Restaurants Find Their Way to Supermarket Aisles

Discussion
Jun 15, 2009
Tom Ryan

By Tom Ryan

Starbucks Corp. in April
launched a new line of coffee-flavored ice cream in supermarkets. While
used largely in the past as a marketing tool, supermarket placement is
now being counted on as an additional revenue stream at a time when restaurant
traffic is down.

Indeed, many are putting
more marketing punch behind such efforts. Last month, Starbuck’s coffee-shop
patrons were handed coupons containing such grocery-store deals as $1 off
ice cream and $1 off 10-ounce packages of Starbucks brand coffee.

“If consumers are
coming in less frequently, they can still treat themselves at home,” Greg
Price, vice president of global consumer products at Starbucks, told The
Wall Street Journal
.

Among other chains, Burger
King plans to sell Apple Fries, originally developed for its restaurant
kid meals, in 10,000 grocery stores nationwide this fall. California Pizza Kitchen
in March began shipping microwaveable Flatbread Melts sandwiches to supermarkets
through a licensing arrangement with Kraft Foods. Grocers have been selling
Dunkin’ Donuts coffee since 2007, Taco Bell hard tacos and beans since
1995, and White Castle burgers since 1987. For retailers, restaurant brands
offer immediate brand recognition.

“If people can save
a few dollars and save some time by eating at home, these types of familiar
brands… make it easier and more cost-effective,” Meghan Glynn, spokeswoman
Kroger, told the Journal.

The downside of these
deals, according to the Journal, is that new brands can confuse
consumers already bombarded by choices and many chains are trimming SKUs.
Many restaurant brands also carry higher-price tags than similar items.

But name recognition
can drive success. As the recession deepened, grocery sales of frozen California
Pizza Kitchen pizza increased 19.6 percent last year to $159 million. Kraft
pays California Pizza Kitchen an annual royalty, which last year amounted
to $6.6 million. While a faction of the chain’s overall revenues, it’s
all profit because Kraft covers R&D and advertising costs.

“Our comparable
restaurant sales are down,” said California Pizza Kitchen co-chief
executive Rick Rosenfield.
“People are trading down
to supermarkets and we’re softening the blow by being there for them.”

Discussion Questions:
Do you expect to see more restaurant brands on grocer’s shelves in the
future? Who benefits more – grocers or restaurants – from
restaurant brands reaching grocery shelves?

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17 Comments on "Restaurants Find Their Way to Supermarket Aisles"


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Warren Thayer
Guest
11 years 10 months ago

BJ’s Wholesale Club, in the East, has been doing a great job with meal offerings from quick-serve restaurants. I expect we’ll see more of this, and why not, if it can build incremental sales with good margins? I think the supermarket gets a bit more out of this than the restaurant–it’s a direct ring at the register. And the restaurant has to be very careful that the product quality meets shopper expectations, or this deal will hurt more than it helps.

Max Goldberg
Guest
11 years 10 months ago

Restaurant brands in grocery stores benefit both the brand and the stores. They carry strong consumer recognition and previous sampling. I disagree that these brands cause consumer confusion; rather they do the opposite. As brands look for innovative ways to realize revenue, I expect we will see more crossover like Starbucks, California Pizza Kitchen and Burger King.

Carol Spieckerman
Guest
11 years 10 months ago

This is a great way for restaurant brands to stay front and center at a time when restaurant visits have temporarily tapered off. Great example of the value of touch points and keeping the conversation going, even when it may not add significantly to the bottom line (many of these deals are pure licensing plays).

On the supermarket side, food is the unexpected innovation category these days and, as retailers spice up, refresh and expand their private labels and national brands run out of options, restaurant brands add higher-margin newness to the shelf.

Shoppers get to feel as though they’ve dined at their favorite restaurant without breaking the bank.

I’d call it a win, win, win.

Liz Crawford
Guest
11 years 10 months ago

Absolutely! There is an impetus for this now because consumers are making fewer restaurant trips. However, there are strategic reasons for restaurant brands in grocery, beyond the economic downturn.

