C-stores vs. Grocers vs. Restaurants

NEW YORK – With every passing day, fresh prepared food offerings are growing in consumer popularity and sales.

As the category heats up, how is its explosive growth affecting convenience stores, supermarkets and restaurants? Industry insiders explored this question during Wednesday's webinar, "Grocers, C-stores & Restaurants Fight for Prepared Foods Share."

Hosted by Bloomberg LP, the webinar's speakers included Convenience Store News Editorial Director Don Longo; Nielsen's Sarah Schmansky, director of retail programs, the perishables group; and Wade Hanson, principal, Technomic Inc.

"It should really be no surprise to anyone that fresh is growing," said Schmansky, discussing the four main "consumer priority areas" that have been proving successful in recent years: healthy, convenience, premium/indulgent and multicultural/global.

While consumers still want to prepare food at home, they don't mind when part of the work – and sometimes, all of it – is done upfront, she said. This is prompting an evolution in retail foodservice as alternative channels expand their fresh food offerings.

"Consumers are demanding more out of their prepared food and convenient offerings than they ever have before," Schmansky added, noting that retailers have been establishing their identities based on freshness, and many are now increasing their sophistication level around the store perimeter.

The deli, in particular, is resonating with consumers and outpacing total store growth in both dollar sales and volume. This department blurs the line between retail and restaurants, and attracts more affluent shoppers who have a choice between the two and are likely to have a higher-value basket. Deli shoppers also tend to make quick trips just to that department, and they appreciate the deli's added value and growing number of healthy items, according to Nielsen.

"The deli is in a great position to keep reinventing itself to meet consumer needs," Schmansky concluded.

This foodservice evolution has led to grocers, convenience store operators and restaurants competing with one another for share of the prepared food market rather than keeping to their own retail segments.

According to Hanson, the explosion of choice combined with the strategic efforts of retailers has resulted in a level playing field unlike any Technomic has seen before. When consumers decide to buy a ready-to-eat item, restaurants are no longer the clear-cut choice.

Supermarkets in particular are making great strides. "Prepared foods are the No. 1 strategic priority for most supermarket chains today," Hanson said.

Smaller retailers can learn from the "best-in-class" supermarket leaders such as Wegmans, Giant Eagle Market District and Mariano's, which have focused on attributes such as culinary creativity, understanding of local markets and service, along with freshness.

Restaurants are vulnerable in certain areas and retailers can capitalize on this in multiple ways, such as upgrading and expanding their fresh prepared food programs and offering higher value for the price, Hanson said. Additionally, keys to success in fresh prepared food include logical traffic flow, visual appeal, combo meals, convenient service, and focus on the dinner daypart.

Finally, Longo discussed the foodservice "battleground" of the convenience channel. As motor fuel and tobacco sales continue to decline, c-store operators are focused on foodservice to make up the difference.

"Foodservice sales continue to grow" and have every year for the last decade, Longo said. Without this category, overall c-store industry sales would essentially be flat.

Not all of the top-selling prepared food at c-stores is predictable. While sandwiches and hot dogs top the list, pizza is also doing very well.

"Pizza is a surprise," Longo said, noting that it's done so well in some regions that certain chains are making it a major focus of their program. Iowa-based Casey's General Stores Inc. has even built stores that only sell pizza, and has plans to open more.

Despite this growth, c-stores still trail the fast-casual, quick-service and grocery segments when it comes to perception of quality. Still, 81 percent of c-store operators predict their foodservice sales will grow again in 2014, and 63.5 percent expect their foodservice profits will also increase. As c-stores continue to improve their programs, consumer perception is likely to rise and c-stores will prove themselves a true competitor to other foodservice outlets.