Restaurants Look For Growth in Grocery Stores
Restaurants are invading the supermarket.
Every day it seems as though a new coffee (see Dunkin’ Donuts, Starbucks, McDonald’s, etc.) is either being placed on store shelves or announcing a deal that will lead to that. And it’s not just coffee, according to Burger Business, as Red Robin Gourmet Burgers rolls out fries while Arby’s and others sell sauces and various condiments. White Castle burgers are a frequent sight in freezer cases.
Consumer packaged goods, according to restaurantbriefing.com, "can help promote and extend a restaurant’s brand, and be a source of incremental revenue."
The trend is certainly catching on as "59 percent of fine dining, 54 percent family dining, 41 percent fast casual, 37 percent quick service, and 35 percent casual dining operators" now market packaged products bearing their names, according to 2012’s National Restaurant Association Forecast.
The need to find new revenue streams may become more important in light of the latest North American Restaurant Consumer Sentiment Review by AlixPartners which predicts consumers will be dining out less often in 2014 and spending fewer dollars when they do.
Discussion Questions
What are the plusses and minuses for each party when restaurant-branded items are sold in grocery stores? Does one party benefit more than the other in these business relationships?
On the plus side, the supermarket gains more sales that may have be lost to eating at the restaurant. The restaurant chain wins with more sales over and above their store sales. The consumer wins because they can enjoy a restaurant meal at home for less cost. Not many minuses here unless the restaurant is down the street and you just eat at home and never visit it.
We carry some items and keep an eye on the really hot new products, but for the most part, nothing stands out at the moment. Generally the items are high priced, which in my area makes for a tough sell.
Cheesecake Factory Cakes do well in the fall, and Bob Evans is huge around here.
A frozen heat and eat Big Mac would probably be awesome (Are you reading this McDonald’s?), and Taco Bell Supreme Burritos would be great too. Bring on the junk food!
Restaurants run the risk of a mediocre product – more than one brand has had translation problems from restaurant to grocery store. On the flip side, when done well, it can have a huge impact on a category – think about coffee over the last five years, where it is visually dominated by Starbucks.
Restaurants and retailers both benefit when branded items are sold in grocery stores. For retailers there is the opportunity to offer new, yet familiar, products to consumers, most of which command higher margins. For restaurants this is an opportunity to stretch the brand, creating new revenue streams.
I think Tony is right, it all depends on the product.
On the minus side for the restaurant, they lose control of their product quality, commodify their brand and – no doubt – leave some customers with a, “Why should we go out when we can just have our cheesecake at home?” attitude.
On the minus side for the supermarket, I assume most of these items don’t sell all that well so the shelves and freezer are being crowded with fairly slow-moving inventory.
On the plus side, I suppose it is another way for restaurants to extend their brand and good items obviously build volume and margin for grocers.
Bottom line: It all depends on the brand.
The winner most times is the restaurant as it gets increased sales. They have the formula and only need the packaging and brokers to sell. The product is almost always manufactured for the restaurant by a co-packer or private label manufacturer. There is a built-in group of consumers that know the brand and will try the product.
The problem comes in with repeat purchases. The product simply does not taste the same as in the restaurant. Something gets lost in the translation from restaurant prepared to store shelf product. This turns the consumer off, resulting in many products slowly dying on the shelf. The second factor is a reason restaurant products are rarely promoted or featured. This makes them full price competitors, which is not working in this industry in these economic times.
Restaurant-branded items in grocery can be a great brand extension with regard to visibility, and some segments work better than others — beverages and coffee are good examples.
It is more challenging to manage the consumer experience with branded frozen food items, resulting in the risk of diminished brand equity.
Grocers benefit by offering unique products with a higher familiarity factor. I’m surprised more restaurant-branded products aren’t appearing within the deli, bakery and related prepared foods areas of better grocers.
A plus for restaurant-branded items selling in grocery stores is the convenience of enjoying a familiar product in the comfort of your home – no waiting for a table or having a snappy dialogue with your server, and at a lower price point. You save time but you do give up something with the taste – very hard to exactly duplicate the restaurant taste at home.
The grocery store gets more sales of a ‘proven’ product at good margin. But with shortage of shelf-space, they have to balance other new product introductions. Some categories are easier to sell (and for customer to reproduce the taste) than others, such as coffees (and the skyrocketing K-cups)versus cooking Steak Fries at home – hard to achieve that same restaurant taste.
Grocery stores win by ensuring they have a variety of new products their shoppers want, the restaurants also win but need to be selective on the products they push in grocery stores so that they enhance and not detract from their brand and their core walk-in customer base.
By developing and selling products in the supermarket channels, the restaurants/QSR are really doing brand extensions. While others have commented on the good news for both parties, I have questions regarding the impact on the brand when the supermarket product cannot deliver the same quality and “experience” as consuming the items in their original setting. The risk may be minimized with something like coffee, but other foods that combine a number of ingredients run a greater risk.
I see a win/win/win for all parties involved; the retailer, the restaurant and the customer. I only caution the restaurant who prepares an item with their brand name on it. Quality and taste standards are crucial. My friend had a BBQ restaurant. The off-premise product did not meet the quality standards of what he served at his restaurant. How many customers might he lose to an inferior product?
Note: If sales for a packaged product become so strong that it dwarfs the sales of the restaurant, perhaps the restauranteur might rethink what business he/she is in. (That may not be a bad thing!
Quality and flavor must be fairly close to what you get/expect at the restaurant. I tried a couple of the items from a well know Asian restaurant I eat at frequently…only once. I did not think they were any anywhere close to restaurant quality and not any better than some of the other Asian frozen offerings which cost less.
Brand loyalty can be very strong for restaurants that have a good, defined market position. Why not offer the convenience and shared loyalty with a local supermarket?