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EXECUTIVE SUMMARY

How to Win in Grocery Foodservice

2© 2015 International Foodservice Manufacturers Associaton (IFMA). Created by BullsEye Resources, www.bullseyeresources.com.

August 5–6, 2014 • Buffalo, NY

I. Introduction IFMA conducted another session in the Foodservice 2020 Strategic Issues Series (SIS) in Chicago. The SIS forum enables IFMA members to come together and explore the operating environment to be better prepared for the future, its nature, and require-ments. The concept of SIS began with The Hale Group’s White Paper – Foodservice 2020: Global, Consolidated, and Structured. The subsequent sessions focused on:

� GPOs: Growth Segment

� Distributor of the Future

� Market Coverage Requirements by Foodservice Manufacturers

� Consumer of the Future: The Arbiter of Success

� Foodservice Category Management: Opportunities, Challenges, & Solutions

� Framework for Distribution Strategy

� Building Category Plans & Using Analytics

The January 2015 SIS session, titled “How to Win in Grocery Foodservice”, focused on the blurring lines between traditional retail channels and foodservice. Bonnie Riggs from The NPD Group and Jack Li from Datassential presented on “Retailer and Consum-er Trends and Needs,” setting a foundation with segment market size, growth statistics, and trend information. In the afternoon, Bob Baxley, partner at The Partnering Group (TPG), presented “Inside the Mind of a Retailer” based on his decades of experiences overseeing retailers’ deli and prepared foods departments.

II. Retail Prepared Food: Market Growth and CompositionRetail prepared foods, as discussed throughout the presentation, are defined as meals where no preparation is needed and buy-ers will consume the food within 6 hours.

Hot and cold prepared foods, typically offered in grocery store perimeters, has driven foodservice growth in grocery, while taking away sales from “traditional” foodservice outlets such as restaurants. As a result, many foodservice suppliers currently view the grocery segment as a strong growth opportunity.

Growth in restaurant visits stopped when the recession began more than six years ago. Since that time, consumer spending has increased at food retailers that provide convenient meal solutions. The growth rate associated with prepared food eaten at home far exceeds restaurant industry growth. Over the past six years, purchases of prepared meals have grown by 11.8%, while restaurant visits have decreased by 1.0%. Looking ahead 10 years, prepared foods in retail are expected to have grown 10.3%, compared to 4.2% growth in restaurant visits. The majority of prepared foods eaten at home are purchased at grocery stores.


Source: The NPD Group/CREST

Composition of the Retail Prepared Foods At-Home Market


Current and Future Demand—Prepared Food Eaten at Home

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The Why, When, and What of Retail Prepared Food PurchasesConvenience is a top reason consumers purchase prepared foods from a grocery store. Secondary drivers include taste and per-ceived value. Bonnie Riggs offered the following insights about retail prepared food consumption based on research by The NPD Group:

� Most prepared food eaten at home is consumed for dinner or a snack, but major growth is occurring at lunch. Research suggests that 35% of retail prepared food traffic is associated with dinner and another 35% is associated with snacks. While lunch accounts for 20%, the lunch category experienced 29% growth between 2008 and 2013. This may be attributable to more people working from home.

� Close to one third of consumers buy prepared food to eat at home more than once a month. Within that group, 20% of consumers purchase prepared food every 2-3 weeks.

� Prepared food purchases are often impulse buys. Consumer choices are swayed by options that are appealing and reason-ably priced. Although convenience is a key motivator, retailers need to make selections appealing to spur impulse purchases.


Consumers Purchase Frequency of Grocery Store Prepared Foods


When Consumers Decide to Purchase Prepared Foods from Grocery




� Retail prepared foods are more economical than QSR meals. Consumers like grocery store prepared foods because they are affordable, compared to restaurant alternatives. As in the QSR segment, 24% of prepared food purchases are made in conjunction with a deal or incentive.

Grocery stores that provide healthy and affordable options, as well as a wide variety, will have a competitive advantage in the prepared food segment. Growth opportunities include craveable prepared foods, signature items, and enhanced marketing com-munications, such as websites and special offers.

III. The Deli – An Emerging Dining DestinationGiven the growth expected in prepared food purchases, food manufacturers are turning their attention to the deli channel. Jack Li offered observations and recommendations about this evolving foodservice segment:

� Brands have a different meaning at the deli than in the rest of the grocery store. In some categories like coffee, beverages, and hot entrees, a brand name is preferred over store brands. However, in other categories like bakery and salads, branded items can have a negative connotation to the consumer, since many people feel they could get similar items from the center aisle of the store.

Source: Datassential


Average Price of Meal—Grocery/Deli vs. QSR




� To get consumers to try prepared foods from the deli, stores must offer trial opportunities. The top trial motivators are free samples, short-term sales, combo pricing, menu boards, and new or interesting items. Many delis do not have traditional menu boards. However, this is essential if delis are going to compete effectively with restaurants.

