Re-Thinking Prepared Foods

February/March, 2020 – It is easy to think of reasons why prepared foods must be the focus of the deli. Primarily, prepared foods provide a retailer with the opportunity to offer unique, restaurant-quality food and to be a differentiating factor separate from the uniformity of grocery offerings.

Yet prepared foods also have a troubled history.

When Tesco came to America as Fresh & Easy, bringing with it the United Kingdom’s storied experience with prepared foods, and when Walmart launched its Marketside concept to test its ability to compete with a Fresh & Easy type concept, prepared foods were centerpieces of the offer. Yet, most of America does not offer the same consumer density that exists in the UK, and there is a much higher ratio of retail square footage per consumer than you find in the UK. So, both concepts suffered from the typical malaise that overcomes prepared food offered in the U.S.

In their quest to make their stores destinations for shoppers, many retailers unveiled a large assortment of prepared foods. This is necessary, as the variety makes the store a mecca, attracting consumers who know they want ready-to-eat meals but don’t know what exactly they want. Or they have a family that has diverse tastes. So, whereas they can’t agree on restaurant take-out, because Mom wants Indian food, Dad wants Italian and Junior wants Chinese, etc., a retailer offering a robust assortment of prepared foods can provide a one-stop shop for the family.

But if your store is not in Manhattan or a limited number of high-density urban markets, the low density typical in the U.S. creeps up and rears its head. So, what might be an incredible assortment of prepared foods starts experiencing enormous shrink, as the extensive selection of dishes diffuses purchases across the range.

What do retailers do? Well they start reducing the range of prepared food items. They eliminate the lowest selling dishes. At first, they try other items—a different Indian dish, some alternative Thai, maybe introduce an Ethiopian line. Eventually, though, under pressure from headquarters to reduce shrink, they conclude that no matter what they do, the 30th best-selling prepared food option will never sell very well and will always result in unacceptable shrink.

Although they speak in the abstract about offering differentiating products and recognize the value that one department can serve in attracting clients to the store, in operational reality retailers have low tolerance for losing money. Tracked metrics, KPIs and compensation plans don’t always allow for a sophisticated analysis of how one department or offering is serving to attract and retain customers.

So, the inevitable begins. The retailer starts dropping items from the prepared food roster. With each item dropped, the prepared foods department becomes less attractive as a destination. Consumers are unhappy when Junior’s favorite dish is no longer available, customer counts decline, the department no longer meets that whole family demand, sales drop, the store cuts more items and … before you know it, the once impressive prepared foods menu is just lasagna.

There are other elements, of course. Many stores today proudly promote a kind of values-based offer. The stores will have large signs indicating how many organic or local items are available in the store today. Yet the prepared food section is often totally disjointed from these values.

If asked, stores will often say they use organic or local ingredients in their prepared foods “whenever possible,” but it turns out the translation of that term is “almost never.” It is not so much that it can’t be done. It is more that the cost is substantial, and the market for a $20 serving of lasagna, even produced with all organic and local ingredients, is very small.

Yet despite all these challenges, it is imperative that retailers and manufacturers find new paths. We have large numbers of restaurant options in America, buttressed now by many delivery services. Frozen food has improved tremendously in quality and can offer wide variety with less risk of shrink. So, consumers have no shortage of options.

Besides, with delivery services and big box stores becoming the place to purchase many bulky and parity products, it is in the deli/retail foodservice section that the store must find its niche in consumer shopping behavior.

This has to be built around the offering of unique dishes and flavor profiles that will make a store a must-shop venue. This will require culinary innovation and broad-minded executive leadership who understand that it is precisely the offering of unique dishes that will differentiate the store and attract the consumer. And part of the innovation required is to develop business models that credit items that attract the marginal consumer into the store with the value that shopper brings to a retailer.   DB