February 19, 2007
Home Meal Replacement Death Ruled a Suicide
Commentary by George Anderson
The rationale behind the whole ‘home meal replacement’ strategy of the 1990’s was essentially this: Other forms of business, primarily fast food and other foodservice operators, were taking sales away from supermarkets as people were increasingly buying and consuming foods away from home.
The response, largely consisting of rotisserie chicken, sub (grinder, hoagies, ‘Po Boys or other regional designation) sandwiches and salad bars, was for many (okay, we mean most) grocers a dismal failure as large numbers of consumers dined on dashboards, ordered take-out or had food delivered to home or office from other sources.
Somewhere in the midst of this, grocers began waving the white flag and reverted to a distinct “if we can’t beat them, conjoin them” approach. Yes, supermarkets held onto the rotisserie chicken, prepared subs, hoagies, grinders, et. al. and salad bars, but many brought the competitors in-house with leased spaces for McDonald’s, Pizza Hut, Panda House, Starbucks, etc.
During this co-opting phase, as we call it, grocers began to improve prepared foods offerings (only a few, such as Wegmans, however, actually excel) and, in some instances, even took over space previously leased to foodservice competitors. It appeared at the time, looking from the outside in, some had decided with the rise in gas prices and the so-called 9/11 “nesting effect,” that there was an opportunity for supermarkets to become the take-out or dashboard dining source of choice for time-pressed and/or cooking-challenged consumers.
It is with this as a background that it becomes all the more startling that grocers continue to add to the top and bottom line performance of competitors such as White Castle, Taco Bell, Nathan’s, Boston Market, T.G.I Friday’s, Home Run Inn Pizza, Mystic Pizza, Carvel, Dunkin’ Donuts, Morton’s, Carnegie Deli, Wild Oats and now Subway Restaurants.
Granted, licensing an established brand and repackaging it for sale in a competitive format is a brilliant strategy on the part of the trademark and the manufacturer marketing and selling the product. What, however, does it do for the brand equity of the retail seller? How does a consumer walking up to a service deli counter and asking for Subway Virginia ham at Pathmark do anything other than let everyone within earshot know this customer believes Subway’s brand is better than the “ChefMark” (Pathmark’s private label) alternative?
We just don’t get it. Of course, we never had and, ultimately, we probably never will.
Discussion Questions: Why are supermarkets taking on items labeled prominently competitors’ brands? What would happen if grocers, convenience stores and other food retailers just said, “No”? Shouldn’t grocers, at the very least, agree to take on the products only if they are co-branded, as Costco does with a number of manufacturers?
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Grocery stores should not be concerned about taking on brands that are also food-away-from-home brands. The days of trying to sell in a channel-specific environment are long gone. This is no different than Pepsi or Bud being sold in multiple channels and I don’t see anyone getting up in arms stating how Pepsi, because its sold in restaurants, should not be available for sale in a grocery store.
Offering more premium brands, whether they are through a supplier or through a fast food chain, can be good for a retailer’s business. It depends on the category, and how much of a price consumers are willing to pay for the more premium brand. If all consumers trade up to the premium Subway deli meats, and the cost is 25% higher, then total dollar sales will increase by 25%. If the margin is the same on the private label brand vs. the Subway brand, then profits also increase by 25%.
Even though these brands cannibalize private label sales, they can help to grow category dollar sales and profits. Retailers need to do the math to understand how much they need to sell, and at what price, to maximize profit and sales for the category.
For Starbucks coffee consumers, who can be fiercely loyal to their coffee, retailers have to decide if they want to offer Starbucks beans to these consumers, or have them leave the store without coffee.
The success or failure of these brands depends on the category, the brands, the consumer demographics, and the price propositions relative to the other brands in the category.
The supermarket industry started off on the wrong foot with the “home meal replacement” terminology. This is ‘inside the industry’ sterile terminology that, at the end of the day, was/is a terrible failure as a ‘call to action’ to the customer and, indeed, many within the supermarkets’ organization.
