Transcript of Food & Restaurant Marketing Podcast:
Episode: How Restaurants Can Fend Off Grocery Prepared Foods and CPG.
Adam Pierno: Welcome back to another edition of Food and Restaurant Marketing. This is Adam Pierno and with me as always is Mister Daniel T. Santy.
Adam: Welcome back, glad to be sitting down with you again Sir and discussing some fun topics that we’ve been kicking around for a couple of weeks.
Dan: Yes. I love this topic actually because the grocery companies are really getting into the shorts of the restaurant industry, but go ahead and introduce the topic.
Adam: Yes. It’s really fun to watch– It’s fun from our perspective as outside consultants and analysts, but it’s really fun to watch how all the categories in the food space are starting to intertwine and compete directly and orthogonally and really butt-heads in new ways. Yes, Dan and I know the topic but you listening, do not – let me fill you in the joke. We’re looking at the competition that’s happening at the point of sale in the grocery with pre-packaged, pre-set meals, and how that is cutting into sales and traffic at restaurants. Specifically casual dining, fast casual, and QSR. Casual dining I think is taking the biggest hit.
Dan: To put that in perspective for you, historically speaking, I just saw a stat like back in the ‘50s, grocery as a percentage of total sales for food, was about 75% and dining out was about 25% of discretionary income. Today, that number is virtually 50-50, meaning that consumers are now spending 50% of their food budget at grocery, and 50% dining out. There’s been some significant gains by the restaurant industry, obviously, but grocery is fighting back and they’re fighting back with a vengeance.
Adam: Right, yes. It’s been very interesting to watch the re-emergence of grocery, although it’s a new form of grocery. When you walk through, you really tight outfits, Safeway, Wegmans, Publix, they have a prepared food section that we used to think of as the “deli”, but now I can buy a chicken dinner, prepared-made, ready-to-go that is– competes with outfits like Boston Market, even with other places where I can get what feels more like a wholesome home-cooked meal all at once while I’m there doing my grocery shopping. It’s making my life a little easier, there’s a convenience factor to it.
Dan: Adam you have to add in a couple of the variables. One is, they now have Wi-Fi in the stores, right? I can go there, get that prepared meal, sit down and eat if I want to-
Adam: If you want.
Dan: -and connect to the internet if that’s what I’m doing. Maybe I’m doing a late afternoon lunch or early evening dinner or whatever the case may be. All of a sudden now there’s Wi-Fi. The experience has changed. It’s not just about the product and picking up a meal. It’s now I can sit down and they went up to us, right? Or they went up to the restaurants and there is a full on beer and wine bar in the produce section at my Safeway. Now, in all honesty, I have never sat there and I prayed —
Adam: [laughs] That’s one bar Dan and I have not sat at –
Dan: Yes. It’s the only one. It’s the only one, and I hope I never do. Although I have to admit I’ve got to believe that one day I’m probably going to be bellying up to that bar and ordering a nice IPA.
Adam: It doesn’t look less fun than other bars. I have to admit. The first time I saw it, I tilted my head. Now that I see it again I say, “Well there’s people there.” They’re watching T.V. They look like they’re having fun. It’s just the fluorescent lighting is a little weird.
Dan: Right. They’ve tried to put some experience to it, but anyway. You get the point.
Adam: Let’s dig in more to this problem and what’s really causing it. Part of it is commodity cost. The ingredients, the prices are going down. Grocery are figuring out ways to maximize the ingredients that they’re getting into the store already so they are partnering with their suppliers. They’re figuring out just like restaurants have, when commodity cost are down, how can we maximize that? How can we promote the most profitable commodities? The difference comes from, I think not the commodity cost, right? That should be essentially in even playing field for casual dining, fast-casual for a grocery.
Dan: Not actually, because I think I understand the point, but if you think about the sheer number of vendors, manufacturers that the grocery store is capable of negotiating with, they can craft a value proposition in their commissaries that many restaurants can’t just because of their sheer size and volume capabilities.
Adam: Great point, and you know the margins for them on this product versus selling some of those same products on the shelf is got to be a huge upside for them, even with the wastage. I mean it’s just got to be a huge upside.
