November, 2001

Fruits of Thought

Retail Revitalized

Virtually since World War II there has been a steady migration of business to foodservice. This loss of “share of stomach” has been the cause of such consternation at retail that it explains the retailers’ embrace of the home meal replacement movement of the mid- to late-90’s.

Although a weakening economy was impacting foodservice sales all year, post-September 11th we find ourselves in a new environment, one in which foodservice sales are severely suffering. It is uncertain at this point what will be permanent and what will be temporary, but the manner in which foodservice sales are suffering provides a great deal of insight into the long-term challenges for retailers looking to capture this market.

When we think of foodservice, we so often think of “eating out,” but that broad category includes many different markets. The big collapse post-September 11th has been in the Travel and Leisure segment of the business. This means meals not only eaten at a restaurant but also eaten at a restaurant far from home. These are your conventioneers, theme park visitors, tourists, road warriors, etc. This group accounts for around seven percent of all foodservice sales and has been hit hard.

It is also the most uncertain category in foodservice; its prospects are dependent on both the general economy and people’s willingness to fly and to congregate. Looking ahead to 2002, Technomic, Inc., a foodservice consulting firm, is projecting sales in this category will decline anywhere from 10 percent to 30 percent.

Part of this decline is the general economy. Both business and vacation travel is typically restrained during a recession. But if you need an illustration as to how dramatically air travel has been affected by September 11th, just look at the air caterers and airport restaurants – another important foodservice customer.

LSG Sky Chefs, the largest airline caterer, has announced layoffs of 4,800 employees – 30 percent of its U.S. workforce. Anton Airfood operates 104 restaurants in seven different airports. The company has laid off 300 of its 1,400 employees.

These numbers are terrible and, not surprisingly, food marketers are redirecting R&D dollars and marketing efforts back to retail. All the sudden, retail is the hot place to be, the place where the growth is.

For retailers, the change in situation is serendipitous, but also largely frustrating. After all, what numbers such as I listed above remind us is that retailers’ efforts to win away consumers from foodservice are fighting for only a small share of the business.

It may have been true that the share of food dollars spent in foodservice had come to exceed retail. But this was mostly due to societal changes – everything from increased travel to increased prison populations to more people in nursing homes. This left retailers’ efforts to capture share-of-stomach focused not on the large market – foodservice accounting for over 50 percent of expenditures on food – but only a much smaller market – consumers who buy food for take out or delivery at restaurants.

These efforts are important, and finding ways to integrate departments and increase customer convenience behooves every retailer. But the iron logic of the numbers is that, do what they may, supermarkets simply cannot compete for large portions of the dollars spent in foodservice.

Obviously supermarkets can’t have a significant effect on how many people are in prison or the hospital or the nursing home – and this is all big foodservice business. In fact supermarkets are unlikely to persuade young lovers to woo one another at home. And certainly nothing a supermarket chain is going to do is likely to convince a businessperson to stay home and eat with the family rather than go on a business trip and eat at a hotel.

Yet, if recession has given a nudge in that direction, the events of September 11th will wind up having a deeper effect on our society than we can now really understand. It seems that one of those effects will be more eating at home.

The events of September 11th were a calamity beyond our power to describe. Yet it is the glory of humanity that we can find the flowering of good amidst the abyss of darkness. So as a young Israel rose from the ashes of the Holocaust, so maybe some more Moms and Dads will decide to stay home and have dinner with the children. Thus unknowable good may spring from unspeakable evil.  pb