The varying formats in the restaurant industry generally have sharply-etched visions of what they want to do. With rare exceptions (e.g. buffets) they do not aspire to be many, if not all, things to potential customers. The supermarket chains that have done HMR well essentially present an honest-to-goodness restaurant-like experience in their stores. The offer(s) is focused, high quality, consistent and priced right.
The folks that seem to have failed with an ‘in house’ approach generally seem to come from a supermarket deli (as opposed to restaurant or food service) point of view. Big difference.
Restaurateurs typically don’t open new units (or keep poor performing existing restaurants) to generate ‘contribution to margin’ or some other incomplete form of the P&L. So long as supermarket HMR deals with seriously incomplete P&Ls the HMR ‘business’ won’t be run in a businesslike manner. If you want to grow, you have to generate the capital to reinvest in the business.
In my opinion, it doesn’t have to be a hopeless case. Why can c-store operators like WaWa and Sheetz generate the kind of traffic to, and credibility behind, their brands when so many grocers have floundered? I submit that a clear vision that permeates the entire organization and relentless focus on achieving that vision are 2 keys.
With regard to bringing wanted non-retailer brands into the store there is a school of thought that originated with Marshall Field (yes, that Marshall Field) that says “Give the lady what she wants.” Good advice back in the mid-1800s…good advice today.
The HMR marketing concept was flawed from the outset for several reasons, including the fundamental belief that supermarkets as an industry could come up with an alternative to fast food franchises. Only the national grocers have a chance to match the advertising coverage of a Taco Bell, for example. However, they cannot focus their message on HMR because they co-op most of their ad space with CPG manufacturers.
The successful HMR retailers mentioned above have been able to have the best of both worlds because they have focused on the new business of HMR without diluting their resources in the traditional business. This means investment in people, facilities, equipment, etc.–a real commitment to doing the cooking and constant learning about what consumers want from them. Those who have backed off the HMR train were not able to make the same level of commitment.
I’m not sure adding the Subway brand of deli meats has anything to do with the HMR subject. However, it could have a lot to do with store brand identity depending on how it is positioned. Initially, consumers are likely to view Subway meats as another national brand. Jared’s presence may even transfer over, who knows? Could be some nice advertising perks. However, positioning Subway against private label would be a mistake, further homogenizing the shopper’s in-store experiences.
I agree with the comment above.
From my understanding, offering these types of destinations is expensive and not for everyone. Some grocers have lost plenty of money with a play that simply didn’t meet expectations. However, Publix is a good example of doing it right. In the Southeast, Publix subs and sandwiches blow away anything that Subway or Blimpie offers. They have a huge draw for these items alone and have plenty of Southerners running into the store a few times a week for another fix! They’re also doing a great job with their sushi and chicken.
So maybe the ticket is not trying to do too much but figuring out where they CAN excel uniquely and focusing on only those products? Then, where they know they can’t excel, finding the right brands to partner with.
What is the purpose of supermarket retailing? What is the goal behind establishing a brand? If a supermarket can get space for $20 per square foot and rent it to Dunkin’ Donuts for $100 per square foot, why not? Will the supermarket’s own brand, after all its expenses, pay an $80 per square foot profit? Everyone who owns a supermarket is really in the real estate business.
I could not agree with you more. It has always amazed me that supermarkets with more traffic and more repeat traffic of almost any channel can not take the energy to create a destination as do the other offerings like Subway, McDonald’s and so forth.
There seem to be very few; Wegmans of course and then Ukrop’s and HyVee also do a great job creating a destination for their customers.
The most “unusual” of all for me has been the embracing of the Wild Oats private label as the “expert” in natural in mainstream supermarkets. Pretty soon there will be a format that has all of the brands from the marketplace’s other retailers and not have any of their own brands. Seems like an abdication of their merchandising/marketing responsibilities.