� In-store bakeries are a secret weapon for supermarket delis. Among consumers, a top breakfast motivator is items that are baked fresh in store, while top lunch and dinner motivators are fresh- baked bread. In-store bakeries are highly underleveraged as a way to attract deli customers.

� A new model is emerging in which delis are a dining destination. The number of total service delis in the United States had been declining, but now is is on the rise once again. This may be due to the dramatic growth in the number of delis reporting a sales increase in hot prepared foods (75%) and cold prepared foods (72%) in 2013. When new delis are built, they are designed like fast casual food courts. Top goals among deli operators relate to premium and progressive offerings. By delivering food quality that rivals restaurants and offering on-trend prepared food options, delis hope to maximize their profit margins.

� To outperform other foodservice segments, delis must overcome traffic-related hurdles. Supermarket customers don’t represent a captive audience for the deli. In fact, most deli visits are spontaneous and experiential. The top reason why consum-ers go to the deli is curiosity—something either caught their eye or smelled good. Deli operators must make the environment captivating through attractive visual presentation of foods, as well as appealing scents.







As the trend toward “grocerants” (i.e., grocery store restaurants) grows, food manufacturers are in a strong position to offer deli op-erators advice and assistance, based on decades of experience working with the restaurant industry. By building a partnership with delis, food manufacturers can help them become more successful. Jack Li suggested creating an effective partner program by:

� Developing programs based on past work with QSRs. Deli operators perceive nearby restaurants as their primary challenge to growth. Virtually all grocery stores (94%) have a restaurant within a half mile. The average distance to the nearest restaurant is 0.1 miles, while the average distance to the nearest quick-serve restaurant is 0.2 miles and the average distance to the nearest convenience store is 0.4 miles. To help deli operators compete with restaurants and convenience stores, manufacturers can provide assistance through programs focused on compelling food displays, merchandising, menu board creation, combo meals, and value menus. Convenience alone is not enough to attract consumers.

� Focusing on prepared food offerings that align with the deli’s equipment and minimize waste. Most delis have basic equipment like microwaves, coffee brewers, deep fryers, and rotisseries. They are unlikely to invest significant resources in new equipment. When suggesting prepared food offerings to delis, food manufacturers should keep in mind what equipment is already onsite. It’s also important to recognize that the top driver for food preparation methods is keeping food waste costs low.






� Offering on-site, in-person staff training. In terms of manufacturer support, deli operators want staff training as they make the shift to foodservice. Manufacturers are in a strong position, based on their restaurant experience. However, on-site training is resource intensive. Manufacturers should select which customers merit the time investment.

Looking ahead, Jack Li made the following predictions for the deli:

� Revenue growth in the deli will outpace the industry as a whole.

� Delis will behave more like restaurants than in the past, as they strive to become a dining destination.

� Competition is on the rise from convenience stores.

� As delis shift toward more progressive food offerings, variety and assortment will grow.

� Consumers will begin to look to delis for home meal replacement and they will demand fresher, healthier fare.

� Delis will begin to offer combo meals and value menus.

IV. Breakout: Reaching the Grocery Foodservice Consumer—Challenges & OpportunitiesSIS attendees divided into roundtable groups to discuss the top challenges associated with reaching grocery foodservice consum-ers. They also identified opportunities for building stronger relationships.

Challenges � Stores must build consumer awareness. Many consumers are unaware that good prepared food choices exist in the perimeter of the grocery store.

� Manufacturers need to be consumer oriented. Food manufacturers need to augment their B2B skills with B2C expertise. In ad-dition, they must build waste cost into the prices of products that are used for prepared food offerings.

� Retailers must develop foodservice skills. Delis, for example, must adopt a restaurant/foodservice mindset.

� Brokers are not aligned with the grocery segment. Brokers tend to be transactional. Their culture needs to be changed.

Opportunities � Stores must improve consumers’ perception of prepared foods. This can be accomplished by providing a wide variety of quality foods that are on trend.

� Customers are attracted by experiences and “signature service.” Examples include bread baking, great sandwiches, or out-standing customer service. It may be helpful to create prepared food kiosks within stores.

� Stores should create a brand for their prepared foods. Social media is one way to increase consumer awareness.

� Prepared foods should be offered in different portion sizes. Not everyone wants to buy prepared foods in family-sized contain-ers, for example.

V. What’s Top of Mind for Supermarket Foodservice and What Can Manufacturers Do About It?As supermarket executives expand their foodservice offerings, they face challenges in six key areas. Bob Baxley from The Partner-ing Group discussed how food manufacturers can help relieve these pain points.

1. People. Talent is the most challenging issue for supermarket leaders. Since turnover is a major concern, retailers are focused on hiring and retaining the “right” staff. Manufacturers can offer input as supermarkets create career paths for employees. Once employees are hired, there is a need for ongoing training and development. Another opportunity for manufacturers is offering point of practice job aids in multiple languages for supermarkets to use in their foodservice areas. Foodservice ventures won’t be successful unless supermarkets have a culinary culture and capabilities. Partnerships with manufacturers are one way for retailers to build culinary confidence.