Adam: They’re turning nothing into something which we always want to help our clients do.
Adam: I think the other side of the problem really is not the commodity cost where you made a great point, groceries can really need all those down. I think the other side of the issue is the higher labor cost for restaurants where grocery has this built-in staff. They have built-in team of people that are there and working. The labor cost at restaurants and the structure that in a way that in state and federal government are starting to get involved in those cost structures is really starting to take a toll on restaurants.
Dan: Right and absolutely labor is going to be a huge issue for restaurants going forward. You’ve got the minimum wage pressure that’s coming, it’s just sweeping the country right now. Justifiably, I’m not going to take a position on it, but who doesn’t want to make more money? It’s that simple, but there is a significant pressure on the restaurants through the minimum wage requirements which is a mandate, right? It’s not a choice. It’s a mandate. They’re going to have to increase their prices which is going to create a value proposition problem for them potentially, depending on your cost structure in your restaurant.
Adam: You did it. You just got to the real crux of the problem. This is now a society of where we compare things across categories. Dan and I have seen this throughout our research across lots of different categories where especially Millennials? All consumers now will compare things across lines that they never did before because they can now. Using the internet or just having different experiences, they will compare the meal at the grocery store or even the bar that’s in the middle of our Safeway. They may compare that to the corner bar that they used to go to or the bar at Chili’s, and they may start doing the math on that. We’re going to see that competition in the meal space hitting very hard in 17.
Dan: Here’s a great anecdotal example of exactly what you’re talking about. Publix which is doing a great job with sub sandwiches–
Adam: I love that [unintelligible].
Dan: It’s called, Pub subs, has its own Twitter handle, and it’s booming. They committed to quality in this product, and talk about going head-to-head with a juggernaut in say Subway and the other players in the space, Jimmy John’s, et cetera. You know what? They’re making a dent in their region, granted it’s a regional play. If I’m a Jimmy John’s or I’m a Subway owner in those regions, I guarantee you Pub subs is having impact on your business.
Adam: Yes. I would love to look at those shopping centers where there is a Jimmy John’s or there’s a lot of Subways adjacent to Publix. I would love to look at sales of those compared to others and just see how that offer is impacting that business. What we really wanted to talk about, the true topic is how can restaurants fight back. We’ve outlined the problem a little bit. We’ve outlined the uphill climb they have. There’s a few ways that we think that restaurant brand should be leveraging their strengths and fighting back. Go ahead.
Dan: Just one final exclamation on the setup here is–
Adam: That’ll be great.
Dan: Prepared foods at grocery, and I just read the stat today, are projected to grow at 10% per annum through 2022. We’re talking about five more years, that the growth at grocery for the competitive set to restaurants is there. This is a serious problem that rose a number of years ago and is only gaining traction. You’ve got to pay attention to this problem and really address it at your stores.
Adam: Yes. I think I mentioned going into 2017, but you’re right. The growth can be exponential especially as this is pretty young. This is a pretty young business for a lot of these grocery chains. The Wegmans of the world have been doing it well for a long time.
Dan: Whole foods, yes.
Adam: Yes. For a lot of the others, for the Safeway’s, and the Fry’s and the Albertsons, they’re just starting to get their feet wet with it and seeing what’s possible.
Adam: Let’s talk about what restaurants– what stakes they can put on the ground. I’ll kick it off here with what’s the real point of difference, I think it’s got to be first and for most hospitality. When I go to the grocery store, I know what that experience is it’s standing in a line, it’s cafeteria style or something like it and pushing card. I may there but more likely I don’t.
Dan: People in hairnets and rubber cloves so that’s not hospitality folks that’s–
Adam: It’s transactional. When I go to a casual dining experience. I frequently do with my family; that service, a smiling face someone to answer questions, someone to know the menu and someone to understand or even recognize us. Oh my God wouldn’t that be nice [laughs]?. Would I ever refer you to as the light of life? Someone that actually wants my experience and my meal and wants my family to have a good time. When you get that, that’s worth something.