There will always be consumers who believe the various fast food brands are better than the offerings that the store sells under their own name. The strategy of selling branded takeout is not a lot different than selling Kraft cheese. The consumer who believes in brands buys branded CPG products; why not sell them branded take out? The various fast food companies have spent millions in marketing dollars. Why shouldn’t a retailer take advantage of that?
Pathmark’s selling Subway branded items makes a lot of sense to me. Apparently there are people that think that Subway’s ingredients are better than other brands so why not take advantage of that? The retail pricing will say more about whether Pathmark thinks they are better or worse.
Most stores are doing a poor job of the home meal replacement idea and offering Subway or other branded choices is probably a good alternative. There are so many opportunities in this whole area that it amazes me that more stores aren’t able to figure out better strategies. But then they can’t figure out good ways to differentiate themselves in other areas either so it shouldn’t surprise me.
Being primarily in a business that’s more linear than conceptual, most supermarkets move towards practical solutions. When their prepared food offerings didn’t match expectations, most supermarkets began taking that practical route. They invited in the fast food operators who had mastered their own brand niche and had gained acceptance from a good portion of consumers. But co-branding may not have been seen as necessary or even a practical asset.
Co-branding can be a mixed bag. Would McDonald’s, Taco Bell, Arby’s, White Castle, etc. add luster to a quality store brand such as Wegmans, Ukrop’s or Byerly’s? Supermarkets that invite fast food operators into their stores primarily do so to more quickly and profitably accommodate the cultivated tastes of a great many consumers–not much more than that. Think about it.
Could you ever imagine Subway promoting that its sandwiches were made with Pathmark’s deli meat?
Supermarket retailers sell traffic to manufacturers and suppliers. As I’ve written in these spaces previously, supermarket retailers are simply landlords with the job of “flowing” customers past as many feet of shelving as possible. Offering products from perceived competitors such as Taco Bell, Boston Market, Starbucks, Claim Jumper, Friday’s, Subway, and others is simply a manifestation and reinforcement of this concept.
The part of this that amazes me is that Subway is being called a “premium” brand. I am a regular Subway customer but don’t go there under any illusion that the meat is “premium.”
Seems to me, if you are touting the Subway brand as premium for your deli, you don’t have much of a deli. We recently tried chicken wings that were branded by one of the quick-serve restaurants and sold in our supermarket. Awful.
Some consumers must think that because they ate it out and it has a brand name on it, it is good. But, for more discerning customers, it would seem slapping all these mid to low-end restaurant names on everything would ultimately degrade the reputation of the store.
It all comes down to strategy, commitment and execution. Those who believe they are in the real estate business should probably not attempt a self-operated entry into HMR. The costs of doing business generally don’t stack up favorably with selling the best array of SOS (stuff on shelves), and therefore the commitment and execution for making hot food hot, cold food cold, and all of it fresh will simply not be there. Instead, it will be treated like “stuff in pans.”
However, if you believe that you are in the lifestyle business, and you have targeted your audience correctly, then your vision of how products and services fit into your customers’ lives leads you to approach the process with greater commitment to do it right… from planning to sourcing to training and execution. Also, if one is consistent in the strategic vision and approach, such programs or product line additions will not be seen as “lacking credibility” as they might in the former scenario.
As Peter Deeb points out, there isn’t much difference in branded packaged goods and branded prepared foods. That is why this discussion cuts to the very strategic heart of food retailing in America…
…is (favorite supermarket chain name here) a brand–or a place to buy brands?
The fundamental reason for being for “supermarkets” was to provide a convenient place to buy a number of brands. That thinking was wildly successful, and also the major barrier to today’s adolescent evolution to “retailer as marketer.” To tie back to last week’s discussion of merchants versus marketers–the role of the merchant is to market products (brands) in the store. The role of the marketer is to build a brand for merchants to market. Which way will we go?