2. Product. For both supermarkets and manufacturers, the top priority for foodservice products is safety and sanitation. In addition to this concern, manufacturers can support supermarkets in several other ways:

− Innovation. The supermarket staff responsible for developing new foodservice offerings are also managing the business on a day-to-day basis. As a result, innovation suffers. Manufacturers should lead the effort and identify new foodservice solutions that can be executed in-store.




− Ingredient sourcing. This is a major opportunity for manufacturers, since supermarkets need ways to efficiently manage all the ingredients required for foodservice.

− Local/organic/non-GMO/sustainable/humane. There is growing interest in all these areas among supermarkets; however, these trends are difficult to manage at large scale. Manufacturers must help retailers understand what these trends mean and suggest how their products can address these needs.

− Labeling challenges (current and future regulations). Supermarkets have limited resources to deal with emerging labeling requirements. Manufacturers can serve as a resource for the latest information and requirements.

− Packaging. Manufacturers should lead with solutions that are innovative, but practical. For example, packaging must fit in supermarket cases and work with temperature control.

3. Facilities. From a production perspective, centralized commissaries are a great way to achieve consistent execution, as well as meet labeling and food safety requirements. An emerging opportunity is managing commissaries that supply different supermar-ket companies. Commissaries aren’t a practical solution for every supermarket, however. Manufacturers must understand the requirements associated with store-level production and offer pragmatic solutions. Merchandising is another key issue for su-permarket foodservice initiatives. Manufacturers should offer advice on how to better merchandise products. Often supermarket foodservice operators don’t have the capital budget required to frequently purchase new foodservice fixtures and equipment. When proposing new foodservice concepts, manufacturers must recognize what can lead to success , given the equipment and capabilities available.

4. Profits. For supermarket executives, volume and top-line sales are top priorities. Manufacturers can help by offering new items that will drive sales volume year over year. There are various aspects of supermarket economics that manufacturers should be aware of:

− Gross margin. Although manufacturers are focused on food costs, retailers are concerned about gross margins. Gross margin is the lens through which supermarkets manage inventory and profit and loss.

− Labor. For supermarkets, labor is the top controllable expense and it is the largest expense. Many stores measure sales per payroll hour and use this metric to determine how many employee hours to schedule.

− Shrink. This is the term supermarkets use for product that is unaccounted for. Shrink will become a bigger issue as foodser-vice concepts grow.

When it comes to new supermarket foodservice ideas, it is important to recognize that only a few will be feasible based on cor-porate fit and department constraints. Radical business model changes are rarely successful.

5. Marketing. To create demand for foodservice offerings, supermarkets must expand beyond traditional retail marketing tech-niques and explore options like menu boards, TV advertising, and digital. Private brands are the ultimate differentiator, but many supermarkets don’t understand how to leverage private brands in the prepared food space. Food manufacturers may have ingredients that can support private brands. Co-branding is another big opportunity. Publix, for example, tested an in-store Carrabba’s Italian Grill. Manufacturers are often in a unique position to help retailers plan co-branded spaces or help them with operations. Supermarkets must recognize that “A Grocerant” is more than just a 400 square foot seating area tucked over in the corner of the deli. Successful “grocerants” like Eataly and Wegman’s offer a mixed use concepts, that deliver prepared foods, ingredients and other concepts for shoppers to enjoy.

6. Competition. Supermarket foodservice concepts face direct competition from other retailers and restaurants, as well as emerg-ing competitors like convenience stores and mail order. The key is to differentiate. Although foodservice innovation is fun, the challenge is executing it in a retail environment. Many opportunities exist for manufacturers to help supermarkets rethink their businesses in new and profitable ways.

VI. Breakout: Working with Retailers—Challenges and OpportunitiesSIS attendees divided into roundtable groups to discuss the top challenges and opportunities associated with working with retailers.

Challenges � Retailers need to build foodservice skills as they enter a new channel. To help them, manufacturers must become more con-sumer focused.

� Manufacturers have limited resources to call on delis and grocerants.

� Manufacturers must re-examine their products and develop offerings that fit into the supply chain model (i.e., shelf life issues) and build waste cost into selling their products.




Opportunities � Manufacturers need to develop all-inclusive solutions. These would address shrink, ease of use, training, merchandising, and quality. The ideal would be to create offerings that are as popular as today’s rotisserie chickens.

� Manufacturers must find ways to help build traffic to the deli. This may be accomplished through organized marketing programs or development of innovation calendars.

� To educate retailers about the foodservice market, manufacturers could share consumer foodservice data.

VII. ConclusionRetail prepared food and the deli channel represent major growth opportunities for both supermarkets and food manufacturers. With their extensive experience in the foodservice industry, food manufacturers are in a unique position to help supermarkets suc-cessfully make the transition to “grocerant.” The key to building stronger relationships and cultivating more retail business is assist-ing supermarkets with training, merchandising, and innovative but practical foodservice concepts.


how to win in grocery foodservice - ifmaworld.com sis white paper how to win in...framework for...

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