The Supermarket Café

"Trapped in footprint malaise, traditional grocery stores are closing stores, capitulating business...it's time for a new view, and new business model–the grocerant model."

In one sentence, Steven Johnson, the "Grocerant Guru" at Foodservice Solutions, sums up the plight facing grocery retailers today and the important role prepared foods can play in overcoming the challenges the evolving marketplace brings.

"If grocery stores want to become valued retailers within the food space, they need to begin focusing on ready-to-eat and heat-and-eat fresh prepared food with seriousness, not lip service," Johnson says. "All retailers are in a fierce battle to garner a larger share of stomach, and the battleground for customers is taking place in the grocerant ready-to-eat fresh prepared food space."

A review of prepared foods' past can help set the stage for the model of the future, industry analysts say.

Foodservice offerings in grocery stores often maintain their appeal in part by using ingredients available in the store. Photo courtesy of Calgary CO-OP

During the 1980s and 1990s, supermarkets were losing business as customers turned to restaurants, including quick-serve spots with drive-thrus, for convenient meal solutions, according to Bonnie Riggs, the restaurant industry analyst for The NPD Group's foodservice division.

"Supermarkets for years have been trying to crack this market for convenient meal solutions. They've offered chicken and deli products, but those weren't enticing to consumers. And most of the stores weren't doing any marketing," explains Riggs, author of foodservice reports including A Look into the Future of Eating: How Consumers Define Healthy Eating When They Dine Out; and The Changing Consumer Mindset: What it Means to the Restaurant Industry.

"During the mid-1980s, home meal replacement (HMR) was the talk of the retail food industry," Johnson adds. "But what many legacy grocers failed to understand was the opportunity for fresh prepared food as a day-part meal opportunity/solution because they were not really in the meals business."

As Johnson recalls, grocery retailers back then considered HMR– specifically, food prepared fresh in the store–too labor-intensive to tackle. "They complained that their labor went out of line when trying HMR, that it created scheduling problems and had too much waste," she says. "During the mid-1980s, grocery stores simply did not want to deal with fresh prepared food. So they cut corners, mass-produced product that they called fresh, packaged it like it was a CPG brand, and let it sit on display or under heat lamps way too long."

GROCERY EVOLUTION

There's no question that grocery retailing has evolved significantly since prepared foods, in the form of HMR offerings, hit the marketplace more than three decades ago.

An onslaught of competition, combined with the new ways consumers shop, has changed the very structure of the market, Riggs explains.

"There is so much channel-blurring. The competition for restaurants is not just other restaurants down the street, but also convenience stores and retailers including Mariano's, Whole Foods and Pete's Fresh Market," Riggs says.

In addition, now more than ever, consumers visit grocery stores to buy products for immediate consumption. "There's no preparation needed. They buy things from the salad bar, the deli, the prepared food stations–this is a growth vehicle for supermarkets," Riggs says.

Indeed, those trends have led to the growth–and the growth potential–of prepared foods at retail, NPD data show.

From the year ending June 2014 through the year ending July 2015, consumers made 2.4 billion visits to supermarkets to purchase prepared meals or ready-to-consume items. Ten percent of those purchases were for food consumed on premise and 90 percent off premise. Sixteen percent of the food eaten off premise was consumed at work, 15 percent in the car, 52 percent at home, while 7 percent fell into the "other" category, Riggs reports.

"The market is also growing in terms of meal occasions, especially for lunch and dinner," Riggs adds. NPD research shows that 20 percent of retail prepared foods were purchased for the morning meal, 29 percent for lunch, 22 percent for dinner and 29 percent as a snack.

NPD data also speaks to what lies ahead where prepared foods are concerned.

NPD's A Look into the Future of Foodservice study, which provides a forecast through 2022, projects that instances of prepared food purchased at retail for at-home consumption will increase by 10 percent over the next decade, compared with a 4 percent increase forecast for restaurant traffic.

WHAT CUSTOMERS WANT

Unlike shoppers of the 1980s and '90s, today's time-challenged consumers are no longer shopping just to fill the pantry, or for an HMR or CPG product they have to, in some way, prepare themselves. Instead, Johnson says, they're turning to supermarkets to meet a very immediate need–to answer the question of what's for dinner.

"Everyone, from soccer moms to senior citizens, is putting pressure on retailers for fresh prepared food," he stresses.

