A new study finds consumers are flocking to online food companies for prepared meals for two reasons. And restaurants should be worried.
Quick-service restaurants feeling more intense competition for the consumer’s dollar might not only look at their dining rivals across the street, but their supermarket down the block.
A growing array of prepared and ready-to-eat foods at retail outlets such as Walmart and Kroger are attracting consumers and threatening to put a dent in quick-service business, says a new report from Packaged Facts titled “Prepared Foods and Ready-to-Eat Foods at Retail: The New Competition to Foodservice.”
The report surveyed 1,881 U.S. adult consumers and found that half of respondents were more likely to eat dinner at home than they were three months ago, while 64 percent reported purchasing ready-to-eat or heat-and-eat food from a grocery store within the last month. The study predicts that supermarket prepared foods will grow to $14 billion by 2011, largely motivated by consumers migrating away from restaurants during the recession in search of value and one-stop-shop convenience.
“We see a lot of momentum here and expect growth of 7 percent from 2010 to 2011, which is a pretty monumental surge in a supermarket industry that has been accustomed to losing share,” says David Morris, the report’s chief analyst.
The study cites two distinct groups gobbling up supermarket-prepared foods: those who seek low-cost, quick alternatives out of necessity or convenience and those who see the prepared foods as an alternative to home cooking. Both groups have long been primary clientele for the quick-service category, heightening restaurant concerns in an already challenging environment.
“This is not a new trend, but we do see this as the year that grocery stores put this strategy at the forefront, which should be a competitive concern for restaurants,” Morris says.
Suzanne Long, a grocery retail analyst with New York–based SSA & Company, says grocery stores began stocking prepared meals more aggressively in 2005–2006. Noting a consumer conscious of price and time, the industry saw an opportunity to modernize its decades-old business model and push into new areas. Offering prepared meals was supposed to generate additional in-store purchases.
“There’s been a huge trend toward this for years now, but the retailers are looking far more at sales and market share over profit,” Long says.
Although still in its formative years, the prepared-meals trend is gaining momentum, particularly as the recession lags. Grocery chains continue to experiment with more diverse offerings, portion size, and operational efficiencies to better compete with restaurants and draw customers.
“Grocery stores feel as if they haven’t come close to achieving their goal of grabbing greater market share, so there’s absolutely a continued push,” Long says.
The study predicts that supermarket prepared foods will grow to $14 billion by 2011.
While the threat of increased competition in an already heated foodservice field brings concern to some restaurant brands, others see the rise of grocery stores in the prepared-foods arena as a complement—not a competitor—to business.
In June, Canadian chain Tim Hortons announced it would add 48 self-service coffee kiosks to new Tops Friendly Markets locations in the northeast U.S. The partnership adds to Tim Hortons’ already strong relationship with the grocer, which includes existing kiosks in 82 Tops outlets in upstate New York. Each of the locations serves Tim Hortons’ signature blend coffee, Timbits donut holes, hot chocolate, and tea.
“We’re taking the brand to the people,” says Tim Hortons COO David Clanachan. “The key thing is convenience. People are time-starved and they want what they want. If we make our products available and win loyal customers, then it feeds our brand.”
Whether competitor or complement, there remains little question that grocery’s major players intend to challenge restaurants. While grocery stores might succeed and expand in the short term, Morris sees a ceiling to their market share.
“The grocery stores cannot be ignored, but they still cannot recreate the restaurant experience unless they build out and create their own branded restaurant-like setting,” he says. “That’s one thing the restaurant world has going for it, even as the competition grows.”