IDDBA '99

NEW ORLEANS -- The potential of the fresh meals category as an instant profit center has been greatly exaggerated, and that presents a real danger to supermarkets.That's what David Rogers, president of DSR Marketing Systems, told participants at The International Dairy-Deli-Bakery Association's Dairy-Deli-Bake '99 seminar and expo here last week.A featured speaker at the IDDBA event, Rogers challenged

NEW ORLEANS -- The potential of the fresh meals category as an instant profit center has been greatly exaggerated, and that presents a real danger to supermarkets.

That's what David Rogers, president of DSR Marketing Systems, told participants at The International Dairy-Deli-Bakery Association's Dairy-Deli-Bake '99 seminar and expo here last week.

A featured speaker at the IDDBA event, Rogers challenged the interpretation of some of the statistics that have whipped up such enthusiasm for fresh meals in the industry in the last five years. The danger bred of what Rogers called the "HMR hype" is that supermarket operators have, or may soon, invest in programs and equipment that will drain away their profits.

In making claims about the food-away-from-home market, industry experts in many cases have relied upon "superficial research concerning trends in food-spending patterns," Rogers said.

"We keep hearing ad nauseum that almost half of all food spending now takes place away from home," Rogers said, noting the statement is deceptive when it comes to calculating the competition facing supermarkets.

He acknowledged the validity of the United States Department of Agriculture's 1996 figures showing the away-from-home food market at 46 percent, but he explained that the number has been misinterpreted.

When those statistics and similar ones were released, they spurred the supermarket industry to implement strategies to take back the business they had lost to restaurants. Rogers, however, noted the USDA figure reflected market segments that the supermarket could not possibly compete with.

"The problem is that the figures include food supplied by institutions and business entertaining -- obviously market segments where the supermarket cannot ever compete," Rogers said.

"We can't compete with those martini lunches charged to expense accounts."

When spending by institutions and for business entertaining is excluded, the proportion of personal away-from-home-food spending falls to 39 percent, which closely approximates the U.S. Labor Department's 1995 Consumer Expenditure Survey, which reported the proportion at 38 percent, Rogers said.

The CES figure, which Rogers said hadn't received its share of attention, even represents a "significant decline" in the proportion of personal spending on away-from-home food, which peaked at 43 percent in 1988. And the CES figure declined from 6.4 to 5.3 percent of total consumer spending allocated to food-away-from-home during the same period. During that time, the food-at-home proportion remained virtually unchanged, Rogers said. He advised supermarkets to proceed with caution in providing convenient meal solutions. Describing the category as freshly prepared food made in-store that can be very labor-intensive, Rogers suggested retailers instead take advantage of the opportunity presented by case-ready meal components, both chilled and frozen.

"Case-ready meals are frequently the only truly convenient meal solution in the supermarket setting because they avoid the second line at the deli or prepared-foods counters," Rogers said.

They also are efficient, and consequently profitable, because they're produced in large batches at a central commissary, whether it's operated by the retailer or an outside supplier, Rogers said.

With case-ready products, the supermarket has a clear advantage over restaurants because supermarkets can label them, listing ingredients, Rogers said.

"Consumers [who are getting increasingly health-conscious] never know how much fat or sugar or salt is in what they order from a restaurant," he noted.

Rogers also pointed out that the old standbys -- sliced deli meats and cheeses and deli salads -- play an important role in the fresh meals department. What's more, sales of those items have remained steady and, for the most part, continue to appeal to all income groups and age groups, he pointed out.

While Rogers warned supermarket operators to keep their programs simple and their expectations modest, he did say emphatically there was a market, and probably a growing one, for convenient meals. He even suggested the decline in the food-away-from-home market could spell money for the supermarket.

That's because government figures showing less money spent on food away from home reflect a plethora of restaurants that sprang up between 1985 and 1996. The restaurant-to-restaurant competition resulted in lower menu prices, lower total expenditures.

"What these statistics and trends say is that consumers have economized on meals out, often by bringing them home as takeouts. Meal solutions, including HMR, are a way for the supermarket industry to capitalize at the expense of the restaurant industry," Rogers said.

However, he had reservations about some supermarkets that are trying to compete in the fresh meals market because it may not fit their images.

"I'd seriously question a price-sensitive chain going into HMR because they don't have the creditibility," he said.

"The ones that have been successful, the Wegmans and the King's of the industry, have built their image over the years," he said, pointing out that price is not as important as quality and service in such chains, and they've built a loyal customer base that's attracted to them because of their image.

He suggested supermarket operators ask themselves three questions before developing a meals or HMR business plan. Does HMR fit with our image and customer profile? If yes, do we have the expertise to execute HMR successfully? If yes, where do we do it; what store locations?

On the last question, Rogers emphasized that HMR and other meals solutions programs should be market-specific.

"It can't be a shotgun approach. It has to be selective and geographically localized. Successful programs are located in areas with a large concentration of small, high-income households headed by persons aged between 45 and 64 and/or in areas where the nonresidential demand is high due to a supermarket's proximity to workplaces," Rogers said.

Supermarket operators who decide to implement a fresh meals plan then need to think about what is truly convenient for the customer. For example, in-store service departments should be located in the front rather than the back of the store and there must be more staff at peak times, he said.