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Prepared foods are a growing supermarket segment

Millennials driving sales of grocery prepared foods

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A recently released report from market researchers NPD Group confirms the notion that restaurants’ competition for millennials’ dollars stretches beyond other restaurants to grocery stores. “Supermarkets are raising the bar on their foodservice offerings and by doing so are attracting the attention of the coveted Millennials,” states the report, titled “A Generational Study:  The Evolution of Eating.” 

“Restaurant-quality and fresh food, chef-driven menus, in-store experiences have given rise to the Grocerant and inspiration to Millennials to visit and spend,” NPD explains.

“Millennials’ interest in the benefits and experience supermarket foodservice offers will continue to be strong over the next several years,” says David Portalatin, v.p., industry analysis at NPD Group. “Give the Millennials what they want—fresh, healthier fare and a decent price—and they will come.”

In-store dining and takeout of prepared foods from grocers has grown nearly 30 percent since 2008, accounting for 2.4 billion foodservice visits and $10 billion in consumer spending in 2015, according to NPD’s research.

Furthermore, more than 40 percent of the U.S. population purchases prepared foods from grocery stores and, while millennials use grocery stores less than other generational groups, retail foodservice appears to be gaining traction with them.

“Many grocers now offer restaurant-quality food at a lower cost than full service or some fast casual restaurants, and specialty categories like Asian, seafood, Italian, Mexican, and barbeque. Grocery stores are aiming to cater to all dining needs, including hot, custom-prepared grilled meat, food bars, soups, and sushi,” notes NPD.

What advantages, if any, do grocers have over restaurants when it comes to foodservice? Perceived healthfulness, for one. “Consumers rate visits to grocerants higher than traditional quick service restaurants (QSRs) on variety and healthy options,” NPD points out, adding that these two attributes are among the most important when it comes to motivating customers to purchase prepared foods and when it comes to their satisfaction with these purchases. Grocery prepared foods are also rated higher in the areas of “freshness” and “quality”—areas of particular importance to millennials.

Beyond the food itself, millennial-savvy grocers are understanding the importance of the “experience” to the young adult cohort. More retailers are allocating space for “comfortable, casual seating for in-store dining and some a full-service restaurant,” notes NPD

Restaurants maintain an edge

Restaurants can take comfort in the fact that supermarkets are far from becoming dining destinations. Moreover, census data notes that Americans, for the first time, spent more at restaurants ($54.9 billion) than on groceries ($52.5 billion).

Consultant Aaron Allen, principal, Aaron Allen & Associates, offers this reminder: “Keep in mind what helped restaurants gain market share in the first place: convenience, experience and service.”

He adds that restaurants can counteract grocery stores’ plays for customers by selling family meals and by creating branded retail products.

“Creating family-size meals directly competes with grocery stores’ competitive family-centered positioning,” notes Allen, citing the success of “Family Meals to Go” at operations such as Bob Evans and Mimi’s Cafés.

 Allen adds that restaurants can maintain their competitive advantage through the following strengths:

Customization. 62 percent of consumers believe grocery stores do not offer customizable meals. “Restaurants still have the edge in being able to prepare food exactly as consumers want it – especially in the ever-growing fast casual sector,” points out Allen.

Convenience. “Grocery stores aren’t considered convenient unless the consumer already happens to be there,” writes Allen who points out that statistically, customers rarely “go to grocery stores with the sole intention of getting a prepared dinner.”

Quality. Although half of consumers think prepared foods’ quality at grocery stores has “greatly improved” since 2010, “40 percent of consumers would like name-brand foods at grocery or retail restaurants, which—in less polite terms—translates to wishing the food were higher quality,” points out Allen.

The bottom line: Millennials are still eating out (3.4 times per week) more than non-millennials (2.8 times per week), which is good news for restaurants that keep the need and wants of young adults in mind.

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