Blurred Lines Between Retail and Foodservice

April Produce Business Cover story feature

Originally printed in the April 2018 issue of Produce Business.

Collaborative supermarket retailers and produce suppliers can cash in on consumer desire for fresh menu items.

Produce is the first thing you see after entering Gelson’s Markets.

However, this department isn’t the only place to find fruits and vegetables in this 27-store specialty grocery chain headquartered in Encino, CA. It’s also freshly evident at the salad bar, in gourmet salads, in made-to-order sandwiches, over pizzas prepared and branded in partnership with Wolfgang Puck. It’s also evident in one of the chain’s newest offerings: in-store, chef-created customized bowls with Mediterranean-inspired ingredients such as greens and grains, served in a dining area adjacent to the retailer’s full-service deli, called The Kitchen.

One look at this in-store landscape and it’s easy to see that Gelson’s is one retailer leading the pack by offering customers the best of both worlds: retail and foodservice in a one-stop-shop.

“There’s no question we’re seeing more supermarket retailers put in grocerants and try to be all things to all people, and this is increasing by the day,” says Phil Lempert, president and chief executive of Consumer Insight Inc., in Santa Monica, CA, and founder and editor of The Supermarket Guru, which defines grocerants as stand-alone, full-service restaurants within or adjacent to a supermarket that may even serve liquor. Because of this, “there is a huge opportunity for produce that is not yet realized [to its fullest potential.]”

Americans do have a healthy appetite for eating out. In fact, and for the first time in more than a half century of tracking, the share of total food expenditures purchased away from home hit 50.1 percent in 2014, surpassing at-home food sales, according to the U.S. Department of Agriculture’s Economic Research Service Food Expenditures Series data released in April 2016.

As to where consumers are eating, limited and full-service restaurants lead the way at 52 percent of total foodservice sales and $417.6 billion in consumer spending, according to the 2017/2018 International Foodservice Manufacturers Association (IFMA) Foodservice Landscape report, produced in partnership with Chicago-headquartered Datassential. Onsite foodservice, meaning everything from schools, hospitals and lodgings to vending, corrections and the military, is second at 27 percent and a consumer spend of $180 billion.Retail foodservice is third at 21 percent and $61.9 billion. What is striking is this ranking is reversed when it comes to projected growth. Retail foodservice is first with an expected growth at 2.8 percent, compared with 1.7 percent for on-site and 0 percent for restaurants. This makes supermarkets a bright spot in the overall foodservice landscape.

“Traditional foodservice’s tough year has caught the attention of retail supermarkets,” says Maeve Webster, president of Menu Matters, an Arlington, VT-based foodservice consultancy. “These operators are seeking to grab foodservice dollars away from quick-serve and fast-casual restaurants with the addition of take-home, high-quality meals, meal kits and in-store dining. There’s success driven by the lower cost of a supermarket meal and the convenience factor. After all, the retailer already has the customer in-store to purchase retail items, and now they can be a one-stop shop for meals too.”

Produce Fuels Deli Enhancements

The deli section of the supermarket is most likely the origin of this blurred line between retail and foodservice, says Shayna Snyder, senior account manager for Olson Communications in Chicago. “Supermarkets started selling sandwiches, and some have evolved to add seating areas for consumers to eat inside the store. Now, we even see some supermarkets that have foodservice kiosks or even full-service restaurant concepts inside the store.”

“Affordable, healthy food” is the biggest trend in all channels right now based on research from the Center for Food Integrity, says Amy Myrdal Miller, MS, RDN, FAND, founder and president of Farmer’s Daughter Consulting in Carmichael, CA. “We’ve seen incredible changes, from the standard deli items of cold cuts and mayonnaise-based salads to a wide variety of prepared ready-to-eat and ready-to-heat items.”

Indeed, the top three food-related factors that drive consumer purchase decisions from the supermarket are taste (91 percent), appearance (89 percent) and impression of freshness (88 percent), according to a 2017 assessment of the supermarket foodservice channel as provided by Chicago-headquartered Technomic. Fresh produce figured prominently into each of these points.

“We’ve expanded the selection of freshly prepared foods offered in our full-service deli case, which now includes various entrees, salads and side dishes. These deli enhancements are in close to half of our stores today and are truly changing the way our guests shop at Sprouts.

— Kalia Pang, Sprouts Farmers Market

A good example is the offerings at the Market Corner Deli at Sprouts Farmers Market, a nearly 300-store chain based in Phoenix and operating in 15 states.

“Over the past couple of years, we have added salad bars, freshly squeezed juice, olive bars, fresh sushi and soup bars to many of our stores,” says Kalia Pang, company spokesperson. “In addition, we’ve expanded the selection of freshly prepared foods offered in our full-service deli case, which now includes various entrees, salads and side dishes. These deli enhancements are in close to half of our stores today and are truly changing the way our guests shop at Sprouts.”

