According to the Food Marketing Institute (FMI), an association serving food retailers and wholesalers, the economic arena in which their members compete with restaurateurs for food sales is valued at about $1 trillion. A recent FMI report concludes, “Many food retailers today, especially those with an eye on the future, are entering the foodservice business. They are expanding and upgrading their frozen meal selections. Their bakeries are selling breakfasts. Their delis are selling lunches and side dishes for dinner; salad, pizza, and coffee bars are spreading.” And, it is noted that many of these supermarkets/groceries/gourmet delis, etc. are flourishing in this market known as “meal solutions.”

Source: The NPD Group/Deli Track™/Apr-Dec ‘09

This competitive focus and its impact on restaurants isn’t a surprise to some restaurant industry experts who have been following the threat – and their message to restaurant operators is loud and clear. “It’s time to take notice,” warns Bonnie Riggs, The NPD Group’s restaurant industry analyst. “We’re going to have to address this as an industry. Consumer visits to restaurants have been steadily declining – particularly at supper and especially over the last few years.” Due, in part, to the fact that cost-conscious consumers in the recession have turned more frequently to supermarkets for both ingredients and meals to eat at home. “After all these years of supermarkets saying that they were going to come after this market, they finally did; they have really seized the opportunity. It may be one of the lasting outcomes of this recession,” says Peter Romeo, industry commentator and former executive editor of Nation’s Restaurant News Online. And seize it they have. “Even small grocery chains have brought chefs on board, and a greater number of supermarket chefs have restaurant chain experience – expertise in volume production, handling and heating, packaging, and carryout. It’s a whole new kind of culinary intelligence,” observes Nancy Kruse, president, The Kruse Company. As a result, Peter notes, “In supermarkets now you get such high quality that there is no longer a stigma about buying ready-to-eat foods there.”

“Supermarkets have stepped up their efforts, providing convenient meal solutions that were not available in the past.” – Bonnie Riggs, restaurant industry analyst, The NPD Group

How can restaurants respond? “There are areas in which restaurants compete from a position of strength,” says Nancy, who echoes Bonnie and Peter in advising restaurants to play to those strengths – execute them well and, as Nancy says, be “shameless” about making guests aware of what they offer that supermarkets can’t. “Supermarkets are still in the old mindset of food as fuel, but restaurants offer a larger experience – social, experiential, service oriented. This is our trump card. Restaurants don’t do a good enough job of getting this across to the customer.” Peter adds, “Responding to this challenge will accentuate the positives of the restaurant experience. Smart operators will see the opportunities and figure out how to execute.” Some ideas:

SIGNAL FRESHNESS AND HEALTH
“Beyond the financial considerations when consumers choose to eat at home, our research indicates that they think homemade tastes better and is better for them. Restaurants need to do more in the area of healthier, lighter menu items – and when they do offer up lower calorie or other nutritional options, they must really tout the taste. Make food taste good with less nutritional downside,” advises Bonnie. “Quality and freshness should be restaurants’ #1 story,” says Nancy. “There are hot buttons, tip-offs, and signals – a sizzle, an aroma – to communicate high quality and freshness to customers; underscore techniques such as ‘freshly grilled,’ ‘seared,’ ‘braised,’ etc. on the menu. Restaurants still have the advantage of true foodservice kitchens – the equipment, set up of the line, division of labor. Very few supermarkets have this kind of capability – use it to your advantage.”

STRESS SERVICE AND THE EXPERIENCE
“From the experience point of view, restaurants absolutely have the upper hand. In supermarkets, patrons don’t feel as welcomed, cared for, or made to feel comfortable. Restaurants have done a brilliant job of raising the level of output from the back of the house, but, all too often, the kitchen’s best efforts can still be subverted by the front of the house. There’s a gap, a chasm, between the quality of food and front-of-the-house execution that restaurants need to address,” says Nancy. “Step up service by offering more tableside touches – I’m seeing more guacamole and Caesar salads made tableside; more family-style platters being plated for guests. Be responsive to customers; make them feel pampered. They can’t get this in supermarkets. Also, don’t isolate chefs in the kitchen. Many times at supermarket prepared food areas, there’s an interaction that takes place – you can ask a cook at the counter, ‘What do you have today? Tell me about the salt content, fat content.’ Let your chefs make a personal connection, and underscore that ‘I made this for you,’” suggests Peter.

KEEP AN EYE ON PRICING
“The days of charging premiums for certain aspects of the dining experience are over. Cost is a major, major element when it comes to dining decisions. Consumers are willing to factor some intangibles into the value equation, but they are still deeply cost conscious. Re-think pricing – for example, with supermarket takeout consumers don’t have to pop for a beverage, so perhaps revisit your margins there,” Peter suggests. “Consumers have spoken loud and clear about value, and they say that it’s often just too expensive to dine out,” says Bonnie. “We know that wherever there is the least upward momentum in pricing is where they will shift their dollars. When you offer something healthier, for example, don’t position it as a premium with higher costs associated with it. Expectations will be great; consumers will be watching what they spend.”

INNOVATE
“Innovation gives customers more reasons to visit. In our research something that came up is consumers’ desire for variety – new, innovative, creative offerings – including more choices, such as smaller portions, which they are looking for in addition to reasonable and affordable prices,” explains Bonnie. “Supermarket chefs know that restaurants do their test marketing. When something gets to be a sizeable phenomenon, say chicken wings, they jump on it. Stay one step ahead,” advises Nancy. “In supermarkets, we’ve become conditioned to look for samples. So why not create more opportunities for guests to experiment – while waiting for a table, for example, let them sample new menu items? Supermarkets do a grand business on picnic meals – infiltrate that world as well. And maybe it’s time to experiment again with the idea of restaurants having gourmet food markets,” adds Peter.

COMPETE ON CONVENIENCE
“Supermarkets like to tout convenience. But on the other hand, supermarket people will tell you that they think restaurants with strong takeout business do the packaging piece better; that restaurants get food out the door and into the cars better. They concede that restaurants are superior at all the logistical stuff. Make sure that’s the case,” says Nancy. “The need for convenient meals is being increasingly satisfied on the retail side. But even with takeout, you are still going to clean up after the meal has been put on the table. Dining out, you don’t have to shop, cook, or clean up – just spend time with friends and family. Restaurants haven’t done a good job of getting this message across. This is one of many areas in which the industry hasn’t touted its benefits – particularly at the dinner meal,” adds Bonnie.

Source: The NPD Group/Deli Track™/Apr-Dec ‘09