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Retail Foodservice

2019 State of Retail Foodservice Report

New Technomic research reveals consumers are hungry for retailers to follow the lead of top-tier grocers' prepared foods programs
Photograph by Dean Riggott

In June 2018, Winsight Grocery Business and Technomic presented their inaugural State of Retail Foodservice research, which took a 360-degree look at the sector, ranging from penetration to perceptions, for the industry’s first-ever benchmark study of one of the most important growth category for grocery retailers. In the year-ago report, the outlook for retail foodservice was prevailingly positive, with category sales soaring to approximately $34 billion. Leaders in the retail prepared foods realm had, to that point, introduced food and beverage items that were considered highly on-trend with shoppers, while consumers indicated that their purchases of prepared foods were consistently on the rise. The positive sentiments detected in Technomic’s 2018 retail foodservice market study were largely expected to continue, with forecasts suggesting the category would end 2018 as the third fastest-growing segment in all of foodservice (behind only fast-casual restaurants and foodservice programs within senior living facilities).

But something peculiar happened in the past 12 months. Performance in the second half of 2018 did not match expectations, and the first quarter of 2019 saw a continuation of 2018 trend lines. Of particular note:

  • 2018 supermarket foodservice real growth was 2.2%, the lowest in a decade.
  • In turn, supermarket foodservice was ultimately only the sixth fastest-growing foodservice segment in 2018, not third fastest, as projected.

Speculation on the reasons for softer performance has ranged from weaker pricing perceptions on the part of the shopper to a lack of new prepared foods items to a lack of differentiation in any new products that have come to the store perimeter. To best assess the 2019 State of Retail Foodservice, Technomic conducted a new survey with more than 1,000 regular supermarket prepared foods customers to gauge current usage, perceptions, changes in behavior and unmet needs with category offerings, and their overall experiences. The results of this year’s survey data showcased herein shed fresh light on some of the challenges now facing grocers.

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Consumer Perceptions

The prepared foods department continues to be a key consideration in determining where a customer will shop for groceries. Seventy-seven percent of shoppers who purchase prepared foods report that this department is important when selecting a primary grocery store. Further, fresh prepared foods are considerably more important for younger consumers, peaking with 35- to 44-year-olds (85%). This demographic group—containing many parents—is obviously highly desirable for grocers, given the growing purchasing power of older millennials.

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A critical detail that might often be overlooked by grocers but something they must be increasingly cognizant of is the considerable impact the overall economy has on the behavior of the average prepared foods customer. To wit: Almost half of prepared-foods users (48%) polled in this year’s survey indicate that the broader economy has an impact on the frequency of their purchases.

Also, 56% said macroeconomic conditions have a negative effect on how much they spend in the department on each visit. Moreover, in an economy with a widening income divide, there are many households facing these very dilemmas, while economic pressures are exacerbated when the typical shopper is under the impression that prepared foods pricing is worsening.

Consider that most aspects of supermarket foodservice are thought to be “getting better.” For example, 33% of shoppers believe the taste of the foods in the prepared foods department has improved over the past year versus only 3% who say taste has “gotten worse”—an 11-to-1 ratio of better to worse. Most aspects of supermarket foodservice measured over the past 12 months show a similar ratio. However, price is a significant outlier. More shoppers report prices worsening in the past 12 months compared to those who report price improvements (see companion chart).

And those price perceptions appear to be having a direct impact on consumer behavior. The percentage of shoppers reporting year-over-year increases in prepared foods purchases has declined by 9% in the past two years.


Consumer Impressions of Prepared Foods Pricing

Past 12 months

Consumers' Current Characterization of Prepared Foods Innovation



In Search of Authentic Innovation

But price is not the only area that consumers cite as an area for improvement when it comes to retail foodservice. The food and beverage innovations being added to prepared foods departments are not connecting with consumers as they once did. Just more than one-third (36%) suggest that “many” new foods and beverages have been introduced that are appealing. The other 64% use language such as “hit or miss,” “limited,” “not appealing” and “nonexistent” to describe innovation in the perimeter.

The consumer is often describing many of the innovations as inauthentic. Grocers are looking to make far more globally inspired foods available, but consumers have found little authenticity in either ingredients or preparation techniques. A common refrain is that many of the ethnic foods for sale are “safe” or “bland,” referring to both ingredients and options. Consumers are increasingly being exposed to bold and exciting foods outside of the grocery store, so items that fail to meet that standard are often overlooked or ignored.


Top 5 Cuisine Types Consumers Express Interest In: 1) Chinese, 2) American regional, 3) Mexican, 4) Italian, 5) Japanese; Thai (tie)

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Lunds & Byerlys' partnership with Hissho Sushi (top-left), which dates back to 2002, ensures authenticity and innovative options for the retailer's customers. Its deli sandwiches (top-right) feature a medley of options to choose from, from mild to wild and everything in between.

This less-than-stellar review of innovation is particularly troublesome because of consumers’ never-ending demand for something new. Leading grocers must recognize that today’s consumer is motivated by the opportunity to try new foods, ingredients and flavors. On the traditional side of the foodservice segment, limited time offerings (LTOs) on restaurant menus have spiked as much as 30% in recent years. There is a thrill in ordering something that hasn’t been on the menu before and may be menued for only a short period of time. (These menu items also drive social media postings and traffic.) Most leading grocers are falling behind in aligning with this speed-to-market trend. Fifty-nine percent of prepared-foods buyers want their leading supermarket to have a rotating selection of specialty items that allows them to purchase unique dishes on different visits or occasions.



Delivering on Expectations

In another sign of the times, the interest in “new” extends beyond the foods and beverages around the grocery perimeter. This year’s research found that 36% of prepared-foods users want their primary supermarket to make prepared foods available via third-party delivery, such as Grubhub, DoorDash or Uber Eats. For shoppers ages 18 to 34, the number climbs past 50%, which represents both an opportunity and a challenge for grocers while underscoring another major shift in how consumers want to buy freshly prepared foods.

One way or another, shoppers are expecting grocers to make the processes for preordering, carryout and/or delivery much more convenient.

Major changes happening throughout foodservice—most driven by new consumer expectations—are greatly affecting the grocery channel. By and large, the consumer continues to show an affinity for supermarket prepared foods. Satisfaction with the experience is typically very high. But as the survey results show, consumers are directing a more critical eye toward grocers’ foodservice programs because of what they are coming to expect from the larger food universe.



Assessing the Retail Foodservice Tiers

Retail foodservice programs are certainly not all created equally. Just as traditional foodservice can be divided into segments (fast food, casual dining, fine dining, etc.), so can supermarket foodservice. Technomic classifies retailers into four segments, which are described below:

Tier identification is not solely based on in-store visual cues but instead involves a review of several factors, including preparation practices, merchandising programs, staff capabilities and equipment availability, among others. Important to note is that tier 1 and tier 2 stores have heavily influenced the perception of retail foodservice. Stores in these two tiers are admired for their hybrid grocery and dining offerings, which in recent years have evolved further than their average industry cohorts.

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