I think if consumers see the difference in price, they say, “Well, a rotisserie chicken at the grocery store is 649 and a meal is 10. Well if I take my family out to a dinner somewhere that has a comparable serving size for everybody, but it’s all the same the cheque comes in and it’s $40, 50, 60, 70, then the cost difference for you comes from a restaurant from that service it comes from paying that stuff, it comes from having a chef and having a runner and having a someone, a host, a hostess, it has servers.
I have to feel that as a customer in a positive way. I have to get the benefit of that. I have to get a service, a level of service that matches that extra pay then I will come back as long as I receive that.
Dan: Yes. This all comes down to one very precise thing and that’s training and having a culture of hospitality. That’s what it has to be. I think there’s not enough of that today. I have experienced and runs over the years that do a great job at that and really training their staffs well. That training that I’m talking about, it’s coming out– I have a high expectation when I met Ruth Chris or Hillstone Group Restaurant etc. Even the– you go now to the next levels because you’ve experienced that and if there is a hostess and there is a server etc, then I’m– the bar has been set. If you can train your people to be at that level because quite frankly that does not cost a lot of money. That takes a lot of time because you got to hire right. You’ve got to motivate your staff, you have to consistently make sure they’re delivering on the promise that you’ve set.
That’s hard work, we’re not sitting here and saying, “Hey, be more more hospitable.” We understand [laughs] as–
Adam: Is not that easy?
Dan: Right, no it isn’t.
Adam: Also fix your operation, just do it overnight.
Dan: Overnight. There’s empirical evidence about those organizations that commit to hospitality at that level get the hour why they deserve.
Adam: Absolutely. That would have been interesting topic and some research for us to do, would be looking at those casuals. I think specifically in casual dining, outline the brands rank them on a service level and then compare that to sales over the past two years, it’s a long traffic.
Dan: That’s a great idea, you could– because again I believe in it wholeheartedly and we’ve been in enough establishments with our own research to know when it really sucks and the ones that are doing it well. Listen back to Grocery Adam, it’s simple, you mentioned a thing about know your name when you show up. I know why they know my name at the cash register at Safe way because they look at my receipt and says, Mr. Santiana, or it says Santiana, and you can call me Mr. Santy, but it’s trained in. It’s trained in to a retail level worker it can done.
Adam: It’s a smaller touch but it goes a long way.
Dan: It really does.
Adam: I think that’s a place, when I’m at that counter, in that commissary environment and say I’d like to have this–a quarter of this suit and a pound of this or whatever I’m wearing. That person I don’t have much of an engaged experience with that person at grocery. If I sit at a table with my wife and I ask the question about the menu and that person knows the menu well enough to say, “Oh order this way,” Or can make a joke or can suggest something a drink to have with it. That’s the experience we’re looking at.
You mentioned training, with training, I also include workplace culture and essentially happiness. I don’t want to go and be bumped out and I don’t want to go and have a server who’s– people have bad days, fine, but people are there to be taken care of, they’re there to have a nice time. Even if I’m there to have a lousy time, the server needs, at least have the presence to not be pissed off and angry with me just for coming in. I think that’s another part, training has to be part of the culture, training to do service. Training of disposition and the positivity, just exuding that. I think you’ve brought up a Hilllstone such a good example, they do it so well. Everybody is in a good mood, it’s like Disney land when you go in there and it feels authentic.
Dan: Yes. Really it does.
Adam: Lastly here in terms of hospitality I think details. It’s the small things, it’s– If again I find in that grocery environment and I order something that’s pretty made or I’m going to make it myself and I get the ingredients, I know what that plating is going to look like, it’s going to look like hell. Right? I’m going to plate it myself but it’s not going to look very good, it’s not top chef worthy. That’s a detail, even at Logan’s, even at Chilies, some degree of artistry and care about how something is plated to make it look more appealing when it gets to the table. The little touches wiping the rims of the plates, the things that we think of as almost white table cloth, we need to be stepping those things up, so I feel the service. The details of, “Hey you’re ice tea is half done.” I’m going to fill it up before you notice that it’s half done, that goes so far with guests.
