Convenience and culinary creativity elevate the bottomline.
Nearly two decades ago, “The Home Meal Replacement (HMR) Opportunity: A Marketing Perspective,” a report from The Retail Food Industry Center, University of Minnesota, recognized a flourishing future for the pioneers of adding a foodservice component to retail. At the time, only a handful of chains produced prepared foods. Shoppers could purchase ready-to-eat, ready-to-heat, ready-to-cook, or ready-to-prepare items from the deli’s or prepared food‘s section to enjoy primarily at home. A few stores set up tables and chairs, along with a microwave oven, so shoppers could heat and eat their food in the store.
Fast-forward to today, when “sales growth in the prepared foods department is outpacing any individual department, and also the entire store,” says Rick Stein, vice president, fresh foods, Food Marketing Institute (FMI), Arlington, VA. “Over an eight-year period from 2006 to 2014, the foodservice industry achieved growth of slightly more than 2 percent annually. During that same timeframe, supermarket fresh prepared foods grew at a rate of 10.4 percent annually. There’s nothing like double-digit growth to fuel expansion.”
“We made predictions in 2013 that underestimated the continued growth of fresh prepared foods in supermarkets,” notes Wade Hanson, principal, Technomic, Chicago. “The double-digit growth we have seen over the past decade and the 8-plus percent growth we expect in the years ahead confirm the robust outlook for the channel.”
Stein points out the way things have changed: “We once defined prepared foods as primarily salads, rotisserie chicken and salad bars. Now, high-quality meal solutions directly compete with restaurant offerings,” he says. “Supermarket fresh prepared food departments can be segmented into tiers based on the breadth of their offerings. Tier 1 includes stores with restaurant-like operations. Tier 2 encompasses ‘destination supermarkets’ with comprehensive offerings around their perimeter. Tier 3 stores, the largest tier, focus on ready-to-eat and ready-to-heat. Tier 4 stores feature an expanded deli.” The 2015 FMI-Technomic report, The Sophistication of Supermarket Fresh Prepared Foods, notes that nearly all markets surveyed offer soups, sandwiches, salads, and salad bars. Pre-packaged grab and go is the biggest contributor to growing sales, followed by self-service stations.
Fresh prepared foods fit today’s busy lifestyles. “People value their time far more than cooking and shopping,” observes Kelly Jacob, vice president, retail and emerging channels, Pro*Act, a national network of local distributors headquarted in Monterey, CA. “They also will pay for convenience when they can’t or don’t want to prepare fresh, healthy eating options for themselves.”
Produce Needs Are Similar – Yet Different
For suppliers, fresh prepared components offer the opportunity to provide a broader breadth of products to the supermarket. “The deli department purchases some of the same items as the produce department, namely salad blends and whole leaf lettuce,” says Kori Tuggle, marketing vice president, Church Brothers, Salinas, CA. “Deli departments also use larger pack-style formats for larger serving applications that do not include the consumer graphics produce departments require.”
Ready Pac Foods adapted its foodservice and produce department lines of salad bar ingredients, multi-serve offerings, salad kits and bowls, fresh-cut fruits and vegetables, and snack trays for the retail prepared foods section, with offerings both behind-the-glass and grab-and-go. “We bring solutions for freshly made options and work closely with our retail partners to create offerings they can assemble onsite,” explains Tristan Simpson, chief marketing officer, Ready Pac Foods, Inc., Irwindale, CA. “Our team of chefs and culinary scientists can work hand-in-hand with the retail foodservice team to provide cost-saving options that help improve performance and realize efficiencies.”
Degree of preparation often differentiates foodservice products from those sold in the produce department. The prepared and recipe-ready products available to the prepared foods department save time and labor costs, as well as lessen the food safety risks of preparing foods onsite. Traditional deli supplier Reser’s Fine Foods (Beaverton, OR) provides both potato salads and cooked potato dishes such as roasted wedges and mashed potatoes with added flavors in bulk size that can be served in the hot case or cut up into squares for the cold case. Shopper data from the U.S. Potato Board and Chicago-based Nielsen Perishable Group shows wedges are the most popular deli potato item, followed by mashed. Smaller varieties of prepared potato dishes are growing more rapidly.
To support the Mushroom Council’s The Blend program (a mushroom-ground meat mixture), mushroom suppliers began chopping, cooking, and packing mushrooms for sale to restaurant and foodservice within the supermarket. “Foodservice doesn’t want to spend time chopping and cooking,” explains Steven Muro, president, Fusion Marketing agency in Chatsworth, CA, which represents producers of consumer and industry-recognized fresh produce brands as well as national and state fresh produce marketing associations. “Innovations like these make good sense to retail foodservice departments.”
