Convenience stores, supermarkets and other retail operators are looking to capture the hearts and stomachs of consumers by closing the prepared-food quality gap with restaurateurs.


In addition to improving their food offerings, retail establishments are competing more aggressively with restaurants by merchandising the higher-quality food items at more moderate price points.


This competition from outside the restaurant industry is being ratcheted up at a time when restaurateurs already bruised by the economic downturn are locked in a fierce market-share battle with other foodservice operators.


Recent consumer research underscores the growing risk to the restaurant industry.


Research firm Technomic Inc. said 41 percent of 1,250 Southern California consumers recently surveyed online either “agreed” or “strongly agreed” with the statement, “I believe that prepared foods from retailers are restaurant-quality foods at better prices.” 


Only 20 percent of the survey group “disagreed” or “strongly disagreed,” while 39 percent neither agreed nor disagreed, according to Jenny Anderson, a director of research and consulting for Chicago-based Technomic, who also oversees the company’s Retail Meal Solutions Monitor program.


Another study conducted by Technomic that was tied to a 3,755-member online panel of C-store users, nationally representative for age, gender, ethnicity and income, discovered much the same thing. Technomic said “consumers are taking advantage of the expanding [C-store] foodservice 
options, many times at the expense of quick-service restaurants.”


Of the consumers polled in the online panel, 82 percent said they purchase prepared foods from a convenience store at least once a month, and 52 percent said they do so at least once per week, Timothy Powell, a Technomic director of research and a consultant who leads the C-store foodservice program, said in a statement. 


He added that, of the consumers polled about their most recent C-store foodservice purchase, 27 percent indicated that if they had not bought their meal from the C-store in question, they would have purchased it from a fast-food restaurant. A similar percentage said they would have made such an alternative purchase at a different C-store.


“Convenience stores are increasingly falling into the same consideration set as fast-food restaurants,” said Powell. “This really speaks to the enhanced foodservice offerings in convenience stores as well as evolving consumer behaviors.”



Not all gloom


But while the competition is sharpening its game, some foodservice industry observers suggested that such changing consumer views about the prepared foods sold by retailers don’t necessarily spell doom and gloom for restaurant operators.


Hudson Riehle, vice president of research for the National Restaurant Association, said that while foodservice sales at C-stores and retail places are “a growing area of importance for the restaurant industry,” the aggregate contributions of such retailers still represent a small part of the industry’s total output. The NRA-forecasted 2011 foodservice sales by retailers of $32.1 billion represents 5.31 percent of the $604.2 billion in sales expected from the industry, overall.


What’s more, Riehle indicated, increasing consumer use of prepared foods and beverages from retail hosts reflects the “natural evolution” of the foodservice industry in response to customers’ desire for convenience. 


“The restaurant industry has been very competitive during the last 50 years, and in the next half century I’d expect that competition to be no less intense,” Riehle said. 


While retail hosts may steal sales from commercial restaurateurs, competitively speaking, Riehle said it is more logical that C-stores, supermarkets and other retailers will build foodservice sales by other means. 


Among American consumers, “roughly five to six meals a week are commercially prepared, so that leaves about 15 meal periods that are at-home prepared-meal solutions,” Riehle said. “Regardless of which [industry] segment one is in, or the competitive set in a specific operating region, the focus really is on taking the labor out of the home kitchen.”



Trading places?


It remains to be seen just how well retailers or restaurateurs will do when it comes to convincing consumers to trade some of the dollars they spend on food to be prepared at home for dollars to be spent on food prepared away from home. 


The U.S. Bureau of Labor Statistics recently reported that the average annual expenditure for food away from home declined by 4.4 percent in 2010 compared with 2009, after shrinking by 2.9 percent in 2009. In comparison, the average annual spend for food prepared at home decreased by 3.4 percent in 2010 versus 2009, after growing by 0.2 percent in 2009. 


“A savvy restaurant operator is always cognizant of what the competition is within their trading area, and obviously competition can come from nontraditional as well as traditional sources,” Riehle said. 


Technomic’s Anderson said “things have changed” in retail foodservice, thanks, in great part, to “early leaders” like Whole Foods, Wegmans, Central Market and other regional players and independents that
“focused on high-quality, on-trend fare similar to what you would find in a restaurant.” 


She said such retail foodservice trendsetters “expanded the variety of choices so that the stores could be frequent destinations for interesting and tasty meals that are more affordable than comparable restaurant versions,” and that “other retailers recognized the opportunity and followed suit.”


Anderson noted that retailer pursuit of on-premise foodservice sales has resulted not only in “attractive and comfortable seating areas where customers can enjoy their meals right in the store while watching TV or taking advantage of the free Wi-Fi,” but in some “full-fledged in-store restaurants,” as well.


“Add in the convenience of also being able to pick up a few other household goods, and retailers have a strong competitive position,” she said.



Selling convenience


Like their grocery store counterparts, C-store shoppers appear to be receptive to expanding foodservice menus and, in some cases, improving quality. 


Referring to his company’s “Consumer C-Store Brand Metrics Shopper Insights” 2011 survey and report, Technomic’s Powell said 27 percent of the respondents said they purchased an afternoon snack during their most recent
C-store visit, while 23 percent purchased only a beverage, and 19 percent bought a lunch item. 


Impulse buying plays a large role in C-store foodservice transactions, he explained, as 31 percent of the surveyed consumers acknowledged that seeing an item triggered a craving that was their primary motivation for making a purchase.


But if C-store and retailer foodservice programs are benefiting from continued consumer pursuit of convenience, they may ultimately suffer in comparisons with quick-service restaurants, according to the NRA’s Riehle. 


“One of the challenges for the C-store operators and retail operators is their inability to tap into the drive-thru market,” Riehle observed. 


Interestingly enough, he said, restaurateurs and C-store operators don’t always need to battle each other to win foodservice sales. In some instances, Riehle pointed out, C-store operators are finding that it serves their needs to franchise or license an established restaurant concept for use in their business.


Among chains that have pursued growth through C-store locations are Chester’s Chicken of Birmingham, Ala.; Pizza Pro of Cabot, Ark.; and Subway of Milford, Conn. Denver-based Quiznos, which in recent years has seen large-scale closures of conventional franchised restaurants, in 2011 opened in more than 200 C-stores.


Contact Alan J. Liddle at alan.liddle@penton.com
.
Follow him on Twitter: @AJ_NRN.