Consumer Trends

The supermarket threat

The new Whole Foods Market in Portland, Maine, is a 48,000-square-foot behemoth, just two blocks off the turnpike spur that connects Maine’s largest city with a string of affluent towns along the coast. Among the store’s two-dozen-plus “departments” are an open-hearth pizza oven; an antipasto bar; Italian and Indian hot-foods bars; stations dispensing dim sum, noodles and made-to-order panini; and a prepackaged grab-and-go salad/sandwich sector. To describe the array of prepared meal options on display here as merely comprehensive is to severely understate their power.

The store opened on Valentine’s Day, in a blizzard that brought much of the state to a halt and threatened to ruin many a restaurant’s biggest night of the year. But had you fired up the four-wheeler and actually made it to the new Whole Foods, you were in for a bit of a shock. The parking lot was jammed. So were all the streets around it. It took real determination to find a parking spot anywhere near the place, and a lot of Mainers had it—even as they cancelled their restaurant reservations.

Attention, restaurant operators: Be afraid. Be very afraid. You’ve been stealing food dollars away from grocery stores at least since the government started tracking figures, in 1929.

Now the food retailers want them back.

“It’s a real mistake not to consider supermarkets as competitors,” says Harry Balzer, vice president of the NPD Group. “In many consumers’ minds the only thing that’s keeping grocery stores from being an important source of last-minute convenience eating is lack of convenience itself, like curbside service or drive-thru.”

There’s the rub. For years the only real “growth” in restaurants has been in takeout sales. NPD estimates that restaurant dine-in business declined almost 10 percent from 2000 to 2005, to 80 occasions per capita, while meals that left the restaurant remained relatively steady at 122 occasions, indicating that takeout is where the opportunity is.

While restaurant operators warily eye each other to determine who’s stealing what from whom, food retailers are doggedly working to win over those consumers who still think restaurants are the best quality-and-convenience combo around. And they’re not just dishing out high-quality prepared foods (“meal solutions” in retail-speak); they’re reinventing the entire retail food game.

With customers now making an average of 2.1 grocery shopping trips a week (not including what the Hartman Group calls the hurried “after-work supplement” visit), the smartest supermarket chains are becoming one-stop destinations. We’re not talking onsite banks, pharmacies and video stores, either; that’s ancient news. Today, supermarkets have restaurants, including most new Whole Foods Markets. Wal-Mart is testing a Wi-Fi-ready cafe. Publix sells fragrances and other impulse items. Wegmans’ store-within-a-store, Complements, sells dinnerware, cookware and table accessories. And Meijer, the Midwestern supercenter outfit, even has—get this—walk-in medical clinics.

Then there are the shopper-friendly strategies cropping up, like speedy self-checkout or plug-and-play nutrition information. In the Northeast, Hannaford recently introduced the Guiding Stars nutritional ranking program that helps shoppers make more informed purchases. Wal-Mart has kiosks that spit out recipes geared for the food it sells. SuperValu’s mandate states that a new checkout line must open if there are more than three customers waiting in line anywhere. And in some large supermarkets, shopping carts are equipped with onboard computers that allow customers to tally up purchases as they take items off the shelves; the information is downloaded at the point-of-sale. You can even check “favorites” lists and place remote orders to the deli counter while shopping.

The retailers have also gotten adept at using technology to gather data about shoppers. More than 40 percent offer loyalty programs, according to the Food Marketing Institute, and they’re used by about three-quarters of customers. Utilizing “smart card” imbedded memory-storage technology, these frequent-shopper programs are a sophisticated means for tracking who’s buying what, and refining marketing strategies accordingly.

As for prepared foods (both ready-to-eat and ready-to-heat), this has all gone way beyond rotisserie chicken.

According to a recent Facts About Store Development study, published by the FMI, more than two-thirds of all food-retailing companies surveyed intended to at least experiment within the gourmet/specialty niche. In many cases that means undertaking multimillion-dollar physical upgrades in order to revamp delis, add full meal-solutions departments or install kitchens. Meanwhile, total deli sales in supermarkets have grown from $16.3 billion in 2000, to $21.1 billion in 2005, according to FMI; prepared foods comprised nearly 60 percent of that figure in 2005, up from 38.5 percent a mere five years earlier.