Dan: Right, all too often I think that the servers they’re in a rope environment not paying very close attention to what’s up going on around them and wiping that, rim of that late, like you just pointed out because that falls under the important item that we discovered in fandrm_lshapedchangewhitepaper about craveability. When a plate comes to the table that I’m paying, $10, 12, 13 for whatever it is in a casual dining setting, it better look craveable right? Because that’s why I was there. I’m craving Mexican food tonight. When I get there I want that heater sizzling and just, “Oh man I can’t wait to eat that,” verse it–
Adam: You want it just the way it’s in your mind.
Dan: Right, exactly. I think that plays to what you were talking about in the concept of detail.
Adam: We see that the places that do that well, get repeat. They get traffic. People come back as that’s part of the experience and its part of the memory that’s created for them there. I think the next area, hospitality is obviously important but the next area is thinking through theater. Thinking through, and Dan and I joke a lot about theater. We’ve seen some crazy attempts at theater but it’s true now more than ever that, I think even this applies to fast casual as well. What can you in the four walls that you own, that I can’t do at home, that I can’t get somewhere else or even with mealkits? We just wrote a piece on, mealkits and what restaurants can learn there.
What are the things that you’re going to do in your restaurant that are going to make me remember the experience? That could be the way that the bartender mixes the drink or could be something that the servers do, table side, we’ve seen at explosion of table side guacamole which is amazing piece of theater when the service staff is engaged and when they enjoy doing it versus I have to make this and I’m annoyed or I have to do this but I have to do it very fast because I have to get to the next table. If they can answer questions and engage and do it with a little flourish, it becomes almost that [unintelligible 00:18:37] performance that customers really do like and that’s the thing that they’ll tell somebody and you can’t get that in CPG or a grocery environment.
Dan: Which brand is it Adam that does that table side guac, is that Chevys?
Adam: Chevys does it, yes.
Dan: Someone else too I don’t know. That comes under one of my favorite topics as a– this is in my opinion one of the powerful tools the restaurant industry has in their arsenal that grocery can’t deliver on its customization. Not only the theater of that table side work, but I can get the guacamole traditional, I can it with, I don’t know if I can [laughs] [unintelligible] where I can and what I can get it with.
Adam: You’re not an expert in guacamole?
Dan: No, no, I probably need to do some research on that. Clearly all the– in flavor profiles very important to millennials as you know. This becomes an opportunity, customization becomes an opportunity to invite that millennial customer back because they’re looking for diversity, they’re looking for interesting flavors and so forth and so again I could go on for 10, 15 minutes on customization power of it–
Adam: Actually you jump right to a perfect segue into my notes here, because if you think about customization, what we saw in our last dining study and actually in our grocery study. What people love about their own cart essentially is that they can put whatever they want into the cart. When they’re eating at home, versus going out to a restaurant, they can customize it however they want. They can buy the dessert that they want, with the meal that they want, and make a side. If they want to have popcorn as a side dish, and then put some of it on ice cream, they can do that. Whatever comes to their mind however imaginative they are. From a restaurant, from a casual dinning organization, Dan’s right. What can you do to your menu mix, to your products that offer that customization? Even if you’re taking successful items that are your top sellers, and you find a new way to serve it, to repackage it with a different side or with a spicy sauce or something that gives me the feeling that I’m able to customize it. Buffalo Wild Wings are the masters of this. They have two freaking items on their menu [laughs], but when you go in it’s a five page menu, and there’s a lot to look at, and it’s perfect, because you say,”Oh, I get absolute control over this.” If you engage with those servers, that’s another place that does a pretty good job. I order a medium every single time, and then the guy comes out with five different sauces because I asked. It’s a nice way for me to get the sense of that customization which I can never get in a grocery, even though they have wings and they have sauces. But that experience that interplay if somebody’s in line, that’s too hot for me. But I’ll bring you some you try it and tell me what you think. It just makes it fun and it’s part theater, but it’s really part customization where I feel like, “Oh, I got it just the way I wanted it,” because you need to make.