Traditional Meets Trendy
“Retail foodservice is in a position to develop new, non-traditional recipes utilizing traditional produce commodities,” says Muro. “For example, at one time, avocados were thought of just for guacamole, and now look at this industry. Avocados are used as a fat replacement in cakes and cookies, grilled, and sliced on sandwiches.”
Retail foodservice also can add excitement with demo kitchens and stepped-up sampling programs throughout the store. “Guacamole may be traditional, but we started making it on the sales floor in guacamole stations with mobile sinks and iced displays,” says Alfonso Cano, produce director, Northgate González, Anaheim, CA. “This is a combined effort between our prepared foods and produce departments to move more product. The demo sits next to a display of fresh produce, so shoppers can buy prepared guacamole to enjoy today or pick up the ingredients to make it tomorrow.”
Independence Versus Collaboration
Providing produce to the ever-growing and more sophisticated prepared foods department within the supermarket has unique challenges. No longer can produce suppliers rely solely on supermarket produce department buyers to get produce into the prepared foods section. Most retailers operate foodservice and produce independent of each other through different cost centers. Foodservice also may order from a broader base of sources, including traditional suppliers and distributors, foodservice distributors, supermarket buying groups, specialty foods purveyors, and local farmers.
“As a supplier, we maintain relationships with each department we work with and have multiple relationships within a single retailer,” says Benjamin Walker, director, marketing and business development, Baldor Specialty Foods, Bronx, NY. “Retail prepared foods departments heavily index toward fresh-cuts or value-added produce for consistency and labor reduction. Finished goods like individual green salads also are popular.”
“We offer the same high-quality, washed and ready-to-eat vegetables to our retail and foodservice customers,” says Jenny Stornetta, marketing communications manager, Apio, Guadalupe, CA. Our foodservice packs come in 2-pound, 3-pound and other sizes, allowing our foodservice customers to select the right size for them. For example, we offer a kale vegetable blend similar to our best-selling Eat Smart Sweet Kale salad kit in a 2-pound foodservice bag.”
“Our fresh prepared foods department uses the same vendors as produce. However, each department orders separately,” says Maria Brous, director, media and community relations, Publix Super Markets, Lakeland, FL.
Sourcing procedures, whether formal or informal and internal or external, impact accounting practices. Jacob of Pro*Act observes that the produce department might resist ordering for or supplying produce to the prepared foods department, because it complicates inventory management and paperwork. A produce department fears it might not be getting paid, especially if prepared foods employees informally shop for the produce needed by their department.
In contrast, the departments in some stores work closely together. At Northgate González, the produce department transfers excess and ready-to-eat items to fresh prepared at no cost since the items otherwise would go to waste.
New York’s DeCicco & Sons encourages collaboration. “Our goal at the end of the day is zero waste,” explains Andrew Mimran, system administrator, DeCicco & Sons, Brewster, NY. “Our produce manager and prepared food manager communicate daily to coordinate the fruit and vegetable supply in the stores. Produce has perfected truck-to-shelf stocking so the back room stores very little extra produce. That’s why prepared food generally orders its own fruits and vegetables but from the same suppliers as the produce department. The produce department then adjusts the combined order to reduce redundancy and make the best use of items already in the store.”
“We have a produce buying operation and a central kitchen commissary buying operation,” explains Steve Duello, director of produce operations for Saint Louis-based Dierbergs Markets, Inc. “These entities operate independently of each other, but an open line of communication between buyers is essential for a successful operation.”
Dierbergs works with United Fruit and Produce to get much of the inventory for produce departments. The company also has its own produce warehouse and sources a portion of product from the terminal market in St. Louis. Sysco, US Foods are examples of distributors both the produce and the central kitchen operators utilize. The central kitchen has a choice to outsource prepping for processors and pack facilities. Sometime Dierberg’s produce departments even procure packaged or prepped items from its own central kitchens (to-go salads, for example).
FMI’s Stein notes that while the whole culture of foodservice typically doesn’t transfer well to retail in terms of efficiencies, supermarkets are trying to create synergies by using the same supplier for produce and prepared foods and setting up a system to transfer items between produce and prepared foods.