“This is an extremely important area for retailers, and restaurant operators should be watching,” says Ron Paul of Technomic, which is now fielding its first Retail Meal Solutions report. “This is home meal replacement come home to roost. When supermarkets first started introducing hot prepared foods [in the late 1990s], the restaurant industry pooh-poohed it as just rotisserie chicken. Well, guess what? They started doing a better job at rotisserie chicken and nearly put Boston Market out of business. Now it’s the supermarket industry’s game to win.”

Perhaps the most astounding change is in the quality of supermarket-prepared foods. Although Technomic’s estimate of a $25 billion market includes such items as frozen pizza and canned chili, the real action is taking place in fresh foods, where prep is done in-store.

Think about it. A well-stocked supermarket can have 40,000, 50,000, even 70,000 or more SKUs to make food with. All it needs is the staff, the space and the commitment to turn those ingredients into ready-to-go meals, made and marketed as “restaurant quality.”

“We have two corporate chefs who are helping us put more restaurant-quality prepared foods in our stores,” says Marc Jampole of the Penn Traffic Company, which operates 112 supermarkets in Pennsylvania, New York, Vermont and New Hampshire. “Every year this area is more important to us.”

The nearly 900-location-strong Publix, which just took top honors in the supermarket sector of the public opinion poll American Customer Satisfaction Index, has aggressive prepared-foods initiatives in its segment-specific organic and Hispanic locations, among others. “We want to make sure all of our customers look to us for their mealtime needs,” says spokesperson Maria Brous.

Publix is launching a new Publix GreenWise Market natural/organics-oriented concept that will have a big prepared foods focus, and Publix Sabor locations feature Latin prepared foods specialties, such as roast pork, rice and beans and plantains. This August, the company will debut an in-store venue operated by Tampa-based Carrabba’s Italian Grill, which will offer many of its travel-ready specialties within a separate dedicated location with its own waiting area.

Meanwhile, Tampa-based Winn-Dixie is remodeling all 522 of its stores, at a cost of up to $2 million per, to add more service options, including prepared foods. The Fresh Market, with 65 stores in 18 states, is opening 15 to 20 new smaller specialty stores a year, emphasizing what one local paper called “Gucci groceries” and an extensive selection of meal solution options. Many Wegmans (71 stores in New York, Pennsylvania, New Jersey, Virginia and Maryland) are veritable foodie Disneylands, where toque-topped executive chefs fill display cases with ready-to-eat and ready-to-heat foods. Their mission: “to create convenient fresh market cuisine for customers, to take home or for dining right at the store.”

And then there’s Whole Foods, opening more ambitious total-experience-oriented stores. The newest Whole Foods in New York is the largest supermarket in Manhattan. The chain’s flagship store in Austin, Texas, includes a department called Fifth Street Seafood, a paean to Seattle’s Pike Place Market where you can order any of 150 fresh seafood items cooked, sliced, smoked or fried for takeout or dine-in. A new 65,000-square-foot location in Fairfax, Virginia, features five restaurants, plus a wine bar. The largest ever, with 86,400 square feet, broke ground in January, in San Jose. Talk about “super natural.”

Even fans have nicknamed the 194-unit Whole Foods “whole wallet,” and hardcore granola heads may criticize it for abandoning its idealistic roots. No matter. These guys have laid down the gauntlet—all the more so since announcing plans in February to acquire next-largest competitor, Wild Oats.

In the executive summary for its report Food Retailing in the 21st Century—Riding a Consumer Revolution, FMI noted that the market influences for any given retail food organization includes not only the different retail channels but also foodservice: “The competition includes restaurants…which are near the milestone of controlling half the $950 billion market for food sales.’”

Proof enough that the grocery people are certainly aware of you. Now, are you paying enough attention to them?            

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