though I know they don't like to refer to themselves as fast food, effectively, that's what it is. It might be quality fast food, but it's $40 a family, per night. You can go into an Albertson's or a Ukrop's and spend $40 if you wanted to. You can also walk out with a nice meal for a family of four for about $15 at Ukrop's.
he lion's share of the meal solutions market is the perceived quality differential. No matter how good the quality is, people perceive the quality to be bad. They assume the food has been lying around all day and can't be as good as at Boston Market. Yet I think the tank is half empty and half full there. The opportunity is if you establish good quality and promote the program, you can overcome that problem. I've made it my business to use a cast-iron stomach and try to sample chicken in supermarkets all over the U.S. Most of the time, it's as good as Boston Market's and it's always much cheaper. When it's not been as good, it's been pretty close.
So [supermarkets] have convenience and some superior economics in terms of staff in the store, who can work on other stuff instead of having to work eight-hour shifts [on prepared meals]. Workers are underutilized outside of main meal times at Boston Market. So there's no reason [supermarkets] can't produce equal or better quality product that's a lot cheaper and has the image of being a good quality product.
Husson: You have a problem here of trying to work out what the American consumer actually needs or wants or considers to be convenient -- and does that mean [consumers] actually doing any cooking?
What some supermarket retailers are saying -- and some architects in New York are saying -- is that people don't cook anymore; they don't buy ingredients. The architects in New York are saying, 'Well, with that kitchen, we'll put another bedroom in there and put the rent up another $500.' It's because people would rather go out to eat or warm food up.
What's happened in the U.K., and what's now actually happening in France, is that the prepackaged, chilled recipe dish with a huge variety -- maybe 400 SKUs in a Sainsbury or Marks & Spencer, going from Greek to Chinese to Indian food or to any other kind of food -- has taken over all the meal replacement business that supermarkets do. It's chilled -- the chicken was actually running around three days ago -- and it's very fresh. It's produced in a cold chain environment, which means +/-1 degree centigrade, and is shipped on cold chain trucks and displayed inside the chilled cabinets in the store, with photographic imaging. There's no sort of cooked, warmed-up congealed mess in the front of the store.
In the U.S., the problem is that no one makes this stuff. That's a huge problem. I was standing inside a Sainsbury store in South London with Joe Pichler [chairman of Kroger Co.] in the beginning of this year, looking at the array of recipe dishes, which ran about three lines down. I said, 'This is amazingly impressive, isn't it Joe?' And he said, 'Yeah, I think it's really impressive -- and so do the 70 Kroger buyers that have been through the store in the last three months.'
So clearly the supermarket industry, as defined by Kroger anyway, is taking this thing very seriously. This chilled meal replacement is a vehicle for private brand and is an opportunity for retailers to make a quality statement about their business, too. It's an area of huge potential.
But the question is: how do you produce it, and how do you transport it? Off-site commissaries are obviously a potential. But if you only have four or five stores in the market or you're a small operator, an off-site commissary is just not economical. If you're Kroger and you're in Atlanta, then an off-site commissary may well work. This, again, could be one of the reasons why big companies with big stores may start to distance themselves from small companies with small stores.
EDITING GROCERY ASSORTMENTS
What is the vision for the rest of the store if the fresh food and meal solution bandwagon keeps rolling? Going forward, are we seeing a different animal when we talk about supermarkets, or will it continue to offer a full breadth of products?
Levin: I think supermarkets are definitely going to serve the full breadth of products, with a particular emphasis on perishables, because there are just too many stores out there that are selling everything else in the middle of the store.
Even if you look at Wal-Marts that aren't supercenters, they're selling many grocery items, and have been for years. Look at drugstores now. The drugstore industry has recognized the convenience food category, and they're adding that category as fast as they can. And the convenience store industry has gotten smarter.
So supermarkets have to position themselves from their strength. And their strength is perishables. You see a lot of them focusing on the perishables, the seafood, the meat and prepared food where it makes sense. Giblen: It's actually a vehicle for independents to remain very resilient. You can edit your grocery down to a minimal selection and use your space for perishables and meal solutions and remain very viable, for small stores. I've seen a lot of that. It's a salvation for the industry, and something the big chains have to focus on.
Husson: I think the full range of center store is 20% too big right now, just in terms of [stockkeeping units] and whatever people go through; there is so much cleaning up to do in categories. The problem is the industry has been buyer-driven; buyers have gone mad in categories. If you go into a Safeway in San Francisco, there are something like 69 SKUs in mustard. Is that the right number? Probably not. Probably 40 would give you an adequate range. So the full range is going to be squeezed back.
Comeau: Mark [Husson] is right. The critical distinction between the food chains and maybe other retail sectors is that the food chains don't do any meaningful activity-based costing at all. They don't have a good idea. Only a handful of companies know what their true operating costs are in getting a product through supply chains.
They make decisions based upon a variety of factors other than what's economically the best thing to do. I'm not talking about what the consumer wants, but what [supermarket operators] are presented in terms of deals, in terms of their gut feeling on what their competitive position should be -- in the mustard category, for example. It's not really based upon activity-based costing or a even a subset of activity-based costing that would prune out -- 20% or 10%, whatever the number is -- a lot of the SKUs that still clutter the shelves and lose money for chains. TIGHTER REIN ON CATEGORIES
How effective are the category management programs out there in controlling product assortments?
Giblen: It's getting to be a very big thing. Safeway has delivered stupendous earnings, with the main surprise being the quick gains from category management.
Husson: That just highlights how dire everything was before. Comeau: Exactly, and it's category by category. Look at the salty snacks category: everybody is hitting home runs there. If you look at the condiments category, there might still be a lot of work