Rise of the ‘Grocerant’
The growth of retail restaurants (dubbed grocerants) is among the most exciting supermarket trends to impact produce. “The term grocerant used torefer to retailers selling prepared meals or grab and go to be eaten on premise or off site,” says Jim Matorin, founder of Smartketing, a Philadelphia-based marketing resource company. “That is rapidly changing.” “Prepared foods are moving away from black plastic plates to in-store food courts and full-service grocerants staffed with high-end, culinary-trained chefs,” says Phil Lempert, food marketing expert and founder of Supermarket Guru, a food and health resource website headquartered in Santa Monica, CA. “The trend goes beyond salad bars loaded with great fruits and vegetables. Grocerant diners want local and fresh. They want to see a beautiful display of healthier ingredients that are incorporated into fresh, healthy, unique recipes. They want to eat different types of foods and flavors that are hard to replicate at home. They want to be entertained with ballgames, bands, and wine tastings. This goes beyond placing half a dozen Formica tables next to the deli.”
Retailers can look toward the restaurant industry for guidance on diner preferences since grocerants compete directly with restaurants for dining dollars. The National Restaurant Association 2016 Restaurant Industry Pocket Factbook notes a majority of consumers say they prefer dining out with family and friends to cooking and cleaning up, look for flavors they can’t easily duplicate at home, eat a wider variety of ethnic cuisines, order more healthful options than in the past, and turn to technology to boost convenience.
Technomic’s Hanson points out today’s consumers want global and ethnic cuisines freshly prepared and “better for you.” They seek exciting flavor profiles and expect that level of flavor from any away-from-home food establishment, not just traditional restaurants.
“In the store grocerant, the retailer can change menu items, atmosphere, and employee assets to match current trends,” says FMI’s Stein. “Operations become more efficient and shrink goes down.”
Grocerant formats vary from market to market. Some New York-based Kings Food Markets have sit down areas where customers can enjoy items purchased from the salad bar, sandwich section, Neapolitan pizza counter, soup bar, or hot bar. A half-height wall separates the dining area from the store.
Shoprite of Greater Morristown, NJ, was remodeled in 2013 to include a 4,000-square-foot atrium with a 100-seat, glass-enclosed food court called the Village Food Garden. As described by Amanda Fischer, marketing and business director, Village Supermarkets Inc., Springfield, NJ, and the ShopRite of Greater Morristown shoppers choose from hundreds of food options from numerous kiosks — including an oyster bar, a salad bar, Mediterranean, a cold entrée bar, a hot bar, foods by the pound, pizza, coffee and espresso, juice, sushi, subs and sandwiches, and barbecue.
Fischer notes produce-centric items — including roasted root vegetables, a superfood salad, classic salads (using avocado, tomato, chicken and arugula) as well as juices from the juice bar — are extremely popular, and the cold entrée bar was installed to meet increasing customer demand for healthful choices. “We partner with Baldor and other suppliers of premium and value-added items to cut down on prep time in the store.”
The Village Food Garden also recognizes its entertainment value. Its built-in chef’s station, kitchen, and culinary studio host in-store demos and cooking classes. Area corporations and businesses participate in lunch-hour sessions with a registered dietitian who helps employees pick foods that are better for them. TV screens as well as a yoga and fitness studio add to the Garden’s appeal. But the main draw remains food, with close to a dozen chefs in the Village Food Garden and three corporate chefs driving the menu.
Giant Eagle’s Market District is enhancing its seating areas to create a restaurant-style atmosphere for enjoying its diverse range of ready-to-eat and made-to-order offerings representing a growing number of global cuisines. Recently, it also opened its first independently branded operation, Table by Market District.
“Whenever and wherever we can, we tie in what’s freshest and in season,” explains Dan Donovan, spokesman, Giant Eagle, Pittsburgh. The majority of produce we use in our prepared food departments is procured directly from, or through, our in-store produce departments. The opportunity to have the largest fresh food pantry, that is, the store, is a unique resource that we use to our advantage.”
First introduced in 2012, Hy-Vee Market Grille restaurants offer a large casual dining menu that includes vegetable-based salads and sides, served in a contemporary atmosphere. Hy-Vee plans to add to its current 80 Hy-Vee Market Grille locations. Rochester, NY-based Wegmans is well-known for its extensive prepared foods departments and services. Prior to the 2015 holiday season, Wegmans created a holiday menu and event that featured prepared dishes, including produce-centric side dishes and desserts, easy ready-to-prepare demos and dishes, and creative recipes using produce.
Wegmans full-service grocerants — Market Café The Pub by Wegmans, Next Door by Wegmans, Amore Italian Restaurant and Wine Bar by Wegmans — are led by executive chefs and inspired by fresh ingredients sold on-site in the stores. Its Rochester test kitchen at Next Door by Wegmans recently hosted celebrity chefs for each of three specialty dinners. One dinner, for example, celebrated the vegan diet with a variety of grains, vegetables, and fruits.