It’s disappointing to see some supermarkets abandoning HMR and opting for the easy way out–inviting the “enemy” foodservice into the tent. HMR, if well done and presented, is the closest supermarkets can come to home-prepared food. It combines nutritious food with convenience. Two mistakes supermarkets made in offering HMR was not promoting it as the next best thing to home-made food, and didn’t keep tabs on the HMR they were selling. Some HMR is full of salt, etc. consumers soon got wise and stayed away in droves. But it’s not too late to recover–through quality HMR and proper merchandising. HMR remains a natural for supermarkets.
Supermarkets have invited the “enemy” in because, by and large, they do not know how to sell food. Oh, they can sell bags/boxes/cans of food products, but they don’t merchandise or market themselves as food purveyors. Try asking your local grocery manager if the bearnaise sauce he has on display would make a nice accompaniment to the meat dish your preparing tonight. Supermarkets market the illusion that they understand the role and nature of food. They’re invitation of the “enemy” in is a clear “uncle” from the industry in this area….
This is clearly a symbiotic relationship where the grocery store appeals from increased traffic regardless of the intent. The consumer stays longer to purchase these other offerings and the retailer benefits, along with the alternate supplier. This is no real secret, since adding tire stores and instant oil changes have done the same thing to many mass stores. Both Costco and Sam’s realized the benefit of offering additional services, and the grocery industry has just changed the model to include retail branding from other suppliers. In the end, everyone wins, and the symbiotic relationship thrives.
Supermarkets lacked the skills to profitably implement meal solution programs. Supermarkets are great merchandisers but have never developed all the marketing skills needed to be product manufacturers (which is what meal solutions providers do). It is unfortunate that the supermarkets did not focus on building the nine Ps (product, positioning, packaging, promotion, pricing, place, people, procurement, and politics) needed in the early 1990s to make this happen. In a time pinch, you either hire the skills (very risky given the uncertain territory and the capital investments required) or license a concept/rent space to a concept.
Supermarkets are in business of selling primarily food (dry or fresh) to consumers. You have to make available that for which the consumer seeks. For those supermarket operators looking at their business through a strictly financial prism, they will be very comfortable viewing their shelves and space as real estate plays where winning is maximizing sales or profits per square foot–the store as a traditional distribution point. That initial position will dictate all subsequent “marketing” decisions and activities. For those operators that view their stores as brands, and their business as meeting the culinary and occasion needs of their consumers, then their strategy will revolve around activities (HQ and store) that enhance and communicate that to their customer base. Their starting point is the consumer, the segments served, and their needs driving out the building of an assortment and departments and advertising that fill-in and build upon the picture they are projecting in their consumer’s mind. Non-supermarket HMR brands may play a much bigger role in the former supermarket orientation (real-estate view) versus the brand-driven approach. However, there are no silver bullets here and there are no “enemies.” As “BoatSchool” mentioned, “give the lady what she wants” …that is what matters, then you better figure out how you deliver that offer and have the controls and management skills it takes to run a “tight ship.”
I think the mistake here is to paint the industry with a broad brush. Urban stores, by that I mean those in the center cities, and in high income areas (such as Wegmans stores in suburban Virginia and Maryland), have tremendous potential with HMR. Pathmark isn’t the company to look at, perhaps. Ukrops and, of course Wegmans and Whole Foods, are the companies to look at.
The trick is that the traditional companies such as Safeway aren’t fully able to break out their store formats demographically in ways that can best leverage location.
I say this based on my view of Safeway’s “urban” location in downtown Portland, Oregon. It’s urban but it completely wastes its location. Compare that location to a typical urban Whole Foods store and you’ll see what I mean.
See this blog entry for my thinking on how urban grocery stores should rethink their formats.
However, I always wondered why supermarkets didn’t try to promote their brands regionally. Why not have Safeway soda machines throughout the Washington region? Or now Giant-Eagle is moving more seriously into convenience stores, and they can push their own brands-blends of coffee. Etc.