- Baby Non-Food Products
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- RESEARCH & AWARDS
Turning a retailer’s deli department into a destination has become an art form for some stores. In fact, the May cover story of PLBuyer will discuss the influence of private label in fresh prepared foods for retailers today.
But a presentation this week by Technomic at the 2013 IRI Summit suggested that the top players don’t have to become Whole Foods Market. Or Wegmans. Or Market Circle by Giant Eagle. Or Mariano’s.
They could just follow the lead of Costco.
“They do some things very, very well, and one is focusing on entrees,” Technomic Principal and Director of Retailer Meal Solution Practice Group Wade Hanson said. “They limit the number of options, but they have four or five flavors of rotisserie chickens, and they sell upwards of 25 million rotisserie chickens a year.”
The lesson, he said, was not for retailers such as Walmart, Kroger, Safeway and Albertsons to focus on the unique culinary experiences of the smaller supermarkets. But to be precise in what fresh prepared foods they do make.
“Keep it simpler, and do it right,” Technomic Executive Vice President Bob Goldin said. “Make sure you’re delivering value and drive a lot of business. It doesn’t take much to drive a lot of business. We’re talking about a $26 billion industry. Moving up 1 percent, for some of those big retailers, is a lot of traffic.”
“We think Wegmans and retailers like that, you can learn a lot from them, and much of what they’ve done can be incorporated into a traditional market,” Hanson added. “But we’d lean more toward them limiting assortment, merchandising the right way, and taking care of their customers’ needs the right way.”
The fresh prepared foods market, as defined by Technomic, includes value-added meats such as rotisserie and fried chickens, sandwiches, bound salads such as maraconi or pasta salad, green salads, prepared meals such as sushi, and other fresh foods.
That comprises the $26 billion market Goldin mentioned. Two-thirds of that business resides in supermarkets today, with an additional 20 percent in convenience stores (most of that in sandwiches), and another 12 percent in mass merchandisers, club stores and other retailers.
It’s a market that has grown 5 percent to 6 percent annually the past five years, outpacing the overall retail grocery category as well as foodservice, which has been basically flat over that time. And Technomic expects growth in fresh prepared foods to pick up over the next five years, growing from 6 percent to 8 percent annually.
The reason that means so much? Because fresh prepared foods margins average about 45 percent, compared with a 25 percent profit margin for the overall store.
“There’s high labor costs, high shrink, but if you can control that it can be a very attractive profit contributor,” Goldin said.
Fresh prepared foods can be done well in all channels, the pair said in the presentation. They singled out grocers such as Wegmans, Market Circle, Mariano’s and Whole Foods for their efforts, but also made mentions of convenience stores such as Wawa, 7-Eleven, and Sheetz, and club stores such as Costco.
One point in the presentation focused on Whole Foods, long considered a leader in the category, and where it’s program is today.
“They’ve always been a leader in fresh prepared foods, but the pack has gained a lot of ground on them,” Hanson said.
“Their shrink is very high,” Goldin added, “so we think they’re probably going to have to fine-tune their variety a little. But they manage it because of their premium pricing. Their margins are over 50 percent.”
Some retailers such as Price Chopper are looking to cut down their shrink in the category with prepared-to-order, restaurant-style foods. That’s the foundation for Price Chopper’s concept store opening in Latham, N.Y., later this year.
Other retailer leaders mentioned in the presentation weres Lunds, Byerly’s, Gelsons, Dorothy Lane, Heinens, Draeger’s, Kowalski’s, Raleys, and Harris Teeter.
Moving forward, the pair said that supermarkets were in a good position to continue growth in the category, with customers seeing fresh foods and produce around the store and equating that freshness to the stores’ prepared foods, as well. They said that retailers would lean on suppliers more to help improve flavor profiles and freshness of products.
They also talked about the outlook for other channels in the category.
“Mass is going to be more aggressive,” Hanson said. “Target and Walmart have been players here, and they’ve changed their thinking a bit, but the opportunity is too great here.
“Dollar and drug stores will face hurdles. We’ve seen retailers like Walgreens really make a production of their new flagship stores, but realistically, they’re not going to roll those out across the whole organization. Consumers will only accept certain products and categories from them, and dollar stores, here.”