If the future of commissaries and retail partners is trending in the favor of larger, more well-versed companies, LSG Sky Chefs appears to be primed to take advantage.
The company — properly named LSG Lufthansa Service Holding AG and a subsidiary of Deutsche Lufthansa AG — is the world’s leading supplier of airline catering and in-flight services, partnering with more than 300 airlines across 209 airports and producing more than 600 million meals a year.
And a growing portion of LSG’s North American business is centered in retail foodservice. The company, headquartered in the US in Irving, TX, began ramping up its retail business in the late 2000s, culminating in the November 2011 acquisition of Norris Food Services, which partnered with 7-Eleven from its Long Island headquarters.
Now, retail accounts for nearly 20 percent of LSG’s business in North America — enough that the company advertises itself with the line ‘More than just airline catering.’
“We truly see the growth continuing,” says Michael Norris, who joined LSG with the Norris Food Services acquisition and serves as the company’s vice-president of retail for North America. “As you see more and more of the large retailers acquiring smaller businesses, being able to partner with different types of businesses such as commissaries or bakeries, trying to build their own distribution networks, we really see it moving moretowards fresh every day and getting away from more of the frozen or shelf-stable type of products.”
LSG Sky Chefs’ foray into the retail world isn’t necessarily breaking news. The company has been involved in the market for more than 20 years and really ramped up its entry into retail around the 2008 financial crisis. With the industry seemingly lacking a large, national supplier of fresh and prepared foods, LSG Sky Chefs sensed an opportunity.
“Basically, we saw a very fragmented, regionalized market, and being a global company, we thought we could use our footprint to take advantage and serve the national customers,” says Keith Drake, finance director for LSG’s retail business.
That move had paid off thus far, with retail becoming a larger part of LSG’s total business, nearing the 20 percent mark in North America while expanding into other regions, such as Latin America and Asia Pacific. And with more and more consumers looking for quick and easy meal solutions, LSG feels it is sustainable growth.
“It’s been growing and we expect it to continue,” Drake says. “Even the footprint within the facilities at the retail level is growing from a fresh standpoint.”
The simple size and scale of LSG’s operations puts the company in a solid position to take advantage of these trends. LSG Sky Chefs utilizes 10 facilities for its retail business throughout the US. Two of those facilities are standalone, used only for retail. The others serve double-duty, making product for both retail and LSG’s airline catering part of the business.
Two of LSG’s facilities handle par-bake items and one facility handles production of 7-Eleven sandwiches as well as distribution for the c-store retailer.
7-Eleven is one of LSG’s biggest retail customers, and LSG serves as the retailer’s biggest partner supplier, according to Norris, whose family business had been in the retail foodservice world since 1993 and was a vital 7-Eleven partner when LSG approached.
“7-Eleven, at the time, had deli cases and were doing their own food in-store,” he said. “They were running tests at the time to see if they could take labor out of the stores and see if they could find partners to build outside the store and build their own delivery system.”
Those tests resulted in a network of around nine partners — Kraft and Dole among them — supplying 7-Eleven. Today the c-store behemoth uses just four suppliers, with LSG being the biggest. The company provides 7-Eleven with sandwiches, salads, breakfasts and more and is in the process of testing entrees.
Poised for success
It’s not just 7-Eleven that utilizes LSG. The company also has contracts with FreshOne, Starbucks, The Coffee Bean & Tea Leaf and more. In late 2015, LSG strengthened its business with Circle K, acquiring new markets with the c-store retailer in the Phoenix and Santa Ana, CA, markets.
The move put LSG into 614 Circle K locations in the Phoenix metro area alone and 300 in Santa Anna, all in addition to the North Carolina, Colorado and Georgia locations the company already supplied. It was expected to total in 2.5 million units per year for LSG, including salads, sandwiches and wraps.
The Phoenix market is served by LSG’s standalone retail production facility, which is USDA-certified and is also in the process to join two other LSG facilities to be complete its British Retail Consortium certification. The strict auditing process is an important feather in a supplier’s hat when it comes to food safety.
“We have two facilities, in New York and Orlando, that are both certified with AA grades, which is the highest grade you can get,” Norris says. “It’s a three-day process where the auditor does a full compliance audit, facility tour and additional procedural inspections. Our intention is to certify more of our facilities in the future. It’s a very strict audit that we are taking globally.”
That global scope of LSG’s work puts the US retail business in an enviable position, with the resources, experience and global contacts to handle a changing landscape.
“You’re seeing that companies like us are really the ones who will be able to keep up with the ever-changing regulations,” Norris says. “Ten or 12 years ago, HACCP wasn’t a word. USDA wasn’t as strict. Food safety standards were different.
“Unfortunately, sometimes the smaller companies are not able to keep up with these types of regulations, so we look at the larger retailers and more of the mom-and-pop stores who are looking to find a way to franchise their stores into a larger retailer.”
Drake says he expects consumers to continue expanding their palates when it comes to retail foodservice. “I think that you’re seeing more of the foodie trends that are out there in the market now being brought down to the c-store and grocery level,” he says. “In the past you didn’t see that as much as this level.”
LSG’s testing of new entrée options for 7-Eleven goes hand-in-hand with that trend, as does its snack trays, wet salads and more adventurous sandwiches and wraps.
The company also hopes to respond to this trend, and others, by working in tandem with its mammoth airline catering production arm. Part of LSG’s business includes onboard retail, an area that Norris says can closely tie to retail on the ground.
“It’s not as prevalent yet, but we intend it to be,” he says. “We want to be able to look at changes in the airline with the buy-onboard options where they’re not just serving meals from the back of the plane. They’re able to purchase more and more options.
“We’re looking at ways we can help build that and show what we’re doing for retail and put that on the airplane. At the same time, we can look at the entrée type of meals that the airline is making and see if we can transfer that into the convenience and retail world.”