to share the exact investment
but saying it was in the “high six figures.”
“It has taken us a while to get there.”
While U-Gas is turning a profit in its
foodservice program, the commissary
has taken longer because it guarantees
product to the stores. To hasten the
math, the chain recently consolidated
from multiple food suppliers to only
one—St. Louis-based Kuna Foodservice—which trimmed food costs by
20%.
By increasing efficiencies and bringing on new business, U-Gas is showing
signs that even a modest-size operator
can make the commissary equation
work.
retailer’s sites have kitchens for creating
its proprietary made-to-order foodservice offer. Until recently, the chain had
considered installing a commissary for
breakfast and deli sandwiches at one of
its sites.
Bobby & Steve’s eyed several factors
in favor of a commissary, such as the
short distance between stores—at most
30 miles—and the fact that each site was
making the same product each day.
“If stores are not going through a
high enough volume, it’s really inefficient to make it fresh every day,” says
Scheeler. “It’s labor-intensive, and you’re
carrying a high amount of inventory
in the store to make products.” The
cooking and prep space in the stores is
currently 650 to 700 square feet, while
cooler and freezer storage command
another 600 square feet.
The company was also attracted
by the projected revenue and margin
increase, and the potential of being more
efficient with less waste. Even the cost to
build a commissary was not prohibitive.
Then came the other major financial
Coming Soon
Technomic Inc. is releasing an
update to its 2011 study, “Selling to Foodservice Commissaries Serving Supermarkets and
C-Stores.” The research, which
presents analysis of the makeup
and operations of store-owned
and third-party commissaries, is
slated to hit the streets this fall.
For more information, contact Tim
Powell, principal at Technomic, at
tpowell@technomic.com.
consideration: distribution. Outfitting
a vehicle with refrigeration and hiring
a part-time driver for only four hours a
day to deliver to eight stores just did not
make financial sense.
“With all of those factors combined,
we maybe were four stores short,” says
Scheeler, who points out that until the
chain reaches the magic store count, it
will work on building more efficiency
Ramping Up
A small retailer may have big ambitions
for its foodservice program, but certain
key fundamentals must fall into place
to make a commissary worth it [CSP—
Oct. ’12, p. 207]. Just ask Jared Scheeler,
director of retail operations for Bobby &
Steve’s Auto World, an eight-store chain
based in Eden Prairie, Minn. Five of the
Big Statement: In February, U-Gas opened an 11,000-square-foot commissary to
handle increased production of foodservice items for its stores and outside clients.
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Getting Fresh: GiGi’s Café Express
features freshness as its point of
differentiation, with everything made
from scratch in U-Gas’ commissary.
and productivity into the program.
An operator with fewer than 10 stores
would need to make nearly $50,000 per
site in foodservice sales and have close
stores with a very tight, profitable distribution network to make a commissary
worthwhile, says Holand of Food Sense.
“Once you get to 20 to 25 stores in a 100mile radius, you can support a commissary, if you’re doing some reasonable
volumes,” she says.
U-Gas’ 19 sites are no more than 40
miles apart from each other; a 20th is
scheduled to open in mid-December.
One of its sites is out of state just across
the border. The commissary also provides food to two Dirt Cheap liquor and
tobacco outlets that U-Gas owns; the
company decided not to serve additional
Dirt Cheap stores because of their distance.
Most product is finished at the
commissary, which also creates a few
pass-through items, such as pizza and
calzones, that are heated up at the stores.
“There’s not a product we can’t
make,” says Springer. The chain is in
the R&D phase of a fried-chicken program and take-home meals, examining
everything from labor and cost studies
to potential packaging.
“You don’t wake up, make a sandwich and roll,” says Springer. “We can
make anything, but we have to do a lot
of research.”
Other challenges include managing
employees, building efficiencies, controlling costs, sanitizing and cleaning
the facility, and working with an on-site
USDA agent, who rotates out every three
years. While labor represents the biggest
portion, or 60%, of operational costs,
U-Gas has made some progress. For
example, it is starting to work with new
automated labeling machine, coinciding
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Commissary Best Practices
According to Deborah Holand, president of Food Sense Inc. and a consultant for
b2b Solutions LLC, Lake Forest, Ill., retailers large and small should consider the
following when setting up a new commissary.
▶ Shorten the EFR. An efficient foodservice response (EFR) cycle—or the timeline
from food conception through production to point of sale—is essential. “For those
who operate in-house and run a fresh distribution program, if the menu is right,
the price is right and the product looks good, the only other thing that has them
failing is because the EFR cycle is not working,” says Holand. “They will lose shelf
life, profit, [gain] excess waste, and the program will not make any money and will
lose money.”
