Why Retail Is A Threat To Your Restaurant

By Peter Thor, President, Bellissimo Foods

Retail represents a threat to foodservice in ways it never has before. Both retail and foodservice have always competed at some level for “share of stomach”. Consumer driven retail and foodservice trends are moving in the same direction, but their cost structures are not. The retail threat to your business is real and increasing. Here are some of the reasons why, and what you can do to minimize the competition.

For many years, trends such as increasing incomes, duel parents working, and globalization of tastes and preferences encouraged restaurant consumption and industry growth. More recently, pizza segment growth has been fueled by a combination of specialty operations offering unique cooking and menu options, as well as mobile platform and delivery growth. This encompasses formats such as “coal fired” and premium ingredient offerings, and the rapid consumer adoption of mobile ordering. Many traditional restaurants that have not addressed these trends have suffered.

Competition from the retail sector is changing rapidly, however, which presents smart restaurateurs with interesting opportunities if they embrace the trends and counter with competitive offerings which highlight the strengths of a restaurant. In contrast with traditional retailers which face major development, inventory, and logistical cost hurdles in trying to fulfill online orders, a customer ordering from a restaurant for delivery doesn’t necessitate major changes to the workflow process. Further, a restaurant prepared meal offers fresh ingredients, expert preparation, and consistent quality. However, perhaps by focusing on mobile platforms, restaurateurs have not invested in improving the customer experience. Restaurants can’t replicate the hands-on cooking experience that meal-kit services offer, but restaurants can innovate not only menu options but also layout and other experience enhancing changes to encourage new and repeat customers in a time of declining restaurant traffic.

The biggest competitive threat from retail grocery currently is the 20+% growth rate of meal-kit preparation and delivery. Powerful grocers and retailers are aggressively developing both in-store kits and delivery options with quality and variety rivaling restaurants. In addition to quality and variety, young and affluent consumers are embracing meal-kit services which satisfy their desires for convenience, quality, and satisfaction from preparation. We believe that growth and consolidation in the industry will also lead to targeting young families which have fueled growth in our pizza delivery.

There is compelling evidence that consumers are embracing direct food delivery services and prepared and partially prepared meal-kits. This will drive traffic and food purchase dollars to specialty and traditional grocers and away from pizzerias and other restaurants. In addition, Amazon, Walmart, and Target have all entered the food delivery business and are anticipated to also partner with meal-kit companies like Blue Apron or Home Chef to pull customers away from foodservice restaurants. It is the challenge of this decade for our pizza industry to innovate our menus and dining experience in ways that cannot be replicated at home.

The weaknesses of retailer meal-kits developers and delivery services are primarily scale, product perishability, and logistics. For the most part, the retail industry relies on centralized hubs and therefore cannot address timeless of delivery or deliver finished products ready to consume. But their advantages include mobile technology and consumers looking for flexibility, choice, and participation in meal preparation. In contrast, pizzerias and other restaurants can be innovative, source local ingredients, provide a safe and enjoyable service experience, and market themselves as neighborhood supporters.

Cost and regulatory differences will become more important factors over time. The retail CPI is almost flat, actually falling by ½% in the last 12 months. In contract, the CPI for food away from home rose almost 3%. Retailers cost changes are primarily driven by commodity food costs and logistics, while restaurant costs are driven primarily by labor, rent, and regulatory compliance. Retailers of course also have those expenses, but they are a much smaller proportion of their total expenses.

New minimum wage laws and other regulatory changes including mandatory nutritional information and caloric postings are expected to be a major hit on restaurant costs. In retail, those costs are borne by manufacturers whose scale and efficiency enable reasonable cost compliance. The jury is still out on whether restaurants will be able to cope with, or pass on the burden of new labor and regulatory costs. But one thing we are certain of, pizzeria operators need to once again turn their focus on the basics of product quality, consistency, and service. Our industry is under threat and we need to work together to face it. Best of luck to all!

Adding something special to specialty foods for more than 60 years.