The overarching desire for health is destined to put more produce on the plate, according to Steve Petusevsky, president of Fort Lauderdale, FL-based Steven Petusevsky Enterprises and chairman of the Appetites & Innovation Retail Supermarket Initiative at the Culinary Institute of America in Napa, CA. He is also a trend-setting chef who served for more than a decade as corporate chef for Whole Foods Market, where he developed more than 1,000 core recipes. “People today are interested in globally inspired, plant-forward cuisine. Plant-forward is profitable secondary to cost of protein, and this bodes well for supermarkets that are not high profit.”

How Produce Retailers And Suppliers Can Cash In

There are several ways supermarket retailers and produce suppliers can take a bite into the potentially profitable pie of retail foodservice:

For Retailers

1. Seek out chefs. Retailers are recognizing prepared foods are a differentiator, and they no longer compete only with other supermarkets but with foodservice operators too, according to Jacquelyn Chi, associate director for programs and special products under strategic initiatives at the Culinary Institute of America at Copia, in Napa, CA. “As a result, they know they need to have culinary driven people in these areas.”

Trend-setting retailers have already gotten this message. In fact, says Greg Drescher, vice president of strategic initiatives and industry leadership for the Culinary Institute of America, in Hyde Park, NY, “There are more than 100 CIA graduates each now employed at Wegmans and Whole Foods, and other retailers from the East Coast to Hawaii are attending our job fairs. This gives a good indication of where retail and foodservice are headed.”

The Culinary Institute launched its Appetites + Innovation forum in 2016 to boost innovation in retail foodservice and prepared foods, especially when it comes to the recruitment and training of culinary talent. Chi remarks that more supermarket retailers are attending this event each year. The next will be held August 20-21 at the Copia campus.

Hiring chefs is definitely a good way to bring more shoppers into retail. Specifically, last year’s Deli Experience research from the Culinary Visions Panel, a Chicago-based food-focused research and trend-forecasting firm, indicated that restaurant quality is the gold standard, with 72 percent of consumers saying they like a deli where the prepared foods are comparable in quality to their favorite restaurant. Forty-four percent responded their local deli could become their go-to eatery if the deli had a chef creating the menu.

“Oftentimes, the goal is that the chef will elevate prepared foods offerings,” says Olson Communications’ Snyder. “Implications include bringing more interest and attention to the produce available in the store after featuring specific vegetables or seasonal produce in their prepared foods, on catering menus or in holiday promotions.”

Produce industry partnerships with retail-based chefs offer the chance to tell the story about fruits and vegetables, adds Chi. “Chefs love a good story, like where and how something is grown and the grower behind it. They are happy to pass this story onto their customers and likely amplify and build on it by highlighting the ingredient in a special way. To do this, growers could invite retail chefs to tour their operations.”

To make professionally trained chefs feel at home in retail, it’s important for supermarkets to pay attention to the mind and motives of the chef, according to Drescher. “To make sense as a resume-building career move, chefs need to be supported. Look at college dining. It was a culinary wasteland 30 years ago. They knew they needed to step up their game, and to do this they brought in chefs to innovate. Consumers today want to eat seasonal, local, vegetarian, healthy, organic, Italian, Korean and more, much of it plant-forward and produce-centric, and to do so every day. It takes strong culinary leadership to make this operationally achievable at the retail-store level.”

2. Market beyond the weekly circular. Social media is still relatively foreign as a marketing tool for supermarkets,says Wade Hanson, principal at Technomic. “However, it’s something that can be used beyond the customary weekly circular to get new customers in, old customers in more and convert them into a full basket shopper who buys from grocery and prepared foods.”

Beyond this is ecommerce marketing. For example, Amazon has pushed Walmart, Kroger and most of the large regional chains to step up their ecommerce game by offering Click and Collect options and home delivery, explains Kelly Jacob, vice president of retail and emerging channels at Pro*Act, based in Monterey, CA. “All of these things play to the current consumer expectations of convenience, but these same consumers still want freshness. Produce is a key element when it comes to a fresh image. I cannot see promoting a grocerant without highlighting produce items, but they need to be interesting and unusual taste profiles to capture the current expectations of both old and young.”

In store, there’s a huge opportunity for produce not yet realized in the marketing of the grocerant, adds Consumer Insight’s Lempert. “How? There are several ways. For example, incorporate displays of fresh produce like Fuddruckers does, something that differentiates this burger chain. Second, have a salad bar in the grocerant itself, not just in store. Third, talk about the fresh produce served on the menu, such as if it’s locally sourced. Fourth, offer more plant-based items on the menu.”

3. To have or not to have? “To any retailer that doesn’t have a grocerant or prepared foods program, I’d recommend they develop one as fast as they can,” says Lempert. “Grocerants were a trend 6 to 7 years ago, so anyone just coming in now is late to the party. The benefit is that it sets the stage for the entire retail shopping experience and builds strong relationships between retailers and their customers.”

