US Insights

Grocery stores ready a push into prepared foods in 2018

Diana Sheehan

Director

Retail 12.20.2017 / 12:00

Kroger

Shoppers embrace convenience as the economy improves.

While 2017 saw grocery retailers embrace and tackle a number of initiatives, including private brand expansion, health and wellness, and new approaches to data management and analysis, the one word on every retailer’s and manufacturer’s mind this year was eCommerce and what it meant for the future of grocery.

In 2018, we think the new theme and challenge for the grocery sector will be food service. As the economy improves and shoppers embrace the value of convenience, food away from home continues to grow faster than food at home (Figure 1). For any retailer selling groceries, regardless of channel, food-away-from-home consumption serves as a distinct competitive threat to the base business.

Figure 1. Forecasted Growth in the Food-Away-From-Home Category 

Grocery Consumables

However, as retailers look for ways to improve the shopper experience and extend their reach, many have actually embraced the idea of food service as a way to drive value. On Kroger’s October investor call, CEO Rodney McMullen stated that the retailer would be actively pursuing all eating occasions as it works to grow its “share of stomach.” By embracing food service occasions as a clear opportunity, Kroger effectively doubles the size of prize it can win. Many other retailers are doing the same.

What does this mean for 2018? Retailers rely on three key methods for competing against traditional food service operators:

Meal kits: In 2017, retailers proved the meal-kit concept will last. Indeed, meal kits have become a new category within the grocery store. As Kroger, H-E-B, Walmart, Aldi, and other retailers embrace meal kits and develop unique offers to suit their particular shoppers, expect tremendous growth in this category in 2018 (Figure 2). The challenge for manufacturers will be figuring out how to support their retail partners in developing and growing the category.

Figure 2. Kroger’s Prep+Pared Meal Kits

Grocery Korger

Expanded delis: Retailers have come a long way from fried chicken and potato wedges. Over the last few years, we’ve seen grocery retailers’ hot bars evolve into sophisticated food stations offering sushi, hibachi, and oysters that, in effect, turn part of the store into a food court where shoppers can grab a tasty meal or sit down and eat (Figure 3). This setup lets retailers capture that quick-serve meal occasion, stealing share from fast-casual and quick-service restaurants (QSRs), while giving shoppers the opportunity to pick up groceries for the rest of the week at the same time. For vendors, the time has come to start connecting with your food service counterparts. How are your food service vendors selling your products to your retailer’s food service buyers? Should the “shelf” story be the same as the “supper” story?  

Figure 3. Giant Eagle Market District’s Food Court 

Grocery Giant Eagle

The in-store restaurant: A full-service restaurant represents the most sophisticated food service offer. Hy-Vee really jumped into this idea with its Market Grille (Figure 4). Other retailers followed suit in 2017. Kroger recently opened its first Kitchen 1883 concept restaurant. The restaurant, which is connected to a Kroger Marketplace, is experiencing long lines and one-hour wait times. Meijer and Hy-Vee will franchise Wahlburgers in 2018 as a quick-serve offer for shoppers wanting an easy meal. Walmart, which has often had QSRs connected to its Supercenters, recently opened Grown, an organic QSR concept that targets an expanding shopper base.

Figure 4. Hy-Vee’s Market Grille Restaurant

Grocery Hy Vee

If 2017 was the pivot point for eCommerce in grocery, I would argue that 2018 will be the year that grocery retailers take a bite out of the food service sector. As we turn the corner into 2018, Kantar Retail will begin exploring food service’s impact on grocery in greater detail. Help me understand what you’d like us to explore. Drop me a note with your thoughts and wish list.

Source: Kantar Retail

Editor's Notes

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