COLORADO SPRINGS, Colo. -- One pound of potato chips costs 200 times more than one pound of potatoes.
The potato-to-chip ratio shows as well as anything that consumers are willing to pay more for prepared items than for comparable ingredients. And it means that while the supermarket industry may not be quite up to speed in turning prepared foods into high profitability, the potential is there.
At least that's the reasoning of Bill Main, founder, and Barbara Geshekter, president and chief executive officer, of Bill Main & Associates, Chico, Calif., both of whom presented a study about home-meal replacement solutions at the Food Distributors International Midyear Executive Conference here earlier this month.
Main said the time is at hand for the supermarket industry, particularly independent retailers, to take a close look at upgrading prepared-food offerings into signature lines -- meal offerings that are, in effect, store brands.
"Retail grocers may be poised to capture the lion's share of this growing market," Main said.
Geshekter told the audience that the key to profitability is "utilization -- there's no need to throw away product."
Shrinkage is often cited as the factor that separates restaurants from supermarket prepared departments in terms of profitability: Restaurant operators view ingredients as elements that can be deployed into menu offerings in various ways while supermarket operators see ingredients as items to be sold or discarded.
Main said that "product integrity is the last piece of the puzzle. Consumers don't want old prepared food. It's not restaurant quality. The biggest challenge now is to change the perception of product in consumers' minds."
In the restaurant business, customers believe value is delivered, and value must be delivered at the supermarket level too: "Value is believing you got more than you paid for," Main said.
Here's part of the presenters' prescription for building an HMR business in supermarkets: Conduct informal market surveys: Don't try to persuade customers to buy what they don't want. Listen, and ask them what they want, and conduct a market survey. As the program gets under way, focus groups and comment cards can add to the knowledge about what consumers want.
Consider the local culture: Locally grown, organic, healthy and environmentally friendly products are important to many prepared-meal shoppers and also contribute to product integrity.
Analyze location: Make sure the prepared-food department is located to contribute to customer convenience, not the convenience of store operations.
Create a profit scenario: Determine whether profitability can be achieved by looking at price points, setting a budget. Later, track sales and profits and be ready to modify. Partner: Be alert to opportunities where relationships with suppliers could add to the value of the food offering. Resist viewing the situation as being completely cost-driven. The money will be made on selling, not on buying.
Offer samples: Customers are best enticed by sampling a variety of products to help them decide which one they want. Make sure employees try the product too so they can talk it up.
Tone up packaging: High-quality product is implied by high-quality packaging, so make sure packaging is attractive. And, in the same vein, make sure in-store signs are neat and professional.
The FDI presentation is largely contained in the booklet titled "Signature Solutions: A Retail Grocer's Guide to HMR."
