Supermarket and C-store Chains Gain Momentum
It’s a brave new foodservice world. The quick-service restaurant community is facing increasing competition from supermarkets, convenience stores, and big-box retailers that are offering their own prepared food choices and branded restaurant concepts. While retail food offerings are not a new concept—Woolworth’s and many dime stores featured lunch counter service several decades ago—the fresh innovations, competitive pricing, faster service, and strong marketing of modern-day retailers are luring more consumers to their doorsteps—and potentially away from quick-serve restaurants.
A recent 2013/2014 Foodservice Landscape survey conducted by the International Foodservice Manufacturers Association (IFMA) and Datassential estimated that supermarkets experienced 4 percent growth in 2014, while C-stores were expected to have grown 3.8 percent. Limited and full-service restaurants, meanwhile, were estimated to have grown only 2.5 percent. Experts say this difference can be attributed to the growing presence and influence of grocery chains like Whole Foods and Wegmans and C-stores like Wawa and Rutter’s Farm Stores, as well as other retailers expanding and improving upon their offerings.
“Almost every grocery store I walk into now, some of the first things I encounter are their quick-meal solutions, their home-meal replacements,” says Justin Massa, cofounder and CEO of Chicago-based market research firm Food Genius. “Those products are aggressively priced compared with the restaurants around them and are designed to get you in the door in hopes that you’ll buy something else.” Massa adds that fresh food offerings are often the highest-margin products in the entire grocery store.
Peter Baughman, communications director for Chicago-based Foodmix Marketing Communications, says Whole Foods was one of the major catalysts for the supermarket foodservice growth spurt because of its presence in cities across the U.S. The catalyst for C-stores’ big push into foodservice, on the other hand, is “a little bit trickier” to pinpoint because most brands not named 7-Eleven are primarily regional, he says. In large part, however, the foodservice at retail evolution has coincided with customers’ increased expectations for premium food offerings in more convenient locations—an evolution also fueling limited-service restaurants, especially fast casual.
Retailers have happily innovated both their foodservice offerings and their operations to attract those customers with higher expectations. For example, by providing separate checkout stations near their prepared food offerings, supermarkets like Wegmans, Mariano’s, Price Chopper, and Whole Foods help drive sales by letting customers circumvent the main checkout aisles, says David Morris, foodservice consultant for market research firm Packaged Facts.
“That’s where you’re seeing supermarkets adapt to the needs of consumers, especially in more urban environments [and affluent areas] where they have smaller baskets and want to spend a shorter amount of time in the store,” Morris says. “They’re actually placing prepared foods as a primary purchase rationale, rather than secondary or not even on the radar.”
Mariano’s, a 30-unit chain spun off from Wisconsin-based supermarket chain Roundy’s, is taking advantage of that new customer mindset. “Mariano’s takes that notion of foodservice in a grocery store to its logical conclusion,” Massa says. “They actually have branded restaurants inside of their stores. So there is a sushi counter that has its own name and checkout. There is a wine bar, there is an oyster and lobster bar, and on top of that, their deli-prepared fresh section is bigger than anything you could possibly imagine. They have pushed the envelope so far that you can go to the meat counter, buy a steak, walk across the aisle, and have them cook it for you to order.”
Another brand, Price Chopper, will begin rebranding its chain this spring as Market 32, a $300 million-plus investment that executives hope to have in half of the 135 units within five years. Neil Golub, executive chairman of the board for Schenectady, New York–based Price Chopper, said in a November press release that Market 32 represents “the next leap forward” for the company and is a response to “customers’ changing needs.” The company developed a Market Bistro concept store that hosts 15 different eateries, including restaurant concepts with names like Back Bay Fish Fry, Ladle & Spoon Soup Station, and Subtown.
Similarly, the regional Baton Rouge, Louisiana, supermarket company LeBlanc’s Food Stores is rebranding to enhance its fresh food program. Four of its eight units are now LeBlanc’s Frais Marché (one original store and three store conversions), and the company employs three chefs. The new name is French for “fresh market” and ties into the company’s family name.
“We still are a very traditional supermarket, but we also want to cater to those customers who want those specialty items,” says Brooke LeBlanc-Knight, director of corporate communications for LeBlanc’s Food Stores. LeBlanc’s Frais Marché serves breakfast, lunch, and dinner. It offers classic breakfast fare—waffles, pancakes, eggs, bacon, and sausage—while its standard for lunch and dinner is baked and fried chicken. “We rotate each day of the week,” LeBlanc-Knight says. “One thing is constant each day of the week, and then we test seasonal and new products that we get
in.” The brand also offers a salad bar, a soup bar, and a deli and has expanded its meat department to include more prepared meat “where you are taking it out of the pack, baking it, and it’s a complete meal,” she says. “So it already has all of your seasonings and stuffing.” The hot bar offerings are based on weight and allow for personal customization of items.
LeBlanc-Knight says the newest Frais Marché store offers an upstairs seating area with couches, chairs, and a TV. It also has an upstairs classroom at the new store where it can offer cooking classes, wine tastings, and other events where it brings in chefs and showcases its food options.
