According to United States Department of Agriculture (USDA) data, since 2006, revenue for foodservice (food away from home) has been greater than retail (food at home) by a steady margin. The only blip was at the onset of the pandemic in 2020, when the foodservice segment had its sharpest decline in history (12.7%). However, foodservice providers such as restaurants, to-go concepts and food delivery services quickly adapted to the changing environment, and their revenues rebounded to pre-pandemic levels.
Ever since the foodservice industry has continued to surge. As it pulls away from grocery and convenience stores, the foodservice industry hasn’t looked back. Overall food expenditures grow year over year. But what worries food retailers is twofold: Their “share of stomach” is less than that of foodservice, and it’s growing at a slower rate.
People spend a finite amount on food annually. With a return to travel, offices and event-based lifestyles, grocers and c-stores face additional competition from foodservice operators who can evolve to meet shifting needs and convenience demands.
Grocers and c-stores aren’t traditionally as nimble as restaurants, but by positioning themselves strategically and using existing infrastructure they can expand food-to-go offerings to capture more growth.
Advantages of grocery and convenience stores
Foodservice operators can only eat into retailers’ “share of stomach” up to a point. Eventually, people need to go grocery shopping. If a customer has to stop once to pick up dinner, and once to buy groceries, it's advantageous for retailers to offer both under the same roof. Grocery and c-stores already have the resources and physical space; therefore, foodservice is a natural extension of what they already do. Here are some grocery and c-store assets that can be leveraged to create a more dynamic operation:
- Convenience and accessibility: Grocery and c-stores enjoy an inherent advantage in terms of their widespread locations and access for consumers. Parking, location and ease of entry are all baked into the retail experience.
- Diverse offerings: Retail has the floor space and handy ingredients to steal a page from the foodservice industry’s playbook and utilize equipment for grab-and-go scenarios. They can create a variety of revenue channels: prepackaged ready-to-eat meals, ready-to-cook kits, self-serve counters and kiosks, dine-in or takeaway restaurants and even meal delivery.
- Competitive pricing: Volume is a primary driver in competitive pricing. Grocers, especially from larger companies, wield more bargaining power when sourcing food than typical restaurants. This leads to more cost-effective meal options compared to traditional restaurants.
Strategies to compete with traditional restaurants
Neither foodservice nor retail are immune to the challenges of inflation, labor costs and rising rents. This makes listening to customers and focusing on service more important than ever before. As the expectations of today’s consumer shift, grocers and c-stores who enhance the customer experience are positioned to take a greater “share of stomach.” Here are a few strategies to develop:
- Quality and freshness: Discerning customers are attracted to high-quality, fresh ingredients in prepared foods. The visual aesthetics of thoughtfully arranged produce, uniform cuts of meat and bright seafood will go a long way in enforcing the quality of auxiliary food channels. For consistency in food quality retailers turn to uniform equipment across properties.
- Menu innovation: Just as produce should appear fresh, so should menus. It is critical to stay current with food trends by regularly updating and innovating menu offerings, such as incorporating global flavors, plant-based options, organic food and health-conscious options. Clear labeling that’s respectful of allergies and special diets is important to customers.
- Convenient packaging: Branding for foodservice outlets should be as strong as it is in the aisles. Convenient, attractive packaging can enhance the appeal of grab-and-go items, especially if tied in with a house private label.
- In-store experience: Grocers and c-stores that create a pleasant in-store shopping experience, with well-designed prepared food sections, can draw in customers looking for quick meal solutions. Not only can display cases and merchandisers be used to safely display grab-and-go food, they can be used to drive impulse sales.
Leveraging technology and data
The name of the game in technology is scale. This plays right into the hands of grocers and c-stores, especially the larger players. Online grocery revenue grew during the pandemic, and the convenience of digital shopping is proving to be sticky for customers. Here is how data and technology can give grocery and c-stores an edge:
- Customer insights: Retail was light years ahead of restaurants in establishing loyalty programs. They should continue to expand their use of customer data and analytics to understand preferences and tailor offerings accordingly.
- Online ordering and delivery: During the pandemic, grocers learned that online ordering can be a fundamental driver of profitability. In efforts to enhance the in-store experience, they can’t lose focus on the importance of integrating online ordering and delivery services to meet consumer demand for convenience.
- Smart kitchens and equipment: There is a competitive advantage in maximizing employee output while reducing overall headcount. Less payroll equates to less costs. Investing in smart kitchen equipment can enhance efficiency, consistency, and the quality of prepared foods. Modern equipment can also boost profitability.
The future is here.
Despite the increase in foodservice operators’ “share of stomach” in recent years, grocery and c-stores have reason to be optimistic. Many consumers still prefer physical retail shopping for some of their food; they value the experience.
Customers go to retail spaces to see, touch, smell and even taste products. This increases their confidence in making a purchase decision in real time. The foundation for customer spending is already in place.
Enhance this engagement with the convenient grab-and-go concepts pioneered by food restaurants and you’ll see for yourself how “share of stomach” can convert into “share of wallet.”
For more tips on how to take grocery and c-store operations to the next level, contact us today.
