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QSR Feature
The Competition
Upscale grocers like Whole Foods and Central Market are after your fast-casual customers.

One of the hottest fast-casual takeout and eat-in dining spots in Austin, Texas, offers six different concepts in a single location. Customers, who range from college students to single professionals to families with young children to seniors, line up at both lunch and dinner for selections that include everything from salads and sushi to wild scallops wrapped in prosciutto (at $14.99, the highest priced item on the menu) and a mix-and-match array of more than a dozen pastas and sauces.

Across town, a popular competitor attracts the hip and hungry with a menu of design-your-own meal entrees and sides for café eat-in or take-out, as well as fixed-price ($13.99), brown-bagged “Dinners for Two” that come with entrée, salad, or other complementary sides and bread or rolls. One bag might include beef enchiladas with ancho guajillo sauce accompanied by Spanish rice, borracho beans, and white flour tortillas, while another might hold apricot chicken breasts with lemon-scented basmati rice, wilted spinach, and sunflower rolls.

Both of these operators have made their mark by providing convenient, tasty, and, above all, ready-to-eat mealtime solutions for consumers on the go. But neither is a restaurant. Instead these two Austin-area fast-casual contenders, Whole Foods and Central Market, respectively, represent the latest evolution in supermarket foodservice—a segment that, industry experts say, is growing across the country.

“This year, supermarkets made major gains as a source of takeout food, closing the competitive gap with fast-food restaurants,” said Food Marketing Institute (fmi) senior vice president Michael Sansolo at the national organization’s recent 2006 trade show in Chicago.

According to FMI’s “Trends in the United States: Consumer Attitudes & the Supermarket 2004” report, “Twenty-seven percent of shoppers now buy takeout food for home most often in supermarkets—a sharp increase from the 17­­–20 percent range over the previous five years. This finding puts supermarkets well ahead of [full-service] restaurants (18 percent) and nearer to fast-food outlets (35 percent).”

In the western part of the country, supermarkets are actually running neck-and-neck with fast feeders, says FMI. The same is true for younger consumers of ages 15–24.

FMI’s 2006 “Food Retailing Industry Speaks” state-of-the-industry report shows that nearly 4 out of 10 retailers (almost 39.8 percent) now feature quick-stop prepared foods areas, compared with the previous year’s 28.2 percent. About 45 percent of these food retail stores now also offer in-store dining areas, FMI reports.

In its 2006 “Attitudes Towards Dining Out” report, Mintel International estimates that sales of prepared food in retail stores—primarily supermarkets but also including mass merchandisers, bookstores, gas station convenience stores, and department stores—have grown about 9.6 percent from 2000 to 2005. That’s much higher than the restaurant industry’s prepared foods sales growth over the same time period, which Mintel estimates at only 5.1 percent.

This proliferation of prepared foods and positioning of supermarkets as dining destinations are more than means of keeping customers well-fed and happy, say the experts. These moves are key to the survival of supermarkets in the face of decreasing profit margins and fierce competition for grocery dollars from mass merchandisers such as Wal-Mart and club stores such as Costco.

Selling “experience” as opposed to just ingredients allows national retailers such as Whole Foods and regional chains such as Central Market in Texas and Wegman’s in the northeastern part of the country to set themselves apart from their more price-focused competitors, says Dennis Lombardi, executive vice president of foodservice strategies for WD Partners, a multi-unit design and development firm based in Columbus, Ohio.

With the availability of all manner of fresh ingredients, supermarkets have the distinct advantage of being able to prepare and offer a wider and constantly changing variety of mealtime options. The perception of freshness and healthfulness is also underscored in shoppers’ minds by beautiful displays of produce and other ingredients throughout the stores.

Another culinary cue is what Todd Hale, senior vice president of consumer and shopper insights at ACNielsen research, calls “the aromatherapy factor.” With so much food preparation going on around them, he explains, customers’ appetites can’t help but be whetted. “It makes sense for grocery stores to find a way to satisfy their customers’ appetites on the spot,” he says.

At Central Market, shoppers can choose from individually packaged and quick-chilled meals, side dishes, and other specialties from the grab-and-go case (“the quickest in-and-out mealtime solution we offer,” says the market’s web site). For non-prepackaged fare, they can select from dozens of freshly made entrees and sides available in the Chef’s Case. And then there is the Central Market Café, a dine-in/take-out concept that’s only in the company’s two Austin stores. There are a total of seven Central Market locations in Texas.

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