Nontraditional competitors threaten restaurant market share

This is part of Nation Restaurant News' special coverage of the 2012 MUFSO conference, taking place Sept. 30-Oct. 2 at the Hilton Anatole Hotel in Dallas. Follow coverage of the event on NRN.com's ‘At the Show’ section, read onsite blogs from NRN editors at Reporter’s Notebook, and Tweet with us using #MUFSO.

Foodservice operators are busy looking over their shoulders to guard against other restaurateurs who are threatening to grab market share from them, but they may be turning a blind eye to another equally aggressive form of competition in the form of grocery, convenience and drug stores.

Experts participating in the MUFSO panel Stealth Competition: Who’s After Your Share of the Market? cautioned attendees in Dallas that this new wave of competition is employing lessons learned from restaurant operators themselves and using them to lure away potential customers.

“Home-meal replacement has faded away in the restaurant side of the business,” said Steven Johnson, Grocerant Guru, Foodservice Solutions and panel moderator. “But in grocery stores, convenience stores and retail drug stores, it never faded away. It was studied and tested, and implemented.”

Johnson said that research shows that baby boomers buy prepared food from such nontraditional outlets nine times a month; 34- to 54-year-old consumers buy food from them four times a month; 18- to 34-year-old consumers buy food there at least eight times a month; and all consumers shop there at least three times a month.

Panelists agreed that convenience is a chief motivating factor for consumers to visit a grocery, convenience or drug store for a meal option instead of stopping at a restaurant. “We have some valuable real estate,” said Louie Sheetz, executive vice president of the 430-unit convenience store chain, Sheetz. “We’re strategically placed when the customer is out for the day,” he continued. “And we’re an opportunity for today’s multitasking consumer to do more than one thing with that stop.”

To lure the mobile, multitasking customer, such nontraditional competitors are offering a wider range of food items, like freshly made sandwiches, wraps, salads, fresh fruit, beverages, heat-and-eat dishes and even specialty items like sushi — which Johnson noted is in test at about 10 Walgreen’s locations in major urban areas.

The nontraditional competitors are well financed and pervasive as well. “Most of you are used to startups with two or four or six units coming after your business,” Johnson said. “Now you’ve got Walgreen’s and Duane Reade, with 7,500 [units], as a true threat to your business. Walgreen’s also has over $78 billion in sales.”

7-Eleven is opening two stores a day in 2012, Johnson added. “And 50 percent of them do not sell gas. They’re selling food and more fresh food.”

Meanwhile, there are an estimated 38,000 grocery stores in the United States.

One prototype that has drawn substantial interest from nontraditional competitors is Eatzi’s, the food marketplace developed in Dallas by restaurant impresario Phil Romano. Lane Cardwell, president of Cardwell Hospitality and former chief executive at P.F. Chang’s and Boston Market, spent four years working with Romano on the concept.

“Phil’s biggest mission was to not make [Eatzi’s] look like a grocery store,” Cardwell said. “So when we were visited by grocers, he would tell them … don’t make the aisles so tall; don’t make them so linear — make them angular.”

One advantage restaurants have over grocery stores, however, is they have smaller, more convenient parking lots and a better checkout experience. “That alone is a deterrent,” Cardwell said.

Despite that, Cardwell cited grocery stores as being the biggest threat to restaurants, with the quick-service and fast-casual sectors being the most vulnerable. “Both are selling speed and convenience,” he said. “Full-service has an advantage in this case — there is much more than just food being sold. There’s the dining experience.”

In the meantime, grocery, convenience and drug stores continue to raise the foodservice ante. While Sheetz continues to broaden its variety of food offerings, the chain also is focusing on speed of service, “which is more and more important to folks,” Sheetz said.

The chain has adapted its made-to-order, or MTO, salad and sandwich line, to be even more convenient. “We’ve taken the line and moved it to MTGo. It’s sandwiches, wraps and salads for when you’re in a hurry and don’t have time to access the touch screen order pad and wait for us to prepare your food. That line has seen incredible growth in the last four years.”

Find more MUFSO 2012 coverage online at NRN's sister publications, Restaurant Hospitality and Food Management.

Contact Paul Frumkin at [email protected].
Follow him on Twitter: @NRNPaul