Supermarket foodservice goes upscale: Will shoppers bite?

It’s little wonder grocers are stepping up their foodservice game – they need to defend their turf

As American lifestyles become more hectic, shoppers are shifting their food dollars away from grocery to spend more money on eating out. Foodservice share of spending now represents more than half of all U.S. food sales, according to a study published by Acosta and Technomic Inc.

Consumer preferences are changing the grocery space as well. Center store sales have stagnated as shopper demand for fresh foods and better-for-you groceries has grown, spurring supermarkets to develop best-in-class perimeter departments. These store sections include fresh produce, fresh meat and seafood, in-store artisan bakeries and stellar prepared food and foodservice offerings.

“The center store is in such dire straits that supermarkets are doing everything they can to differentiate around the perimeter to appeal to customers,” Bob Goldin, partner at foodservice strategy firm Pentallect, told Food Dive. “They’re looking at everything they can do to capture more food dollars. Stepping up foodservice, including adding in-store restaurants, is perceived to be a big opportunity.”

In-store foodservice could yield huge payoffs for grocers. Supermarket prepared foods and in-store dining has grown nearly 30% since 2008, accounting for 2.4 billion foodservice visits and $10 billion in consumer spending in 2015, according to the NPD Group.

In a retail sector plagued by razor-thin margins, foodservice solutions including prepared food offerings, QSRs and in-store dining can also help boost supermarket profits.

“Retailers have begun to see the profit margins associated with prepared foods,” Tim Powell, VP and senior analyst at food, beverage and foodservice firm Q1 Consulting wrote in an email to Food Dive.

Transforming grocery from a chore to a destination

“A big driver behind foodservice within groceries has been a growing consumer demand for fresh, prepared food available in a single location,” wrote Powell. “Prior to the Great Recession, when gas prices hovered around $5 a gallon, retailers from c-stores to supermarkets to drug stores started seeing the benefits of a single destination for grocery, gasoline in some cases, and prepared meals for the evening.”


Besides creating a destination, Diana Sheehan, director of retail insights for Kantar Retail, cited other factors driving the upscale foodservice and “grocerant” trend across the supermarket industry.

Among those drivers, she said, is the need to diversify the revenue stream — going from selling things to selling solutions — cement shopper loyalty, and target new shoppers. Defending against competitive threats is big on the list, too. Competition from the rise of grocery e-tailers and the emergence of high-end meal kit delivery services like Hello Fresh and Blue Apron is further encroaching on the grocery space.

All of these outside competitors are fueling grocery’s upscale foodservice movement, transforming trips to the supermarkets into valuable, differentiated experiences. As Sheehan put it, “Make the grocery somewhere shoppers want to go, not have to go.”

“It all comes down to experience,” Sheehan told Food Dive. “How do I make my grocery store an experience where my shoppers want to come and enjoy? By creating a unique point of difference through a fine quality foodservice program, a supermarket can stand out in an increasingly crowded marketplace.”

It pays to be a risk taker

The upscale foodservice trend isn’t new. Whole Foods is regarded as pioneering the “grocerant” trend, which started more than a decade ago. Other forerunners have included the likes of Wegmans and H-E-B, which have gained glittering reputations and a faithful fan base thanks to their high-quality foodservice programs.

“Like any product life cycle, you have your early movers and adopters, like Whole Foods, and then those that follow in order to first ascertain the potential risk and success,” wrote Powell.

According to Powell, Eataly Chicago (as well as its New York City and Boston locations) is a prime example of one of those followers – a retail-restaurant combination that offers unique, differentiated items. These include imported goods, signature prepared foods and restaurants in different areas of the store.

“What makes Eataly a hit is it not only rates very high on store energy, theme and atmosphere, but the staff is friendly, the prepared food is top-notch, and the hospitality is fine-dining-like,” wrote Powell. “Staff is educated on customer intimacy to answer questions, and very professionally at that.”