First, it keeps the brand in front of consumers all year, acting like reminder advertising for restaurant patrons. Second, it allows trial for potential new patrons, without the risk of a $30-$40 meal. Finally, the marriage of certain restaurant brands with grocery brands could benefit both in terms of re-enforcing and bolstering their respective equities. Here’s to more Restaurant brands at home!

Marc Gordon
Guest
Marc Gordon
11 years 10 months ago

This concept is a great one and it’s about time restaurants looked at them as a revenue source. However, I see one missed opportunity here. Restaurant branded products should be including coupons for their restaurants right on the packaging of the products sold at grocery stores.

This way when you buy your pound of Starbucks coffee at the grocery store, you would also get a coupon for a half price latte at any Starbucks location.

Why not turn products that people are buying into incentives for cross channel purchases?

Ryan Mathews
Guest
11 years 10 months ago

As the foodservice business continues to be challenged, supermarkets are emerging as a critical new channel for restaurant brands. As to who benefits–put me in the camp that sees this as a win, win.

Ben Sprecher
Guest
Ben Sprecher
11 years 10 months ago

Both Warren and Max make good points: brand extensions can benefit both the brand (i.e., the restaurant) and the retailer, but they must keep the quality high enough to maintain their brand image. If quality slips, then CPK or Starbucks could dilute the perception that they can be trusted to deliver a quality product.

An even bigger risk is that the restaurant can’t control the preparation of products sold at the supermarket directly to consumers. It could be exactly the same frozen, pre-cooked Jalapeno poppers that they have on their menu, but if the consumer microwaves them into a soggy mess, the restaurant’s brand suffers.

In short–proceed with caution; make sure the product is a winner in its own right, and treat it like a core part of your business, not just a sideshow.

Camille P. Schuster, PhD.
Guest
11 years 10 months ago

This is a good example of motivating purchases by joint consumers. Those who frequent the restaurant and like the food AND who frequent a retailer stocking that product are likely to purchase it. IF the product tastes like what they remember that item tasting in the restaurant, then are likely to purchase the item again. Some people who do not frequent the restaurant may even purchase the item if they think the price is right in the retail outlet.

Joel Warady
Guest
Joel Warady
11 years 10 months ago
This is a trend that will continue. The restaurant chains are spending a considerable amount of money building their brands; via television, via radio, via billboards, as well as online. The brand becomes synonymous with quality, and because of significant name recognition, the consumer feels that the product is a proven one. This has been going on for years. Lawry’s Seasoned Salt came from the Lawry’s Prime Rib restaurant. White Castle burgers have been in the frozen aisle for years, as has TGI Friday’s frozen appetizers. But it does seem to be picking up more momentum as the economy remains challenged, and CPG manufacturers want to spend less on pioneering a brand, and are more willing to put marketing dollars behind a brand name with built-in awareness. The key to both the restaurant brand as well as the product marketer is to make certain that the quality of the product is such that the brand won’t suffer, and sales won’t suffer. This in fact is the challenge that exists, and not all companies are paying… Read more »
Phillip T. Straniero
Guest
Phillip T. Straniero
11 years 10 months ago

This is certainly a double-edged sword since many of the major food retailers in the U.S. are working hard to build their deli and other HMR businesses and do not want to lose any brand recognition and store loyalty they have gained.

On the other hand the end result in my opinion will be that more restaurant brands will be available in U.S. food outlets for two reasons: 1) It will be much easier for food producers to produce and sell a well-recognized restaurant brand rather than build a brand from scratch and 2) despite efforts to build store loyalty through private label and deli/HMR, retailers will not want to lose the revenue and profits from restaurant brands.

In either case the restaurants will come out as the major beneficiaries in this effort.

Anne Bieler
Guest
Anne Bieler
11 years 10 months ago

As we are spending less, restaurant meals are something that have been cut way back – feeding a family of four starts at $20.00 and quickly moves up. While we have found many ways to save at the supermarket, small indulgences – whether they be premium coffee or chocolate – are still selling well. Adding restaurant specialties to the grocery shelf will continue to grow as we find a more cost effective way to enjoy our favorite restaurant choices – good news for all!