The demands, while not easy for every retailer to meet, are relatively clear: prepared food offerings must be convenient to shop for, and merchandised in a way that lets customers get in and out of the store quickly with food that's ready to eat the moment they get in their cars or home to their kitchens.

That means retailers must carefully consider how to position food courts, food bars and other prepared food areas.

"Make things as convenient as possible. If you have a food court, for example, don't make me go through a grocery line," Riggs says. "If you want to be a place customers can go to for a convenient meal solution, don't make them wait in line behind somebody with a big grocery cart. If someone is purchasing hot food, it will get cold if they have to wait, and they'll have to heat up again."

Aside from convenience, the "must-haves" include fresh food, healthy food, and value for the price charged–all things grocery retailers can more readily and cost-effectively offer than restaurants, since many if not all of the ingredients they need for their prepared food menus are sourced right in-store.

Prepared Food Gives Hy-Vee an Edge in Minnesota In September, Iowa-based Hy-Vee expanded its presence in the Minneapolis market when it debuted stores in New Hope, a suburb of Minneapolis, and Oakdale, east of St. Paul. With a footprint of approximately 90,000 square feet, the stores emphasize freshness, wellness, variety and one-stop shopping convenience. Prepared foods are an important component of the stores' appeal to busy shoppers, helping Hy-Vee compete with Cub Foods, Walmart, Target, Lunds & Byerly's and other supermarkets that comprise the area's crowded supermarket scene. Among the prepared food amenities: a full-service Hy-Vee Market Grille restaurant with a bar, made-to-order salad and sushi bars, and popular Asian, Italian and Chef's Creations food stations. Retail Leader asked Matt Beenblossom, Hy-Vee's group vice president for retail foodservice, to share insights about this new, more advanced approach to retail prepared foods and how it fits in with the company's overall focus on freshness and customer service. Retail Leader: There is quite a range of prepared foods available at the new stores. Can you provide a list of options available to customers looking for a convenient prepared meal? Matt Beenblossom: At Hy-Vee, customers can enjoy a sit-down meal in our Hy-Vee Market Grilles or order online and pick up dinner curbside. Customers also can pick up made-to-order sushi from Hy-Vee sushi chefs or made-to-order salads during their grocery trips. In addition, customers can choose from a wide variety of ready-to-eat meals in our Asian, Italian and Kitchen departments. And for those customers just looking to simplify their family meals, we offer precut, prepackaged vegetables to help speed up dinner preparations. Hy-Vee Short Cuts give families a healthy option that is simple and can be incorporated into any meal in just minutes. RL: The new stores are in a very competitive grocery market. Did Hy-Vee decide to include so many prepared food offerings as a point of differentiation? Do you think prepared foods will help Hy-Vee successfully compete not only with other grocers and big box stores, but also with some of the restaurants in the area? MB: Hy-Vee recognizes our customers' lives aren't slowing down and we are constantly adapting to their busy and ever-changing lifestyles. With this in mind, ready-to-eat meals are available in our stores, or we provide a pickup option for those who are on the go. Another way we are offering shopping convenience is through our Hy-Vee Aisles Online. With a few clicks through our Aisles Online website, customers can shop for their groceries, pay online and select to either pick up or have their order delivered to their front door. We know life gets hectic and we will continue to find ways to make our customers' lives easier, healthier and happier. RL: Briefly explain how your various prepared foods areas work. For example, do you have professional chefs on staff? Do all of the ingredients come from within the Hy-Vee store? And are there separate check-out areas within the prepared foods areas? MB: One of the three pillars of Hy-Vee is culinary expertise and our chefs have been nationally recognized for their outstanding skills. All of the ingredients come from within the Hy-Vee store. The new Hy-Vee in Oakdale, Minn., features foodservice stations that specialize in various cuisines. And yes, there are separate areas to allow for customer convenience. Customers can also choose to pay for prepared foods with their entire shopping order at the front of the store. RL: So far, what are some of the most popular prepared foods? MB: Hy-Vee's Asian Express department, particularly the Chinese food, has consistently been honored as a Top 100 Chinese Restaurant by the Chinese Restaurant Foundation. It is so popular with our customers that they began using the #HyChi hashtag on social media. Also, our new made-to-order salads are popular with customers who are looking for the ultimate in freshness. They can choose from the perfect lettuce variety, garden-fresh vegetables, toppings and meat, which is prepared right in front of them, and our employees prepare a customer-made salad in minutes.