April/May 2021 There is a movement to expand brand-based foodservice in the supermarket. Ghost Kitchen Brands is trialing with Walmart and explained the concept in its announcement:
Customers can order freshly-prepared meals in-store and online for contactless pickup or delivery (from a third-party app such as Uber Eats), and mix and match from more than 20 well-known brands, including Quiznos, The Cheesecake Factory Bakery, Pepe’s Perogies, Rocky’s Italian, Canadian Jerk, Slush Puppie, Monster Cupcakes, Saladworks, Beyond Meat, Amaya Indian Street Food, Taco del Mar, Lola’s Latin Food, Tazo, Red Bull, Crêpe Delicious, Nescafé and Ben & Jerry’s … with more being added. All meals are prepared in one kitchen for one pickup or delivery.
These efforts are a recognition of the power of brands. In a sense, they supercharge them. Typically, these types of retail-restaurant concepts don’t run the full menu of the foodservice operations; they take special categories in which they have expertise and reputation, such as desserts at the Cheesecake Factory or the top selling items, say the top 15 sandwiches, at Quizno’s.
It is a powerful concept in part because it rigorously edits what each restaurant concept does best and then allows consumers to mix and match in a way they couldn’t at any individual restaurant. For an individual order, it means shoppers at a store can get a salad from Saladworks, a sandwich from Quizno’s and dessert from the Cheesecake Factory all at one place. For a family, it means they can cater to the son who wants Mexican, the daughter who wants Italian, Dad who wants a sandwich and Mom who wants a salad, all with one order.
The Ghost Kitchen concept is compelling. Its biggest weakness, however, is they have not been able to get the most powerful brands to sign on. Quizno’s, The Cheesecake Factory and Ben & Jerry’s are well-known players in their categories, but most of the rest of the names are not. Presumably, as the rollout proceeds, Ghost Kitchen Brands is hoping to attract leaders in every foodservice category.
Post-pandemic, it is easy to see the concept expanding to be a kind of mini food court in the store, with retailers adding seating for in-store dining. It is a reasonable assumption that many items will continue to be sold via online portals and be available for pickup, placed in the car or delivered to homes. Having experienced online ordering, who yearns to ‘go back to the old days’ of picking up heavy cases of water or big soda bottles or even bulky paper towels? If these items stay as delivery items, stores will need to reallocate space.
Foodservice for delivery, pickup and in-store dining is the logical focus. However, few stores will have the volume to run a full mall-like food court where every cuisine and concept can have its own stand. In the past, specific restaurants have made deals with retailers—McDonalds and Subway, for example, with Walmart. These operations with stores have always been somewhat challenging precisely because they offered only one cuisine. In the pandemic, they also suffered by typically not having drive-thru options.
Indeed, even with the new options, if they can offer delivery, in-store dining, in-store pick-up and drive-thru, the volumes will likely grow. In the past, retailers cut off the success of dining concepts by avoiding drive-thrus and delivery because their real motivation was to get consumers in their stores. We will see if the movement to delivery in the pandemic has opened retail management to the idea that they can’t intentionally inconvenience consumers by forcing them into the store.
Oddly, while these new retail foodservice concepts are built around well-known consumer brands, the core retail offerings are increasingly moving to private label. We talk a little about that in our piece, “Standing Out From The Crowd,” on page 26 of this issue.
There is no great mystery as to why private label continues to grow. Three basic reasons: First, the variety of private label has expanded, so there are several degrees of quality levels, such as upscale, economy or mainstream private label offerings on many products. It is not just one discount label like decades ago. Second, by eliminating many marketing and product development costs, retailers are able to offer consumers a good price. Third, retailers like private label because, even after giving consumers a share of the savings, they can see enhanced margins, and they can avoid direct competition by selling their unique brand.
Yet, maybe there is a lesson in why Walmart is working with Ghost Kitchen Brands, rather than just offering private label subs, cheesecake and ice cream. If you drain the margin from a category, there is less money to invest in product development and brand-building. So a retailer wins in the short term by beating out branded product but loses long term because category innovation doesn’t grow or grows less than it could have.
This is the great question of how to compete, short and long term, with deep discounters such as Aldi and Lidl. The challenge is to price product so as to be competitive today, while justifying an investment in innovation for tomorrow. Restaurant chains have done this, which is why Walmart is engaging with Ghost Kitchen Brands. But overall, the industry still searches for an answer related to private label in grocery stores. DB