Dan: Exactly. You know that the next big value proposition if you will, that the restaurants can own all the grocery, and I think this may not last very long, but it’s quality perception. There is a lower expectation of quality at the prepared food section of a grocery store, there just is. I’m in a grocery store. I know this was made a a commissary or made this morning by some people back of the kitchen and so forth, so my expectation is low. I’m there for probably value proposition, I’m there for convenience and so I’m not setting a very high scale. Restaurants can use quality as a distinct reason to repeat to come to avoid, not avoid but, if I’m thinking I want convenience, I don’t necessarily need it, but what, “Man, I’ve been eating fast foods for a while now, I want to go casual tonight, I’m going to go over to my favorite brand because I know the quality is there.” It’s a driver, it’s a absolute driver.
Adam: I think you’re so right about that quality expectation. The grocery store, it’s more of a [unintelligible] play, and they’ve stepped up their game and their quality, but it’s really– I think the restaurants do have the higher expectation. What I would say and I think you’ll laugh, and people listening will know, casual dining is the quality really higher all the time. There is some places that do it great, and there are some places that just think,” No I don’t know, maybe the grocery is not that far away, and I’m paying half.” That’s the real barrel, right. Is those lower end or poor performing let’s say that, concepts that bring down the quality expectation, are hurting everybody. That’s a lower tide that’s going out, that’s bringing down the whole category and that’s why fast casual too has been able to rise up because, it’s craveable foods serve fast for a lower price and going dead on against that, that’s valid perception.
Dan: Any answer to the recession problem, looking for that value proposition. I think red lobster– and now I’m not a big customer of red lobster, but they did a great job with the campaign they were doing last year. I’m not quite sure if they’re still running it, but I think I read that they were the single largest purchaser of sea food, which makes sense. They have so many stores and what not, and so they showed that they were having a direct relationship with the sea, where their products’ coming from, and really characterize that in their food and then showed the craveability at the restaurant. Smart, very, very smart.
Adam: It’s a smart way to humanize it and show off their– get credit for all the work that they do to sauce, and then put faces behind it that say,”Look, these people care about this.”
Dan: Exactly. The last thing I was going to mention today Adam, was– again, this is your arsenal, that’s what you have to think about. What’s my arsenal?
Adam: What tools do I have?
Dan: Exactly. Innovation, innovation. Innovate, innovate, innovate, and innovate within your menu. That’s the beauty of it, we see brands, and we’re going to talk about this on another editor at another time, but we see brands go off and try to do a different delivery mechanism or they are going to have a kiosk now, or they’re going to do something else to combat the competition. Innovate within the menu you currently have.
Adam: You figure out how to maximize that menu, and do things that only makes
sense in your four walls, that’s the key. Sometimes innovation is just, “Me too.” Where we do this, but their burgers are selling, so we are going to make a burger. Well, that only works if it makes sense as an extension for what’s already on your menu. You watch consumer’s faces when they turn over that page, and all of a sudden there’s a page of Greek offerings, and you’re Chili’s. They are confused. Their head tilts like the RCA dog and they don’t know why that’s in there. It’s not a good innovation.
Dan: Did I hear that Chipotle’s are going to start selling hamburgers? Is that correct?
Adam: Yes. That’s a great example. They’ve been talking about that for a year.
Dan: Yes, so it will be interesting to see if they can make that play out. They don’t serve hamburger, as far as I know. I know they have pork and carnitas and chicken.
Adam: They don’t currently have the hamburgers.
Dan: Yes, so all of a sudden you’re introducing a whole new product, beef and you’re going to serve a burger. Now, Granted, if you want a burger, and I want Chipotle–
Adam: What’s the veto killer, right?
Dan: Yes, we lost that, but my question is, once the researchers says that happens four or five times.
Adam: Yes. I don’t have a lot of faith in them as a burger maker either. They don’t credibility of being a burger place.
Dan: Yes, exactly.
Adam: Okay. I think We’ve talked this one out, and thank you all for listening, thank you all for joining us once again. Please if you have counterpoints, or you want to agree and pat us on the back, especially me, you can tweet at us @fandrm on Twitter, you can email us email@example.com. Please subscribe and tell your friends about this podcast. Thanks for listening.