$28B annual sector outpaces health care and education foodservice

"Retail foodservice operators will continue to steal share from restaurants over the next decade as they have done since 2006," said Wade Hanson, principal, Technomic, in his State of Foodservice at Retail presentation.

Supermarkets grew their foodservice revenues 10.4% annually from 2006 to 2015, from $12.5 billion to nearly $28 billion. That’s five times the 2.1% annual rate of traditional restaurant growth in the same period. Further, Technomic projects that supermarket foodservice will grow 9.3% in 2016 and sustain a similar pace over the coming decade.

Meanwhile, convenience stores grew foodservice revenues 2.4% annually since 2006, a pace that rose to the 3%-4% range more recently. Hanson expects they’ll continue to outpace traditional restaurants in 2016 and beyond. 

These percentage growth figures do reflect a smaller base than restaurants. Yet the trend is clear. Consumers widely accept retail foodservice efforts, says Technomic, because they increasingly meet specific customer wants and give dining experiences on par with many restaurants. “Stores have elevated their foodservice game to new heights,” said Hanson, noting customized orders at Whole Foods Market, ambiance at Standard Market, speedy kiosk order entry at Sheetz, and sociable outdoor dining at Central Market as a few examples.

Technomic data reveal that:

  • The frequency of prepared foods purchases is up in every retail class measured.
  • 84% of U.S. consumers buy retail foodservice at least once a month—up from 79% in 2012. “Retailers look at 90 meal occasions each month. They say, ‘look at the growth we’re experiencing with people coming only 1-7 times a month. If we increase that by one or two per person, growth rates will continue to explode,’ ” said Hanson.
  • Supermarkets handily beat QSRs on food healthfulness, appearance, freshness, uniqueness, taste, variety and options criteria.
  • 56% of consumers feel convenience stores are “just as capable as restaurants in offering fresh foods and beverages.” More younger consumers, unencumbered by pre-conceived notions of c-stores and food, led this response: 67% of Millennials and 60% of Gen Xers agreed.

Supermarkets and c-stores eyeing grocerants as a profitable revenue source will need to continue to satisfy consumers who’ve seen “an explosion of choices—the historical dining options, meal kits like Blue Apron, food trucks, third-party deliverers like GrubHub, farmers’ markets and gourmet vending. Consumers can go anywhere they want or pick up their phone for a wonderful experience,” said Hanson.

Grocerants compare well against these competitors lately: 54% of women and 66% of super heavy users agree “the quality of retail prepared foods has greatly improved over the past two years,” data show. 

As quality perceptions and grocerant usage rise, so do consumer expectations,” noted Hanson. So “evolution is full steam ahead” to continue to improve on the innovative and bold flavors, speed and convenience, ambiance, value and technology such as mobile payments and orders via app or kiosk that younger consumers want.

He classified supermarket foodservice operators into four tiers, and c-store operators into three.

Supermarkets:

  • Tier 1: foodservice specialists, account for 10% of supermarkets today. They offer gourmet and made-to-order items, restaurant-type amenities, professional design, dedicated checkout areas, onsite preparation, and a variety of cuisines.
  • Tier 2: destination full-line grocers, account for 25% of supermarkets today. They have extensive perimeters, possibly some made-to-order foods and café seating, and use commissaries. 
  • Tier 3: prepared food departments whose focus shifted from sliced meats and cheeses, account for 50%-55% of supermarkets today.
  • Tier 4: extended delis, which emphasize sliced meats and cheeses, account for 10%-15% of supermarkets today.
     

Convenience stores:

  • Tier 1: basic, account for 90% of the 140,000 c-stores in the U.S. that offer foodservice.  They have coffee, cold and frozen beverages, traditional items on roller grill, and a good amount of grab-and-go foods, but little merchandising to highlight.
  • Tier 2: premium. They have more specialty beverages, innovative gourmet items on the roller grill, and merchandising to drive traffic.
  • Tier 3: super-premium. They prepare foods in-store, focus on fresh and innovative, and pay attention to recipes and trends that drive the business.
     

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