April/May, 2002

From the Editor

Take Out Failure

Events have unpredictable consequences. Post-September 11th, one of the consequences of the attacks was a real recession in restaurant sales. Though most pronounced in the New York metropolitan area, it was evident all over the country.

Its cause? One can only speculate. Some point to an urge to stay in the safety of one’s own cocoon and that family and close friends are crucially important; some point to a cancellation of other activities; some to economic uncertainty; and still others say that people wanted to stay home and watch the news. Whatever the real cause, it is undeniably true that it was dramatic enough to lead many manufacturers to reorient their marketing efforts toward supermarket delis.

It is also true that supermarket deli departments have done very little to capitalize on the opportunity presented by the change in circumstances. Part of the problem is an excessive focus on the food. Obviously we are in the food business, and the quality and variety of food available is, well, a crucial variable. But the mantra that the problem with supermarket delis is they don’t offer “restaurant quality food” may not be really explanatory.

Surely there is a market for all different levels of food quality. But the real prerequisites to retail being competitive with restaurants in the market for take-out food may have a lot to do with systems, building design and operational priorities. Food itself may not be the primary issue.

Look at the things restaurants are doing to attract take-out business: Applebee’s, for example, is rolling out a curbside initiative in which you call in your order and they’ll bring it right out to the car. Over 15% of Outback units are now offering a similar service.

It is very common for new restaurants to build separate entrances for the “to go” business and set aside dedicated parking spots for “take-out” patrons. In fast food the drive-through is ubiquitous, but even more pricey chains also welcome sites that allow them to install take-out windows.

Some restaurants will give take-out customers beepers so they can walk around the shopping center or mall and be beeped when the order is ready. And a capability to order by some combination of phone, fax, e-mail and website is common as well.

Bob Evans Farms has placed a lot of emphasis on its “Carry Home Kitchen” program. Here the chain has a separate cashier, dedicated merchandising and separate staff to pack up the food in-store so that a take-out customer isn’t waiting for a waiter to finish with a table.

The shocking thing is not that supermarkets have been ineffective in dealing with these take-out initiatives. It is how little they have tried. All the initiatives written above would surely pose logistical challenges — but none are insurmountable. The problem is the schizophrenic attitude of top supermarket executives toward the deli department.

On the one hand, the long-term trend away from preparing food at home toward buying food prepared outside the home has deeply concerned top retail executives. It was this concern as much as anything that was the motivating factor behind the HMR boom of the mid- to late-1990’s.

It is fair to say that when Boston Market burst on the scene, there was real concern, even panic, over the “share of stomach” retail was losing. Aggressive efforts to revamp deli operations into HMR operations were undertaken, with the specific goal being to stop the slide of business to restaurants by competing in the meals-prepared-away-from-home category.

As sincere and earnest as these efforts were, they mostly failed. A million cultural reasons can be cited, from the difficulty of getting different retail departments to work together on to the inability of many of the hired “foodservice experts” to influence the corporate culture.

But the crucial ingredient in the failure is that, as much as top executives wanted to get the business, they couldn’t break out of old habits that required the deli department to be viewed principally as an instrument to attract people to the store.

It is rather odd, even illogical, since margins in deli are generally superior to those of grocery items, but top supermarket executives are de facto willing to sacrifice high margin deli sales to drag people through the store and sell them low margin paper napkins.

That’s why the supermarket answer to the restaurant initiatives outlined above is principally silence.

Curbside pick up? Then customers wouldn’t have to come in the store. Ditto for building a drive-through. Separate entrances and registers? Do you know how much supermarkets sell that check-out space for? After all, a few minutes extra at check out is long enough to seduce a customer into buying candy or reading about the three-headed alien.

The point is that there is an opportunity here. In the face of restaurant competition, we can’t control the consumers sufficiently to force them to do inconvenient things like wait on a general check-out line or even walk in the store.

Deli directors have to impress upon their bosses the need to “Let my deli go” or, put another way, let supermarket delis serve the consumers’ need not just for food, but for service and convenience.

Only then can retail really compete with restaurants and can the battle for “share of stomach” really be fought.  DB