Retail Foodservice

2020 State of Retail Foodservice: Where Can Grocers Go From Here?

Annual survey expertly frames where the category is now and how it got here
Photograph: Shutterstock

Supermarket foodservice has been on a wild ride of late. The department has gone from predictable to reinvented to total disruption in just a few years. In June 2018, when Winsight Grocery Business and sister company Technomic Inc. first presented the results of our annual State of Retail Foodservice survey, category growth had slowed, but by late 2019—thanks to a focus on innovation—the future of supermarket foodservice was once again bright. This success was short-lived, however, as the global coronavirus pandemic derailed the category, forcing reduced offerings and deli closures.

In presenting this year’s annual retail foodservice survey results, Chicago-based Technomic expertly frames where the category is now, how it got here and where the focus will need to be as grocers strive to reimagine and rebuild in 2020 and beyond.  

  • Click here to learn more about the state of retail foodservice from Technomic Principal Wade Hanson. 

As recently as 2017, any examination of the supermarket foodservice business was relatively straightforward. Nearly any grocer selling quality, reasonably priced prepared foods to shoppers was likely to be experiencing moderate to substantial growth in this part of the store. Most grocers, therefore, envisioned foodservice as being a long-term winning proposition worthy of investment.

Fast forward to 2019 and many of these once-mighty departments were experiencing a downturn in performance. Exposure to more inventive or convenient food-away-from home options (such as food halls and third-party delivery) led to a more demanding consumer. And these consumers had begun to indicate that supermarket foodservice had not kept pace in comparison to the innovation they were seeing elsewhere.

A Healthy Start to 2020

The 2.2% real growth rate of supermarket foodservice in 2018 was a five-year low for the business. With consumers questioning innovation and value more than past years, many grocers were left to rethink food and beverage offerings, service models and in-store merchandising programs. By most accounts, 2019 became a year of reinvention. And the efforts taken in 2019 were being positively received by the shopper. As a matter of fact, at the end of 2019, Technomic was projecting that 2020 real growth would improve to 3.6% (or nearly 1.5 points above 2018).

But while supermarket foodservice performance saw smaller growth rates since 2017, certain banners outperformed, particularly those grocerants with elevated menus and amenities.

Technomic uses a tiering system to distinguish between how different banners are positioning themselves with respect to prepared foods. Those with the most advanced foodservice programs saw the most significant growth (see table below for abbreviated tier descriptions; tiers are based on metrics and observation). Tier 1 stores, the Foodservice Specialists, saw 2017 to 2019 growth rates nearly 2 points higher than the industry average. These banners distinguish themselves through the introduction of innovative—and often globally inspired or healthy—prepared items.

Supermarket Foodservice Tiers (Technomic segmentation)
Tier 1: Foodservice SpecialistsFoodservice Specialists blur the line between supermarkets and restaurants. Gourmet menu items, customization, limited table service, a warm atmosphere and restaurant-type amenities likely exist. In-store preparation via skilled culinary professionals is also indicative of Tier 1.
Tier 2: Destination SupermarketsDestination Supermarkets have a comprehensive perimeter that offers extensive choice across cuisine types. The perimeter sometimes contains made-to-order stations, cafe-type seating and well-trained service. These stores tend to show a continued emphasis on being a full-line grocer, supplemented by a dynamic prepared foods program.
Tier 3: Standard BearersStandard Bearers have generally shifted focus away from meats and cheeses to ready-to-eat or ready-to-heat meals. In most cases, shoppers have access to foods spread across grab-and-go cases, self-serve bars and the chef case. There may be some basic in-store seating, but service and customization of foods is limited.
Tier 4: EssentialsEssentials, while still emphasizing sliced meats and cheeses, typically offer customers several hot meal alternatives as well as a ready-to-eat cooler selection. Essentials are least likely to prepare foods in-store and are most likely to rely on manufacturer-branded products.

It was particularly encouraging that consumers ended 2019 with a very high perception of the supermarket foodservice experience. Eighty-six percent of prepared foods users indicated they were completely or somewhat satisfied with their foodservice experiences at their primary grocer (see chart below). Grocer efforts in 2019 had resonated and put the channel in a good position entering 2020, especially with men and older shoppers.

Prepared Foods Satisfaction

Source: Technomic

COVID-19 Kills Self-Serve

According to the vast majority of grocers, their foodservice departments were off to a strong start in 2020 based on January and February results. Then COVID-19 completely disrupted American society, including the grocery business. An immediate impact on the business was that 11% of grocery stores closed their prepared foods department completely (based on an April/May 2020 Technomic survey of 162 grocers). And of those remaining open, 81% reduced prepared foods offerings in some way—most often the closing of self-serve stations. 

As grocery sales and traffic exploded in the center store, prepared foods sales fell off for a number of reasons: closed departments, fewer offerings and prepared foods not being available via delivery services, among others.

Outside of the obvious closures of most self-serve stations, certain other offerings became more limited. Only 72% of major entrees (pizza, chicken, beef, etc.) were available as stores reduced the number of items available for reasons of safety or the need to streamline. That said, 99% of grab-and-go merchandisers remained open and a vital part of the perimeter.

10 Signs of the Times

To adapt to the crisis, grocers found themselves making operational changes within their departments. While a continuous process of reevaluating necessary changes is expected by virtually all grocery executives, Technomic’s supermarket survey showed that as of mid-May, the top 10 adjustments made by grocers included:

  • Adoption of masks by prepared foods employees.
  • Frequent sanitizing (often every 30 minutes).
  • Introduction of more pre-packaged items.
  • Application of social distancing stickers across perimeter flooring.
  • Installation of plexiglass or plastic dividers between employees and prepared foods shoppers.
  • Closing of self-serve stations.
  • Requiring more frequent hand washing and/or sanitizing.
  • Sealing of pre-packaged meals.
  • Reconfiguring of back-of-house to ensure foodservice worker stations were six feet apart.
  • Closing of fountain and/or coffee stations.

2021 and Beyond

Even before the pandemic, grocery banners were identifying ways to best address challenges in the prepared foods department to support a future rebound in growth. The most commonly cited concern for the foreseeable future? Labor. And while the COVID-19 challenges are top of mind in 2020, labor will remain a core pain point in the long-term.

Pre-COVID-19, the primary labor concerns cited by supermarket executives were:

  • Recruiting qualified employees.
  • Retaining qualified employees.
  • Training employees.
  • Labor costs.
  • Escalating minimum wage.

These challenges will have grocers reexamining several aspects of their operations, including production practices. Over the past two years, there has been a rise in the use of commissaries/central kitchens, as well as an increase in manufacturer-supplied products. In-store preparation and/or finishing has declined because of the costs and complexities involved. This is true across all four tiers of supermarket foodservice.

But the preexisting challenges facing grocers will now be combined with the challenges introduced by the pandemic. Safety and cleanliness will move to the fore. Value will be critical with so many shoppers hurt by employment circumstances. And quality, innovation and, of course, labor, will be major considerations. 

In retrospect, 2020 and 2021 may be seen as years when the COVID-19 pandemic forced grocers into many short-term changes to ensure the health of their shoppers, while also incorporating long-term changes to secure and rebuild the future of their foodservice programs.

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