▶ Chill out. From an equipment perspective, be sure to equip the commissary
with sufficient refrigeration and freezer space, which can trip up even the biggest
operators. “It’s very important whether you’re buying or building a commissary
from scratch to take a good look at the menu and type of food you want to offer,
how it will come in and understand the market trends of manufacturers and new
products coming out,” says Holand. Most facilities need to be remodeled within
four to five years, she says.
▶ Keep it simple. Any production item that takes more than five steps to execute
should be re-evaluated to simplify the process. Often qualifying are wraps, which
require workers to keep the wraps pliable, spread with condiments, filled, cut and
displayed. Another complex item? Anything involving multiple components in one
container, such as a meal—an entrée and two sides—or a lunchbox.
“That kind of packaged item with components or too many steps to produce
it and get into packaging—that’s a problem,” says Holand. “It’s not that you don’t
do it, but it requires real thought into how to execute it and transform it into
something that moves through the line four times faster.”
with the introduction of tamper-evident
packaging.
“We don’t have to do that,” says
Springer, “but it’s something we want to
do to show we care about food safety.”
U-Gas has also changed the commissary’s operating hours. Initially the
facility was producing six days a week,
but labor costs mounted with costly
overtime pay. As of July, the commissary had switched to five days a week; as
a result, labors costs have fallen by 10%
or more.
Outside the Box
If your base isn’t big enough to warrant
a commissary, consider expanding the
base.
Costing Out a Commissary
Because every situation is different, it’s tough to come up
with an average cost of building your own commissary,
says Deborah Holand, president of Food Sense Inc. and a
consultant for b2b Solutions LLC, Lake Forest, Ill.
“Someone who’s just getting into it might be buying
an existing facility and just making changes to it,” she
says. “Another might be building a facility on the side
of their home office and calling it their test kitchen, and
creating a little commissary.” An operator could choose
to buy used equipment or only focus on a certain product, which also factor into the final cost.
There is a helpful restaurant industry benchmark,
however, for how much you can afford to spend, says
Holand: 25% return on invested capital. “If it’s 20%, you
might be considering it,” she says. “If it’s supporting a
bunch of stores, then there’s an offsetting benefit. If it’s
30%—green light, go, run, quickly, do it.”
Of course, it all goes back to how much sales the
existing foodservice program pulls in. If a retailer thinks
it will do $1 million in annual foodservice sales, after factoring in a 10% bottom line minus depreciation, “then
I can come up with an ROI fee, and that’s my budget for
the commissary,” says Holand.
“Coming into this business, the plan was not to make money
right off the bat—we’d eventually make money,” says Springer.
“Now that we’re selling to outside consumers … that is getting
us to where we are making money.”
Beyond its 19 sites, U-Gas sells food to nine vending companies, four outside c-stores, a college and a wildlife park. Springer
has a background in foodservice sales and distribution, and he
has made several contacts from which to build that base. “We’re
getting a lot of business by word of mouth. People are starting
to get the name and concept from us running the business,”
he says.
Nearly 20% of U-Gas’ foodservice sales are from outside
customers, a crucial revenue opportunity for small operators
looking to turn a profit on their commissaries.
Holand of Food Sense embraces U-Gas’ approach.
“I would absolutely be generating accounts in every direction I could as the commissary manager,” she says. “His [No. 1]
focus should be the retailer who owns him, but then his other
focus is to make money.
“A lot of commissaries with less than 15 stores to support
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from one retailer can’t survive without
going out and getting other accounts,” she
continues, “because their volume hasn’t
hit thresholds to support their paid costs
of operation.”
Eve n t h o u g h i t o n l y r e c e n t l y
expanded into the larger commissary,
U-Gas is leaving itself room for growth.
Two suites nearby can accommodate an
expansion. But for any retailer, small to
large, looking to open a commissary, one
central question must be answered: “At
the lowest volume going through, will
it make money?” Holand says. “Make
sure it can run lean and mean at the base
level, and then from there, improve on
it.”
Not there yet? Holand recommends
partnering with a small caterer.
“Behind the scenes they’re supporting
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Assembly Required: More than
30 production workers at U-Gas’
commissary assemble everything
from wraps to car snacks.
the fresh-food operation,” she says. “When
they are not running shifts for catering,
can you run three shifts to make sandwiches and salads, cross-dock muffins,
cross-dock fresh foods from Sysco, put
meal boxes together, and then partner that
way where it really looks and feels like the
operator’s commissary?”
That’s the best choice until a retailer
has control over the distribution chain. n