Prepared foods is a category that's confounded supermarkets.
Long on promise, this segment has typically only scored mixed results.
The recession provided a new opportunity for grocers to revisit the category and possibly gain market share. The prospect seemed clear: Consumers were trading down from restaurants to food stores in order to save money by eating more at home. That seemed like a perfect supermarket opportunity for ready-to-eat, ready-to-heat and ready-to-cook foods.
So have supermarkets taken the plunge and performed well on this strategy? One SN article this week indicates some independent operators have done just that.
They have succeeded with disciplined, well-executed plans. Some elements include ultra-sharp pricing, more self-service, focus on comfort foods and avoidance of high-end fare. Think mac-and-cheese and chicken, but perhaps with a bit more innovation and variety than usual.
Some operators have taken efforts even further by trying to extend core business from lunch into dinner, a move that particularly targets consumers abandoning restaurants. One retailer, United Supermarkets, Lubbock, Texas, has even added drive-up windows at its new Taste of Market Street format, a tiny outlet of only 1,300 square feet that includes fresh items and prepared foods. These units are located in the parking lots of the company's main supermarkets.
Most impressive are the kinds of prepared-food returns some supermarkets are citing. Brigido's Markets, North Providence, R.I., reports a 6% to 8% sales lift year-to-date in the first quarter. Rouses Markets, Thibodaux, La., is posting double digit gains.
Notice that this discussion has focused on independent operators. What about the balance of the industry, including larger chains? It's hard to generalize as some chains are certainly doing quite well, but it seems many companies are not getting this kind of lift. Simeon Gutman, an analyst at Canaccord Adams, New York, said recently that supermarkets haven't seen a rise in perimeter department sales despite consumers trading down from restaurants. Rather, consumers have shown a pattern of trading down within fresh departments, such as to less pricey cuts of meat.
That would indicate prepared foods aren't attracting the dollars that many had hoped. There could be multiple reasons for this, but our in-house perishables expert, Matthew Enis, Fresh Market editor, points to one in particular: Many retailers don't make the commitment necessary to succeed in prepared foods. Certain highly focused, smaller operators tend to shine, but many larger ones don't do as good a job of executing on these strategies.
Speaking of commitment, will consumers who traded down to supermarket prepared meals maintain that behavior when the economy improves? My prediction is many of them will, particularly those that shifted habits for price but later found the convenience and quality more impressive than they expected. That's not something they'll give up too readily.
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