The idea of going to the grocery store for a fresh meal once meant little more than fried or rotisserie chicken, a few side dish options, a baguette from the bakery, and self-serve soup and salad bars. The pickings were indeed slim, and it was what it was: a step sup from the frozen chicken, canned beans and tater tots that a new generation of dual-working parents were intimately familiar with. And in the realm of quick convenience, these slim pickings managed to fit the bill every now and then for a growing base of time-strapped after-work shoppers, who became the linchpin targets of a new breed of marketing campaigns that challenged them to face the daily “what’s for dinner” dilemma before 5:30 p.m.
Fast-forward to 2018, when a growing number of food retailers from across the nation have become top-notch dining destinations for an increasingly hungry base of consumers, whose expectations for fresh-prepared meals served up by their favorite local grocers have changed dramatically in tandem with the vast expansion of retail foodservice programs.
With this the case, the need for historical data alongside present-day benchmarks and projected forecasts for the retail food channel’s single most important image builder, traffic driver and differentiation device has never been greater. To that end, WGB is pleased to present the inaugural State of Retail Foodservice annual report, courtesy of exclusive research and insights from our Winsight sister company Technomic. As the food industry’s foremost market research and data intelligence firm, Technomic provides growth and profitability strategies for clients within the food manufacturing, distributor, restaurant, retailer and related foodservice organizations with consumer-grounded vision and strategic insights.
The 2018 State of Retail Foodservice report takes a 360-degree look at the sector, beginning with its evolution; a breakdown of how Technomic classifies levels of sophistication among retailers within four camps; consumer perceptions of value and experience of retail foodservice; emerging considerations for the next generation of the segment; comparative breakdowns of historical growth; and related need-to-know insights.
Evolution of Retail Foodservice
In 2006, retail foodservice generated sales to consumers of under $13 billion. Consumers did not yet show any significant consideration for prepared foods, and grocers were still struggling with the viability of a more robust foodservice program. Widespread sentiment of retail leadership was that any near-term investment would not result in long-term profitability.
Over the subsequent years, the perspective on the part of the grocer has mostly reversed. In 2018, optimizing foodservice offerings is the leading strategic priority of many top banners in the country. Retailers’ efforts in that time period have made the offering top of mind for a high percentage of shoppers who have shown a real affinity for the meals on the shelves and the value in the purchase. As a result, retail foodservice sales in 2017 have surpassed $34 billion.
This growth has been led by a group of supermarket banners both large and small that have long focused on the perimeter, and that have developed sophisticated foodservice programs. These retailers (including such leaders as Whole Foods, Wegmans, Bristol Farms and Central Market) have greatly influenced the larger industry and continue to drive innovation. Technomic refers to this group of banners as the Tier 1 of prepared foods.
Retail foodservice programs are certainly not all created equally. So just as traditional foodservice can be divided into segments (fast food, casual dining, fine dining, etc.), retail foodservice can, as well. Technomic’s four segments are described below:
It should be noted that tier identification is not solely based on visual cues in-store; it involves a review of many factors including preparation practices, merchandising programs, staff capabilities and equipment availability, among others.
Tier 1 and Tier 2 stores have changed the perceptions of the American grocery shopper. Prepared-foods departments have become recognized as exciting, wherein one may make a new culinary discovery during any given trip. Stores in these tiers are seen by many consumers as a hybrid of grocery, restaurant and artisan shop. And in recent years, most adults have had the chance to experience at least one of these stores, which has changed the idea of what a supermarket can be.
At the heart of it all, retailers have had success because of the acceptance of the consumer. Faced with a nearly overwhelming set of emerging foodservice options—from food trucks to meal kits to GrubHub and the like—consumer purchase behavior has spoken loudly. Technomic projects that retail foodservice will be the third fastest-growing segment in all of foodservice in 2018, trailing only fast-casual restaurants such as Panera, Zaxby’s and Qdoba, and foodservice in senior living facilities. And the positive response continues to strengthen. In 2017, for the first time as measured by Technomic, consumers saw more value in a retail foodservice meal than in one made at home (Figure 1). And the value difference vs. a restaurant meal is even more pronounced, at 11 percentage points higher for retail foodservice.
Value of a retail foodservice meal compared to meal prepared at home
While performance has been stellar in recent years, retail foodservice can expect challenges. With all of the success in capturing consumers’ away-from-home foodservice dollars, grocers are becoming the “hunted.” This group of stores has to expect a transition from being a disruptor of traditional foodservice to being disrupted themselves. Long an afterthought of restaurant companies, retailers are now acknowledged as a threat to restaurants in this environment when consumers’ consideration sets have become so expansive.
And that consideration set will impact grocers. Consumers have demanded a ‘wherever, whenever’ foodservice culture and that has materialized. Consumers have access to all types of foods and beverages at any time of day in virtually any setting. That will make it more difficult for grocers (or any brick and mortar foodservice venue) to attract people into their stores. More advanced marketing, merchandising, and social media campaigns will become more critical.
But the response of the industry will likely be a continuation of new services and interesting differentiators popping up within grocery stores. Cafe seating, Wi-fi, adult beverage options (beers on tap, local wines, self-dispensing equipment, etc.), entertainment and in-store events such as charity gatherings and culinary classes are all examples of reasons consumers are becoming attracted to the in-store experience. These and other creative value-adds will increase retailers’ value in the eyes of the customer.
But a major advantage for supermarkets is the fact that consumers do not appear fatigued by their current food and beverage offerings. The same cannot be said for many foodservice operators, including major full-service chain restaurants. Many restaurants are facing traffic declines. Core customers are citing lack of value, lack of culinary creativity, lack of ambiance and a preponderance of sameness. Meanwhile, existing retail foodservice customers are making greater use of this alternative (Figure 2). And they are doing so for reasons that suggest they are responding very favorably to core purchase drivers, including quality, convenience and value (Figure 3).
Changes in year-ago supermarket foodservice purchases
Why Are They Buying More Often?
Between 2018 and 2022, retail foodservice is projected to grow at over 6% annually. This will continue to place it among the high-growth segments of the food industry. But it is the Tier 1 and 2 stores that are achieving the most significant growth, at more than 7.5%, suggesting that those grocery stores making the investment into their foodservice programs are reaping the greatest sales rewards.