For any convenience-store business to succeed over the long term, it must earn a return that exceeds its cost of capital. That’s why forward-thinking business leaders in the sector have put so much focus on measuring and managing return on investment (ROI) as a basic operational practice. It is only through continuously making incremental progress in lowering costs and increasing revenues that firms achieve competitive advantage in their industry.

The problem, however, is that many convenience stores may be trying to squeeze that “square-peg” business (in this case, foodservice) into a “round-hole” P&L.

“The ability to improve the profitability of your foodservice program starts with knowing your numbers—and ultimately what is driving these numbers,” Salaria said in Part 1 of the podcast series.

As a first step, Salaria suggests coding the largest expense items with a direct relationship to foodservice sales, which is often led by “labor” and “food supplies”. This creates a clearer picture of program profitability, she said.

Salaria employed this simple yet powerful P&L tool to measure the sales and margin incrementality compared to direct expenses and investments when she expanded a foodservice program for Fresh Food. In introducing menu items like sandwiches and smoothies, the business had to invest in panini presses, blenders, and new training for the staff—but with scant visibility into how investments in new equipment, new operational processes, and, ultimately, cannibalization to existing business were impacting the bottom line. Only when Salaria created a foodservice P&L was she and her team able to understand what was driving down profitability.

To truly understand the impact your foodservice program is having to the total convenience business, Salaria recommends incorporating a “market basket” impact into P&Ls. This affords companies to view the combination of “other” c-store products being purchased in the same transaction with food. Finance teams can then predict revenue and profit losses if these food items were to be discontinued.

“The real risk of not being intentional with your P&L,” Salaria says, “is making a macro decision to remove a food category or program altogether when it may actually be driving a significant amount of customer trips and driving sales of other categories.”