This $29 Billion Market is Growing at an Impressive 9 to 11%
The Prepared Foods or Deli area, classified as Supermarket Foodservice, is the overall fastest growing area in the foodservice channel, according to Technomic data from 2011 to 2015. Specifically, Supermarket Foodservice grew at a 4-year average of 11%, which is nearly double the foodservice industry average of 6.6%.
In 2017, Technomic projects continued growth for Supermarket Prepared Foods of 8.9%.
These foods (and services) are part of the high-growth store perimeter. Despite this growth, this area of the grocery store can fall into a gray zone for many food manufacturers and suppliers, and the challenges of meeting supermarket customers’ needs can seem too difficult to overcome.
There is huge variation between fresh prepared foods that are offered under different store banners and formats within a banner . For example, think of Whole Foods or Wegman’s in-store made-to-order pizzas, fresh deli food to-go, hot and cold bars and extensive offerings. At the other extreme, might be a more traditional retail format offering rotisserie and hot chicken, sushi and deli sandwiches and salads, and perhaps a very limited fresh refrigerated pizza to bake at home.
We explored previously the generally under developed market for fresh supermarket pizza. Despite this variation, it’s clear that, overall, supermarkets are continuing to grow and invest in this area.
Two-thirds of supermarket retailers that we interviewed in 2016 are upgrading their fresh prepared offerings and investing in the fresh prepared foods section. Additionally, many stores have executive chefs to keep their menus fresh and new. Retailers are looking to offer fresh, local, customized and made-from-scratch products wherever possible. One supermarket foodservice executive we interviewed stated:
“Fresh foods rather than things that are packaged or something like that. Things that are made from scratch, and the ingredients are local, people want to know where the food is coming from and how it’s made. Our company is running a million miles an hour in the foodservice area, particularly in perishables. We’re remodeling and investing. We’re looking at new departments: a huge juice section with fresh prepared juices as part of the salad area, a chocolate area, stone-fired ovens cooking the pizza, full service salad bar where you walk along and are served items, and protein items are cooked to order. Of course, there is no one size fits all. We serve a lot of different demographics and customer bases. For example, my current store does not have a full-service restaurant (we’re an older store), but my previous store did. A lot of things in our restaurants are made from scratch. For example, we have hamburgers made from fresh ground beef and the French fries are hand cut and made fresh in every single kitchen, so it’s really a great product, and something positive. Our CEO wants us to be known as the best burger in the Midwest. Even though I’m a burger snob, they are really good.“
Another supermarket/club store executive added:
“Fresh product isn’t just a trend, it’s a reality. In Neighborhood Markets, Supercenters and at Sam’s we literally remodeled the stores to offer fresh sushi. Another important goal is to make it unique and local wherever possible.”
One supermarket foodservice executive highlighted the opportunity for food manufacturers:
“Higher-quality prepared food items that are competitively priced but eaten in an authentic way. Historically, supermarkets in prepared food tended to offer frozen heat-and-eat, and they didn’t deliver on flavor. Today, people are looking for food that tastes better and has a better visual appeal. Because labor is difficult to manage in a large chain of stores like we have, we are looking for manufacturers who can produce food that tastes like it was made in the store, not in a plant in New Jersey. Restaurant quality food without having to wait on it.”
Other demands retailers are moving to meet include mobile applications and electronic ordering, specialty dietary needs (e.g., paleo, gluten free, vegetarian and plant forward), continued interest in spicy foods, fusion offerings, Asian foods (including poke), and fresh and prepared Mexican foods (e.g., tortillas and tacos made in store). Executives speak to these trends:
“Product wise, we are seeing hot is cool– so whatever is hot – like sriracha, hot flavor, spicy, Korean barbeque. My Asian business is on fire and up double digits in the past four years and continues to get better. That’s sushi and spicy Asian foods, and are done by a third party for me. I’d say Indian foods are hot right now, but we haven’t had enough success to expand it further. Right now, 94 stores have Indian grab-and-go meals and entrees/sides.”
“Snacking as a meal period with smaller pack sizes, fresh prepared, more natural, more focused on things like gluten free and special dietary needs, global cuisines. People are looking for customization where people can actually pick and choose however they want; want restaurant quality food without having to wait on it, like blue apron concept, ultra clean heat safe microwaveable packaging, better ways to service clean label scratch food with better shelf life.”
Consistent with consumer shopping patterns, retailers expect mid-afternoon through early evening time frames to offer the greatest growth in prepared foods, as described by this supermarket foodservice executive:
“Lunch is biggest right now, because we have working people coming for lunch. Probably around 40%. Dinner is around 45% and breakfast is 15%.”
Several retailers we spoke with are investing in their own commissaries as a way to solve some of the operational challenges of delivering on these demands:
“More use of commissary. We will start designing a new facility for our commissary because people are demanding fresh made food…the only way is to centralize the production.”
“In most of my stores, with FDA and menu labeling law and all the regulatory about saying the calories in the package, I’m moving away from in-store preparation and going to commissary preparation, so I know all the food is prepared in a controlled environment, which gives me advantages with regulatory and health/safety/sanitation which is a big concern. As a conventional grocer, I’m moving to the commissary, so the product has the look and feel. Consumers will think it’s made in the store. I can do that with kits, basically mix two ingredients and put it in the case. We are reducing the size of our service cases from 36 feet to 24 feet and putting in more grab-and-go. However, in 10% of my fleet, I will have more grandiose foodservice with made-to-order sandwiches, hot service buffet and fresh pizza.”
Supermarket Foodservice in the US is challenging, and many major companies have taken a run over the years to offer fresh prepared foods without fully meeting the mark. Consider Kraft’s Chillery as a long time ago example of this challenge, along with the many others that are less visible. The 9 to 11% growth in Supermarket Foodservice suggests another look is warranted, as supermarkets continue to seek help from suppliers who can help to address these needs.