Retail-sponsored food trucks are expanding the definition of a grocerant. Sacramento, CA-based Raley’s recently partnered with Sacramento executive chef Brian Stansberry to sponsor and co-brand Stansberry’s Flavor Face food truck. Raley’s supplies all the ingredients incorporated into the fresh and innovative dishes cooked in the food truck. The truck travels to public and supermarket events sponsored by Raley’s.
In February 2016, Whole Foods Market launched a new food truck test kitchen at its flagship Austin, TX, store. Using the truck as a venue for experimenting with new recipes and collaborating with chefs and supplier partners, Whole Foods Market will update the truck’s concept, menu and name every two months to explore food trends, seasonal flavors, and vendor partnerships. Whole Foods Market recognizes the growth potential of prepared foods and expanded select in-store bars and restaurants with increased prepared foods offerings — including vegan options. It also regularly updates its in-store prepared food selection.
Partnerships Promote Produce
Suppliers can be a valuable resource to supermarkets. Church Brothers offers recipe development and ideation sessions for behind-the-glass departments, usually connected to a challenge the department is trying to resolve. Ready Pac partners with its chef customers — in the FMI survey, 88 percent of reporting banners said they employ a corporate executive chef — to develop specific programs and recipes that align with their vision. Ready Pac’s in-house R&D team also works closely with its partners’ in-house development teams to bring unique offerings to the company’s programs.
With the rapid growth of freshly prepared foods, foodservice distributor J. Kings Food Service, Holtsville, NY, has seen rapid expansion from traditional foodservice into the retail supermarket business. “Many markets don’t have the wherewithal and food safety procedures to prepare foods, so we make their meals in our production facility,” says Joel Panagakos, sales ambassador, J. Kings. “Additionally, our culinary team, executive chef, and sous chefs are available to help chains redesign their deli cases and teach employees about proper display and product rotation.”
Susan Weller, global foodservice marketing manager, U.S. Potato Board, Denver, also sees the value of partnering. “U.S. Potato Board invites deli and foodservice folks, including retail representatives, to our annual foodservice innovation program at the Culinary Institute of America,” she says. “Our resources include recipes and other materials for foodservice, including the deli department. We currently are conducting a foodservice research study to better understand the foodservice needs of supermarkets.”
Muro of Fusion Marketing stresses the importance of collaboration among all parties. “Suppliers who will have the greatest success at retail foodservice are those who are prepared to roll up their sleeves and work directly with the culinary directors of the retail chain. It’s not enough to walk in with produce in hand and say, “Here is what we sell.” It takes commitment, work and perseverance. Focusing on long term success is key.”
Retail Foodservice – A Future Juggernaut
Based on its report, FMI concludes most supermarkets consider foodservice to be a top priority. Growth in prepared foods far exceeds that of other departments and can help offset declines in the center of the store. In fact, in many stores, expansion of the prepared foods department is taking away floor space from center-store grocery items. FMI’s Stein notes supermarkets can compete with and beat restaurants on price, in part because of their in-store inventory, food cost structure and willingness to accept lower profit margins.
Consistent positioning among all departments, including prepared foods, reinforces a store’s brand and values. “Some of the market leaders are doing a better job of creating a cohesive store by carrying local or fresh marketing/merchandising messages across departments,” says Technomic’s Hanson. “Dynamic and informative signage and the marketing of an in-store experience have also been taken to a new level by many supermarket banners.”
“I envision better cross-marketing between prepared foods and produce,” says Matorin, of Smartketing. “For example, a store could display fruits and nuts from the produce department with prepared desserts, or value-added vegetables with a prepared entrée. The typical side dishes currently paired with a prepared entrée could be much better. Also, vegetarians and vegans currently are poorly served, opening the door for better plant-based dishes.”
It also pays to offer new and exciting choices. “If I were a produce brand, I would borrow from traditional foodservice strategies such as limited time offers and new recipe development,” suggests Fusion’s Muro. “On the supermarket side, retailers need to adopt the data analytics tools used by traditional foodservice to predict demand, estimate supply needs, and better manage shrink.”
Pro*Act’s Jacob reminds retailers not to forget about ethnic choices. “We see a growing opportunity in ethnic taste profiles, foods, and ingredients. As a network of local distributors who specialize in produce for foodservice, Pro*Act anticipates an evolving role in supplying smaller volume specialty items to the prepared foods department of individual stores,” she says. Observations from the University of Minnesota report hold true nearly 20 years later. Success takes time, patience and understanding and requires the same considerations as running a restaurant: service, marketing, organization, decision-making, training, specifications of products, and equipment. Shopper priorities evolve with time and differ by generation; so too should prepared foods departments.