For Produce Suppliers

Wegmans overhead1. Expand your working world. Fruit and vegetable marketers that want to sell into grocerants need to do some field work first, recommends Consumer Insight’s Lempert. That is, “go to a grocerant. Look at the menu. Have a meal. Understand what is taking place there. After that, reach out to the right person. It may be a chef in each retail location, or it might be a centralized corporate chef.”

Drescher, of the Culinary Institute of America, agrees and adds: “One complaint we often hear from foodservice operators is suppliers will push their products but not understand the menu or menu concept. It’s important to take the time to gain this understanding. Also, take time to get to know the market leaders beyond the retailer’s produce buyer. Chefs and foodservice personnel bring another category of relationships to make.”

Produce companies also can benefit from a foodservice viewpoint on a quality front, according to Menu Matter’s Webster. “Retailers look for fruits and vegetables that are easy to ship and store. Dialogue with chefs can lead to a shift in emphasis to higher flavor, greater texture and improved appearance in terms of conveying freshness, not necessarily perfect looking.

“This rethinking of priorities can have an impact on produce on the shelf as well as in prepared foods. The upside for produce companies in making this effort is that the volume into retail is generally greater than restaurants, except for perhaps large national restaurant chains,” she says

2. Trend share. Restaurants have challenges that don’t hinder retail foodservice. For example, there are backroom capacity constraints as well as front-of-the-house table limitations, which affects product variety and anticipated growth, according to Jacob. However, “restaurants’ strength is the ability to start or stay ahead of trends.”

Trend-sharing is how the produce industry can give retailers an advantage.

“Produce suppliers can provide information,” says Hanson. “This could be how to prepare specific types of fruits and vegetables and how to incorporate these into recipes and menus with greater variety and appeal.”

Recipes on websites are one way produce companies are doing this, says Lisa McNeece, vice president of foodservice and industrial sales for Grimmway Farms in Bakersfield, CA. “If retailers don’t have a chef, they can look at our recipes online to get the latest ideas. Additionally, a social media site such as Pinterest is a great spot to find consumer-driven food trends. This can help retailers move beyond a basic prepared foods program to something more creative that can boost sales for small retailers and help larger retailers differentiate and better compete.”

3. Cut the labor. One of the biggest challenges in foodservice is staffing, says Paul Kneeland, senior director of produce, foodservice, floral and bakery operations at Gelson’s in Santa Fe Springs, CA. “Produce companies can help by offering fresh-cut components. For example, beet salad is all the rage now. The ability to open bags of pre-cooked cut beets and washed arugula and toss these together with goat cheese cuts down on much of the prep labor while still producing a quality finished product.”

Mann Packing in Salinas, CA, has found crossover from restaurants to retail deli with some of its products. This includes the Simply Singles line of whole green leaf, red leaf and Romaine leaves, which makes sandwich-making easier, as well as seven different lettuce blends. The newest of these is RomaBlend, a combination of chopped Romaine and the company’s Arcadian Harvest petite mature lettuce that offers operators something different than chopped Romaine or spring mix alone.

“We’re seeing a lot of growth in more complicated and customized packs,” says Gina Nucci, director of corporate marketing. “All the individual ingredients in these blends make it harder for an operator to go out and source themselves and then chop.”

Specialty food distributors such as Baldor Foods in Bronx, NY, have addressed this issue too.

“What we sell to retail prepared foods departments is both whole and fresh-cut produce,” says Benjamin Walker, senior director of marketing and development. “Some of the largest volume items are cleaned and shredded kale, sliced and diced tomatoes, chopped carrots and cucumbers and shredded cabbage for use in salad mixes. We also do chopped squash and broccoli florets for salad bars and hot bars. In the future, we’ll see innovations such as cauliflower rice and cauliflower steaks taking center stage. Everyone is looking for affordable healthy solutions, and this is where produce comes in. In addition, if it comes from us, we have an SQF Level 2 certification for food safety, and that’s hard to do on a store-level scale.”

For retailers that want to offer meal kits as part of a prepared foods program, Baldor recently launched its Urban Roots Veggie Kit line. There are four Cauliflower Rice Side Kits, such as Tabouli Style Cauliflower Rice, and six Roasting Side Kits, such as Hot Honey Carrot Fries and Broccoli Cheddar Bites. Each comes with a simple recipe and makes sides for two or a meal for one.

“Retailers can pair these with a protein and merchandise as a restaurant-quality meal they can take home and prepare themselves,” says Walker.

Produce companies that don’t have fresh-cut operations can supply this market by selling to processors, commissaries or manufacturers that then create ready-to-assemble recipes for retail foodservice, suggests Technomic’s Hanson.

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