May, 1998

From the Editor

Specialty Food As Meal Solutions

Meal solutions is the hottest area in supermarketing today. Making a success of it is also the biggest quandary. The motivation is clear: Every year a larger and larger percentage of meals are from food not prepared at home. It may be eaten in a restaurant, in the car, the office or may be eaten at home as a result of take-out.

Whatever the specifics, the point is that the traditional grocery store model – sell food, mom cooks, family eats – will result in a smaller and smaller share-of-stomach for grocery stores every year.

The solution that supermarkets have focused on goes by various names – meal solutions, home meal replacement, etc. – but all revolve around a similar concept: selling consumers not ingredients with which to make a meal but the finished meal itself. Generally speaking, stores have looked to their deli department to spearhead meal solution efforts, though many are experimenting with interdepartmental meal solution centers, and some meal products are being merchandised through produce, meat and seafood departments.

It is intriguing that even though supermarkets have been struggling to keep share-of-stomach, specialty product sales have been booming. The explanation is complex but, oddly enough, is related. As home cooking declines as an everyday chore, its importance as an almost recreational activity rises. So, though the old stereotype of the housewife preparing the daily dinner may have fallen victim to the fast food drive-thru, at the same time that same housewife, freed of the burden of daily cooking, may take to preparing a monthly dinner party or weekly Sunday brunch with gusto – and filled with specialty foods.

Now, however, the supermarkets’ home meal replacement dilemma might just be an opportunity to solve two separate problems for both the supermarkets’ meal replacement effort and the specialty food industry.

Meal replacement is identified not only by the selling of prepared food, as opposed to ingredients, but also by the simultaneous sale of the many components that make up a meal. At the least, this means, a la Boston Market, the chicken is sold with a choice of two sides. As with value meals at fast feeders, it can also mean that the store sells a beverage, a starch and an entrée as a package.

Retailers haven’t done very well with these package deals. Partly the problem is retail accounting, which, generally speaking, calls for each item sold to the store from its warehouse to be sold at its retail price. This can wreak havoc with margins and shrink if, for example, a deli features 20 different salad choices all at different retails but also tries to sell the same salads as part of a package deal in which the sides are included with the quarter rotisserie chicken.

More broadly, though, the problem has been trying to identify a package which is both highly profitable for the store and a value to the consumer. Hamburger chains can do this well. They will create a “meal” consisting of a sandwich, french fries and a soda. By conditioning a discounted sandwich on the purchase of high-profit fries and a soda, the fast food guys manage to give the consumer a substantial break over “retail” – thus creating a perception of value – while also boosting their own profits.

Supermarkets don’t have many items like soda and french fries at a hamburger chain. These items have gross profit numbers north of 80 percent. This means it is hard to put together a package that is both a significant reduction off retail, and thus a value to consumers, and a significant profit contributor to the chain.

One solution, though, may be in the specialty food arena. Here is an opportunity for a store to take its most expensive and high-margin items and integrate them into the meal replacement offerings. Instead of just selling chicken, sell it marinated in a very expensive, high margin, specialty food marinade, then cross merchandise the marinade right in the deli department at the usual high retail place. Throw into the meal pack a very expensive confectionery product, and then have that confectionery product available for sale at full retail. A cookie, a cracker, a scone – one could go on and on with the possibilities.

In all cases the impact is profound. Consumers will see the retail price of these specialty food products and that retail price will make them perceive the meal packages as of higher value. This will reduce the need for discounting on the core products thus allowing the store to make decent margins on the total meal solution package.

As it happens, such a program would not only boost the supermarket’s meal solutions efforts but, also, will solve an important hindrance to specialty food sales: perceived risk. Specialty foods are expensive and, though that unusual-sounding mustard or marinade may intrigue a consumer, many will be afraid to risk wasting their money by buying a product they might not like.

It’s a common problem. Go into any California Pizza Kitchen and you will see a notice on the menu encouraging customers to try a new dish. If they don’t like it, CPK is prepared to give them an old favorite in its place. Supermarket produce departments have used salad bars for sampling purposes for decades to take the risk out of buying specialty produce.

In effect, the integration of specialty foods into supermarket meal solution efforts would serve as a massive sampling program. If the stores merchandise correctly and offer samples, etc., it is highly likely that sales of both meal solutions, prepared with distinctive specialty foods, and of retail packages of the specialty foods themselves, would zoom.

There are always plenty of naysayers, and one can imagine the objections: deli and specialty foods are different departments; some of the best specialty foods aren’t available in foodservice packs; the cost of the specialty foods is too high for deli operators to use, etc. But those who transcend the limitations of conventional thought make progress in business.

The challenge is how to set up the systems to overcome all the institutional obstacles to trying something innovative. Here is a chance to hit two important home runs for supermarkets by enhancing meal solution efforts and increasing sales of high margin specialty foods. Won’t some aggressive retailer come up to the plate?     FDM