Sheehan points to Hy-Vee as a conventional supermarket gaining traction in the in-store dining space. More than 100 of Hy-Vee’s more than 230 locations throughout the Midwest now feature a Market Grille full-service restaurant. The eateries include sophisticated décor, full-service bar and a chef-driven menu using fresh ingredients all of which are sold in the stores.

“Hy-Vee restaurants are successful because they serve small communities that have few dining options. The intention is for Hy-Vee to become a community center, with a dietitian, miscellaneous wellness services, restaurant, and of course groceries, all under one roof,” said Sheehan.

Shoppers want unique, one-of-a-kind experiences

Some retail food stalwarts, as well as a host of newcomers, are testing the waters and creating their own versions of upscale in-store dining experiences.

Giant Eagle operates “table by Market District” restaurants in two units, the first of which opened inside its Carmel, IN store in 2015.

“We identified customer interest in delicious gourmet-prepared meal options and since launching our Market District format in 2006 have been exploring various ways to meet this need,” spokesperson Dan Donovan wrote in an email to Food Dive.

“Throughout the company’s footprint, customers will find a variety of in-store dining executions ranging from themed food stations to an order and buzzer system to our full-service restaurant ‘table by Market District,’” wrote Donovan. He said the full-service in-store dining experience has been “well received by the Carmel community.”

Giant Eagle followed up with a second “table” restaurant inside its small-box Market District Express location, which opened in Bexley, OH in 2016.

Ray Allen
Ray Allen

One of the more interesting upscale retail foodservice concepts on the radar can be found inside Wal-Mart’s new supercenter in Lake Nona, FL. In lieu of the standard Subway or other fast food chain, Wal-Mart will feature an organic foodservice start-up concept dubbed “grown” as its QSR component. The restaurant’s mantra -- “Real food, cooked slow, for fast people” -- speaks to both consumer demand for convenience and fresh products.

The initial “grown” location, touted as 100% organic fast food complete with a drive-thru, opened in Miami in 2015. Founder Shannon Allen is the wife of former NBA player Ray Allen, which helps position “grown” as a unique tourist draw since he is involved in the operation.

“The Wal-Mart-Ray-Allen tourism bent makes a lot of sense,” said Sheehan. “There’s a uniqueness that draws you in. Wal-Mart could get more shoppers in the door with this unique QSR concept.”

Additional newcomers to watch: Harvest Market, featuring The Farmhouse in-store restaurant in Champaign, IL, and “farm-to-fork” retail-restaurant combo Gentle Harvest in Marshall, VA. Both stores opened last fall. A second Gentle Harvest is set to open this spring in Winchester, VA with more locations on the horizon.

Maximize in-store interactions and customer service

Sheehan told Food Dive that retailers are using their grocerants to introduce concepts that their shopper base finds comfortable and convenient.

“Using sophisticated algorithms, Amazon can create a relationship with you. But Amazon can’t create the type of personal relationship with shoppers that supermarkets can do through the in-store experience.”

Giant Eagle’s Donovan wrote, “As we continue to evaluate and evolve in-store dining at table by Market District, we’re recognizing the appeal of what we like to call the ‘supermarket to table’ experience. Having a restaurant located inside of a supermarket gives our chefs the ability to draw inspiration from the wide array of products available throughout store, and our guests the opportunity to see how the ingredients can come together.”

Goldin, however, isn’t as bullish on supermarkets being able to pull off an upscale dining experience.

“It’s very, very tough,” said Goldin. “Consumer expectations are so high. The bar has been raised with independent restaurants really upping their game in the last several years with urbanization, gentrification, fresh, farm-to-fork, ethnic – and at all price points.”

“It will be very difficult to turn a supermarket into a destination dining location,” continued Goldin. “The restaurant business is a hard, tough business. It’s challenging for a lot reasons: Atmosphere. Décor. Ambience. Craft cocktails. Perception of hipness. Menu flexibility. Skilled labor. Reservations. Coat check. These aren’t supermarket strengths.”

Plenty of grocers – or grocerants, if you will – are set to prove otherwise

Filed Under: Grocery
Top image credit: Giant Eagle