Anne Howe
Guest
11 years 10 months ago

I continue to look at packaging of restaurant brands I find on supermarket shelves for information on the products. Many of the nutrition profiles frankly scare me away from even testing them. California Pizza Kitchen has done a very good job, and in this case I think it has built loyalty for the restaurant brand.

In the long run, however, I think consumers are not prone to buy items in the supermarket from restaurants they have no experience with. It’s a convenience for many to have a tasteful experience with a restaurant brand at home, and saves money. The double-edged sword is the fact that, although we love the brand, the CPK frozen pizza has become a “good-enough” standard, and we haven’t been in the mall-based actual restaurant in over three years.

Bernice Hurst
Guest
11 years 10 months ago

Restaurant brands may carry a higher price tag than other brands if purchased from the grocer but presumably still cost less than they would if purchased in the restaurant. So consumers can get what they consider to be a treat at a relative bargain price and there will be a growing market for restaurant brands. Both grocer and restaurant will benefit from the partnership.

On the other hand, they may only buy once if the nature of the product is changed by being manufactured in large quantities, packaged and shipped xxx miles then left to sit in the store until someone takes pity and takes it home. Ben’s point should also be taken into account – the way the customer follows instructions at home to prepare and serve the food is also pretty important. I guess my opinion is largely influenced by quality, as usual. In this scenario, no one really benefits but both grocer and restaurant may be missing an opportunity.

Lee Peterson
Guest
11 years 10 months ago

A huge issue for grocers now is reducing clutter and unwanted SKUs to ease the visual overload on consumers. Research shows that the customer only sees a ‘blur’ of signage and packaging and therefore just buys what they came for by rote–making bigger baskets and cross selling very difficult to do. So, frankly, adding more brands, potentially more signage, and absolutely more clutter should raise a big red flag.

The real question here (the first question) should be: what comes out? How do you make room for this stuff? At what price do we ad these additional SKUs? How do we continue on the road of uncluttering stores by adding new brands? If those answers get answered, then we’ve got a good idea.

James Tenser
Guest
11 years 10 months ago
If I owned a large restaurant chain, with its attendant heavy advertising budget, you can bet I’d seek product licensing deals that allow me to leverage that investment in the grocery channel. Yes this has been going on for years, from Marie Callender frozen entrees and pies to K-Paul seasoning blends to the aforementioned Starbuck’s ice creams. By definition, these restaurant brands are almost always prepared convenience foods. Except for coffee beans, I don’t see the licensing concept translating very often to ingredients. For the large food manufacturers like Kraft and ConAgra, these licensing arrangements offer a faster path to brand recognition and an alternative reason to keep the lines running at full capacity. For the retailer, these products should provide a bit of margin enhancement and assortment interest. For the shopper, we would hope for a consumption experience consistent with the restaurant’s. The packaged products should match the taste and quality of restaurant signature items, so as not to devalue the core brand. And yes, cross-couponing is a pretty wise idea, assuming the licensing… Read more »
Steven Johnson
Guest
11 years 10 months ago

This is an ideal way for supermarkets to leverage the halo from restaurant quality into their ready-to-eat and ready-to-heat food. The grocery sector of the store with growing margins and increased consumer frequency; that is a win!

Peter Milic
Guest
Peter Milic
11 years 10 months ago

Sometimes, marketing is no more complicated than embracing successful business tactics being pursued by others. Given that the recession has hit food service as hard as any business sector, it makes sense that the need exists to create new revenue streams in the short term and the tactic of offering restaurant branded products will be imitated.

Nonetheless, decisions driven by a short term return may not be the most prudent course of action over the longer term. The desire to visit a particular restaurant is motivated by several factors, one of which is enjoying the taste of a particular food or beverage that cannot be replicated at home. Will having access to these tastes via the grocery store diminish the appeal of going out to eat? Perhaps we should examine this from the opposite perspective. My enjoyment of a restaurant experience is not enhanced knowing that the salad dressing is Kraft and the soup is Campbell’s, even though these are the brands I prefer to use at home.

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