While some quick-serve chains have tried expanding their menus with items outside their comfort zone, supermarkets can diversify with more credibility, Baughman says. “The grocery store has that common thread of breadth of food options. So at Whole Foods there is literally a taco stand right next to the pizza place right next to a pasta bar. Whereas if a McDonald’s or the guy selling Vienna red hots tries to sell you a baked ziti, you might not be so sure about it. Grocery stores have a lot more real estate to work with, whereas a C-store is going to be a fraction of the size.”
Some C-stores may not have the floor space of their grocery counterparts—the 6,500-square-foot Sheetz in Elkin, North Carolina, is easily dwarfed by the two-story, 135,000-square-foot Wegmans in Burlington, Massachusetts—but numerous gas station/C-store hybrids are still making a sizable dent in foodservice. Sheetz, Rutter’s Farm Stores, and Wawa all offer touch-screen ordering systems for fresh and personally customized sandwiches, salads, and other fare. They appeal to consumers who may spend less time there than at a grocery store but are attracted to numerous impulse purchases. In both cases, buying food in those stores means one less stop to make to get food elsewhere. With the accessibility of a salad or soup bar at a grocer or pizza at a C-store, it makes life a little more convenient and easy for work-weary consumers.
“Wawa is definitely one of the leaders in C-store foodservice, and they were one of the first to be able to transform foodservice as something that was either a non-thought or an afterthought into a purchase driver,” Packaged Facts’ Morris says. “It’s been important because of the volatility you see in gas prices and cigarette sales declining. I think that convenience stores are going to be in a better position to weather some of that volatility thanks to strong foodservice platforms.”
Jerry Weiner, vice president of foodservice for Pennsylvania-based Rutter’s Farm Stores, says his 60-unit chain offers touch-screen ordering with a wide range of combination options for sandwiches, breakfast items, and other fare. He adds that breakfast is a big part of the business, as is the company’s snack business from afternoon through late night. “This year I rolled out short ribs, a new chicken wing, and shrimp,” he says. “It’s a big program.” It also sells walking tacos and stir-fry items.
“Any restaurant—I don’t care if it’s a casual design, a limited serve, anything short of fine dining—is really targeting a very specific demographic,” Weiner says. “In a convenience store, we have all the demographics on our property at some point in time, so all we have to do is do something to appeal to a person that’s already on your real estate. It’s easier if you have the right kind of name recognition and brand recognition. This is something that the industry is positioned extremely well for if they approach it right. There’s a lot that can be done.”
Some big-box retailers, including Costco, Wal-Mart, and Barnes & Noble, have also been getting in on the foodservice game with café settings. Their selection is not as wide as in supermarkets or C-stores, but they do have an appeal to their on-the-go clientele. At the same time, profits can be shaky. According to a March 2014 story in Bloomberg Businessweek, Costco sells 70 million rotisserie chickens per year, yet reportedly with a slight profit margin.
Massa says Wal-Mart’s foodservice program, beyond branded stores like Subway, hasn’t been very successful. “It’s the same kind of food menus that you saw on your grocery store 10 years ago—fried chicken, macaroni and cheese, that kind of stuff,” he says. “There’s certainly a market for that, but I don’t think that’s where the growth in retail foodservice is. It’s going to be around those products where there’s a culinary perspective—it tastes delicious, it’s appropriately priced, and it’s something that can actually compete on quality.”
Rutter’s Weiner says he’s not sure Costco and Wal-Mart pose as much of a threat in the foodservice space as some other retailers. “If you ask me who I would worry about over the next 10 years, it would be Walgreens,” he says. “They have some great corner locations and have already started working on development of concepts. They also have the deep pockets to do the R&D of a decent program.”
A key factor that is driving the retail foodservice revolution, experts say, is giving customers more options of where and what they can eat. Delivery options also can play into that, especially when chains partner with online ordering facilitators like Instacart and GrubHub. Of course, another important component in the equation is price.
Massa says that while quick serves might revisit their prices two to three times a year, many grocery and convenience retailers “are constantly fiddling with price. They’re constantly experimenting, and have a diligence and a rigor around pricing analytics that most foodservice doesn’t have today. My concern for [quick service] is if they don’t get more sophisticated about pricing now, they are just going to get outmaneuvered by these newer entrants to their space who’ve been doing it for a long time.”
However, Massa says quick-serve operators can bank on one key component that is especially lucrative in the fast-casual space: the restaurant experience. He believes limited-service restaurants will always have that advantage over retailers, even when some supermarket and C-store chains can better the competition when it comes to convenience.
Still, he adds, the competition is as serious as it’s ever been.
“I think [within] the landscape of food in five to 10 years, the lines of demarcation between convenience, grocery, noncommercial foodservice, and commercial foodservice are all going to get very fuzzy,” Massa says. “The reality is—and I think people in the industry are wrapping their heads around this to varying degrees—that everyone competes with everyone now.”