December/January, 2009

From the Editor

Small Formats And Ready Meals

It is increasingly obvious the future of the supermarket in the United States rests, in no small part, on the future of prepared foods. Tesco, with the launch of its Fresh & Easy division in the United States, laid down the gauntlet: In its view, the future of American retailing was European. And, specifically, British.

As is the European practice, consumers would visit food stores almost daily to pick up fresh food; in line with the British practice, this vision sees American consumers buying “ready-meals” to eat that night or over the next 24 to 48 hours. Because visits would be so frequent, the stores would have to be very convenient — defined as very close to home and quick to shop for just that night’s dinner. This logically implies many very small stores.

Thus we have Fresh & Easy. Its rollout is now slowed, but the concept is still clear: Lots of 10,000-square-foot stores given a distinctive raison d’etre by ready-meals, even though they have produce and bakery, meat and poultry, sliced deli meats and cheeses and a core grocery offering.

Wal-Mart has jumped on the bandwagon with its Marketside concept. Slightly larger, more “Americanized’ with a service deli built around Dietz & Watson product and a grocery offering built around the brands Americans grew up with, it is a concept with much to admire. Yet it is a concept whose reason for existence also hinges on consumer acceptance of ready-meals.

So do Americans want ready-meals?

To some extent, they have been buying them for years. Supermarket deli departments offer rotisserie chicken, fried chicken and pizza programs — and these items sell well. Indeed, one of the peculiarities of the Fresh & Easy concept is that it has virtually disregarded rotisserie and fried chicken as well as pizza.

Retailers in urban areas have long provided prepared foods of various types with the upscale Manhattanites not that dissimilar from their peers in London when it comes to eating and shopping habits. Across the country, upscale and specialty retailers, from Whole Foods to HEB’s Central Market to the new Publix GreenWise, do a big business in prepared foods of various kinds.

Still, the vast majority of Americans have shown little interest in shopping as they do in London. The British shopper is different from the American shopper — and for some very understandable reasons.

Tesco is under the impression supply will create its own demand — or put another way, Americans don’t buy ready-meals to the extent consumers do in the United Kingdom because Americans are not offered a large selection of high-quality ready-meals. There is something to this point: If every U.S. supermarket offered as extensive a ready-meal offering as the typical U.K Tesco, Sainsbury’s, Marks & Spencer, Waitrose, ASDA or Morrison’s, many more ready-meals would be sold here. But the reasoning is rather circular. After all, U.S. supermarkets don’t offer a large range of these products because these products don’t sell that well.

American demand for these products is constrained by the realities of the U.S. market. First, Americans have larger kitchens, refrigerators and freezers than the typical Brit, so shopping habits revolve around a weekly stock-up trip. Daily trips for ready-meals are perceived as an inconvenience. Closer stores may be less inconvenient but it is still an extra trip. Second, Americans have access to a far greater array of moderately priced restaurants, increasingly with curbside pickup. These restaurants specialize in high-quality food ready-to-eat. Ready-meals typically require at least heating, and few supermarkets are able to expertly produce food in the range of styles the restaurant industry can. Third, when Americans buy a lot of fresh ready-meals because they do not shop daily, they wind up with a lot of waste and are often unhappy, which leads them to buy frozen foods for stock-up and restaurant takeout for last-minute meals.

Wal-Mart is so big it can experiment with 10 or so Marketside stores and hope to pick up knowledge valuable in its Supercenters, regardless of what happens with Marketside. Other chains such as Safeway with its “the market by Vons,” are dipping a toe in the small-format store wars as well.

Most chains have held back, watching Fresh & Easy but not directly responding. Without a vigorous market for ready-meals, these concepts lack justification; lots of consumer knowledge makes most chains think their customers want chicken and pizza.

One senses 2009 will be the year of decision. Either consumers will cotton to the ready-meals at Fresh & Easy or they won’t. If it catches fire, count on thousands of small-footprint stores, by every major chain, catering to this new demand for ready-meals. If consumer response is unchanged, supermarket deli departments will remain triumphant, the preeminent practitioner of retail foodservice in the country.

If it does survive at all, Fresh & Easy will probably be thought of much as one now thinks of Boston Market, an idea that once seemed so important and yet survives as only a small chain with little impact on the mainstream of retail operations.  DB