MADISON, Wis. -- Targeting a particular group of customers and giving them what they want are prime ingredients for profitability in the fresh-meals arena, but few supermarkets are doing what's required.
That's one basic conclusion of a study commissioned by the International Dairy-Deli-Bakery Association here.
The research -- conducted by Technomic Inc., Chicago, and McMillan/Doolittle, Chicago -- takes a hard look at successes and failures, and names some of the winning practices employed by such meals leaders as Wegmans Food Markets, Ukrop's Super Markets and D&W Food Centers.
"There are certain things to do right, but it's important to note that there's no one answer or solution to developing a meals program. Each supermarket has to decide what fits their operation, their budget and, most importantly, their customers. The customer component was missing from some of the earlier studies," said Carol Christison, the IDDBA's executive director.
The new IDDBA study, which also summarizes existing research, explores pitfalls supermarkets have encountered in their fresh-meals endeavors, and concludes that, in spite of the risks involved, the convenient meal solutions/fresh-meals segment clearly offers tremendous opportunity for innovative and disciplined supermarket operators. There are profits to be made, but low sales volume nips them in the bud, the study points out.
Indeed, the researchers said that poor profitability -- estimated at an average minus 2% -- and massive shrink -- from 10% to 30% -- in supermarket CMS/fresh-meals programs stem from low sales volume. And sales are kept low by supermarkets' failure to meet consumers' expectations and from trying to offer too much, they added.
"Poor profitability stems from two basic faults: 1. CMS/fresh-meals programs fail to meet expectations and needs of consumers, resulting in low sales volumes and excessive shrink, and 2. Operating systems (including product, labor, facility and equipment) are designed to facilitate massive product selection, rather than focusing on consumer demand."
The latter factor reflects the importance of targeting a particular customer base, the researchers said.
"Supermarkets should not attempt to offer a mass selection, but instead focus on offering a reasonable selection of product for everyone within their target customer groups. At a bare minimum, supermarkets should try to offer every man, woman and child four to five center-of-the-plate alternatives for each daypart," the report states.
Neil Stern, a partner in McMillan/Doolittle, stressed the need for each retailer to keep its variety within the scope of its expertise and develop a signature product or other point of differentiation.
"The grocery mentality has been to offer everything for everybody but it's awfully hard to be known for something if you have everything," Stern said.
"When I go to Subway, I know they're going to make me a sandwich," he added.
Stern pointed out that the leaders in supermarket fresh meals believe that food service is part of a differentiation strategy and they use it to boost their stores' image and their brand.
This study, as well as previous research, shows that consumers demand convenience and quality. The leaders in supermarket fresh meals have taken steps to provide those, the researchers said.
Simple, quality fare tops the menu at supermarkets that are ringing up adequate HMR sales, the researchers said.
"Supermarkets that are able to present simple, but appetizing foods, consistently are the ones creating a steady customer base," they said.
The use of central kitchens for producing prepared foods has helped Ukrop's and D&W Food Centers, Grand Rapids, Mich., maintain the consistency of their products, the researchers pointed out.
And those retailers, as well as other leaders, have addressed customer convenience with separate checkouts in the food-service department, seating, and an entrance and exit door located near the food-service area.
The study also points out that commitment to a CMS/fresh-meals program is a necessity and that a thoroughly developed business plan must precede the launch of a successful program.
The researchers conducted extensive field interviews as well as mail and telephone surveys. They also compiled existing research. And they found that three basic strategic postures exist among retailers: leaders, followers and waiters.
The 48-page study published by the IDDBA describes each strategy and gives the pros and cons of each. The report details the planning process, from positioning in the market to implementing best practices.
The study is available to IDDBA members for $395; to nonmembers, for $795. Shipping and handling is $7. Call the IDDBA at (608) 238-7908 to order.
