As food, beverages, sanitizers and cleaning supplies flew off grocery shelves throughout 2020, the traditional foodservice industry was battered by the effects of COVID-19. Stay-at-home orders, dine-in capacity limitations and consumer wariness of human interaction had an impact on foodservice that had never been seen before. In the end, traditional foodservice—including both restaurants and noncommercial operations—declined by over 25% last year.
But the story is a bit brighter in grocery. As the prepared foods department, with some modifications, was able to continue to serve the public ready-to-eat foods throughout the pandemic, this part of the grocery store represents a major segment in traditional foodservice.
So how did supermarket foodservice perform relative to the rest of the away-from-home foodservice business?
As we hit the 15-month mark since the initial impact of COVID-19, we can begin to review many months’ worth of data and shopper experiences to assess the current state of supermarket foodservice—and forecast the near-term state.
The 2020 Pivot
First, the good news. While the overall foodservice business declined 25.6% in 2020, supermarket foodservice sales fell only 9.3% nationally. Much of the relative success of supermarket foodservice was based on the traffic surge within grocery. The prepared foods department was a beneficiary of the shift from foodservice visits to retail visits. But the comparatively solid performance was not gifted to grocers.
Prepared foods executives dealt with major operational and perception issues; not the least of which being safety and sanitation concerns on the part of the shopper. Self-service bars struggled with acceptance during 2020 due to a perceived lack of adequate safeguards. Those concerns linger today for many prepared foods users.
Percent Sales Drop in 2020
The Value Proposition
Another encouraging development in the past several months is the collective view of shoppers about value in retail foodservice. Value has taken on greater importance during the pandemic with millions of Americans losing their jobs and millions more having paychecks or hours cut. But buyers of prepared foods report that they see value being improved compared to 12 months prior.
Almost 2 in 5 consumers in March of 2021 contended that prepared foods value had improved vs. the period just before COVID-19. This can be attributed to several things, including:
- Grocers made significant efforts to provide more value-oriented solutions for both individuals and families during COVID-19.
- The value comparison vs. restaurants has tilted in prepared foods favor. Many consumers had some degree of sticker shock in purchasing restaurant meals as menu prices have increased and as more consumers use third-party delivery services with high delivery fees.
Continued Reinvention in 2021
As mentioned, one of the biggest challenges facing prepared foods departments in the months ahead is the need to reestablish or reinvent self-service stations. Many shoppers have shown a reluctance to return to traditional self-service bars.
These shoppers cite a lack of consistent visible cleaning of the stations, an unease with other shoppers’ use of the stations, and an apparent lack of physical changes made to equipment. In a recent Technomic survey, prepared foods’ users indicated that they wanted to see many different types of modifications before they would be ready to return to these areas.
Top 5 Required Modifications to Salad, Hot and Cold Bars
Without these modifications, many will continue to show hesitancy. Based on a recent Technomic survey of 3,000 consumers, only 40% of shoppers consider self-serve food/salad bars as being "very" or "somewhat" sanitary. That compares to 56% pre-COVID. And in a food world where the perception of safety is motivating most purchases, this attitude toward a core element of the store perimeter is problematic. Steps need to be taken to provide assurances.
Grocery executives should recognize that it is not just their deli prepared departments that are being reinvented. The broader food industry is evolving rapidly. Limited-service restaurants are emphasizing speed of service, newly implemented delivery programs and redesigned restaurants (reducing dine-in space and increasing drive-thru capacity). Full-service restaurants are also universally adding off-premise programs to get food to customers via delivery, carryout and curbside pickup. And noncommercial foodservice operators are redesigning menus and adapting to new production and labor realities.
Prepared to Deliver
Supermarket foodservice will have to be ready to adapt to change as well. For example, the consumer expectation for delivery services is at an all-time high. If grocers are unable or unwilling to provide prepared meals via delivery, they will be eliminated from the consumer consideration set. Delivery can be provided through many different means but is increasingly considered a necessity for a foodservice operator or retailer.
Changing to adapt to new shopper need states and demands will be critical for supermarket foodservice over the next 12 to 18 months. But, for those grocers that do adapt, the future is bright. Technomic forecasts supermarket foodservice growth of 14.5% in 2021 in a "middle case" scenario. If macroeconomic and vaccination trends continue in a positive direction, that growth rate will likely be even higher.
How Much Will Retail Foodservice Grow in 2021?
Supermarket foodservice is a very unique hybrid between grocery retailing and traditional away-from-home foodservice. As such, this business is impacted by virtually all food and consumer trends. With customer affinity for prepared foods still high, the business has very strong potential. But realization of that potential will depend on how well the business responds to the overall changes in the food industry and to the new purchasing behaviors of tomorrow’s post-COVID consumer.