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Prepared Food Departments Heating Up

Prepared food departments have weathered the recession well, but aggressive deals by restaurants may signal a new era of competition

In 2010, the average American purchased 195 restaurant meals, including takeout and on-premise eating. It was the lowest number of per-capita restaurant visits in at least a decade, according to Harry Balzer, chief industry analyst and vice president of The NPD Group.

“The restaurant industry is having a very difficult time,” he said. “In fact, we're still looking for the bottom in the number of meals being bought.”

The restaurant industry has been reeling since 2008, when many consumers began dining out less and eating at home more often during the onset of the recession. Many prepared food departments benefited from this trend by offering shoppers convenient meal solutions that are generally viewed as healthier than quickservice restaurant fare, and less expensive than takeout from casual dining chains. In fact, 77% of consumers say that they purchase prepared foods from retailers at least once per month, according to the 2011 Retailer Meal Solutions Consumer Trend Report from Chicago-based foodservice consulting group Technomic.

“From a sales growth standpoint, in recent years supermarket foodservice has consistently been one of if not the strongest performing segments of the industry that we track,” said Jenny Anderson, director of research and consulting for Technomic. “We expect that momentum to continue and consider supermarket foodservice to be in a solid position going into 2012.”

But lately, restaurants have been intensifying their efforts to build traffic. Casual dining chains including Chili's and Applebee's have been promoting two for $20 deals, offering diners two entrees and an appetizer to split for $20. Boston Market is promoting holiday family meals starting at $5.99 per person. QSRs such as Burger King are offering frequent two-for-one deals on sandwiches, or even bundled family meals like BK's whopper, whopper jr. two fries, two small drinks and a kids meal for $9.99.

And, price competition has gotten fierce in the pizza restaurant sector. Pizza Hut's current “Big Dinner Box” offer includes two medium one-topping pizzas, an order of wings and 5 breadsticks for $20. At Dominoes, customers who place their order for carryout can get any 3 topping, large pizza for $7.99 every Monday through Wednesday. And Papa Johns has been heavily advertising its two large one-topping pizzas for $20 deal. For each sale of the special, Papa Johns donates $1 to the United Service Organizations (USO).

It's important to keep tabs on this type of activity in the restaurant industry, because in the broader scheme of things, everyone that sells food is competing with one another to some extent, noted Jeff Culhane vice president of perishable marketing for Tops Friendly Markets.

“Anybody that sells food is a competitor,” he said. “Whether it's a QSR, or even internally, I look at heat and eat opportunities in the meat department or the grocery aisles. From a convenience point of view, grocery is obviously a less direct competitor, but QSRs are absolutely competition.”

Demand for convenience and value are two factors driving a long-term shift in consumer preferences, according to Balzer at the NPD Group.

“Did you make my life easier, and did you make my food costs cheaper?” he asked. “Those are the two questions that supermarkets must face. What are they doing to make [customers'] lives easier and their food costs cheaper?”

With these aggressive deals, restaurants are reminding customers that they, too, can offer value for families and groups. And, with many offering options like home delivery, drive thrus and curbside takeout, restaurants generally have supermarkets beaten in terms of convenience.

But, Culhane noted that prepared food departments also offer a variety that most QSRs simply can't match.

“One of the key advantages for supermarkets is that we have so many different offerings,” he said. “When you go into a traditional KFC or Burger King or Subway, their menus are somewhat limited toward their center. Burger King and McDonalds are mostly burgers with some chicken. KFC is chicken and a few other offerings. When you come to a supermarket, you can get pizza, you can get sandwiches you can get fried or baked chicken, meatloaf, Italian or Chinese food.”

This variety is also a form of convenience, he said, allowing each member of a family to pick what they want.

Tops is also experimenting with its own family meal deals. The company recently began testing a “Dinner's in the Bag!” promotion at its TOPS CarryOut Cafes. For $15.99, shoppers are offered the choice of one entrée — a regular-sized rotisserie chicken, an 18-ounce meatloaf or an 8-piece fried chicken — two side dishes, plus a selection of mixed vegetables or four buttermilk biscuits. Plus, they receive a free Tops reusable shopping bag to carry the meal home.

The concept gives their customers different options for different nights of the week, Culhane said, and although he added that Tops is still working on the program, the customers who have tried it have been impressed with the value.

In general, the retail prepared food sector is already on the right track, said Anderson from Technomic.

“In terms of basic directives for competing with restaurants, supermarkets need to just keep doing what they're doing,” she suggested. “More and more have really cracked the code for how to make foodservice work.”

Anderson praised the focus on quality, innovation and variety at supermarkets, noting that the time it takes for ideas to migrate from restaurants to prepared food departments has become shorter “and in other cases retailers are ahead of the curve, especially the higher-end ones and some of the regional players” (for example, see “Kowalski's Debuts Vietnamese Cuisine”).

A focus on variety and being ahead of the curve can help a prepared food department compete by attracting a broader group of customers, Anderson said. Adding a kids menu could be another way to accomplish the same thing. Or, offering comfortable seating areas with free wi-fi or television could be another way to capture more dining occasions, she suggested.

Regardless, consumers will continue to look for places that offer convenience and value and prepared food departments are in a good position to offer both.

“This country does not want to cook more, and foodservice will be an answer,” said Balzer. “So, the only question is, who is going to provide that foodservice?”

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