INITIATIVE 3:Test the Restaurant Business

MARK HAMSTRA

Opening a restaurant might seem like a bad idea these days, given consumers' shift away from dining out in the midst of an uncertain economy.

But some supermarkets apparently see a foray into the restaurant business as an ideal learning lab to improve their own prepared-foods offerings. Safeway this year opened a so-called “fast-casual” restaurant in Redwood City, Calif., under the Citrine New World Bistro banner, which observers said could provide it with an opportunity to hone its food-service expertise.

“They are trying to learn the restaurant business, so they can do prepared foods more effectively than the industry has done with home meal replacement,” said Jason Whitmer, an analyst with Cleveland Research Co.

Citrine offers an eclectic menu of globally influenced cuisine, priced at about $7-$8 for sandwiches and “pizzettas” and $10-$14 for entrees. It is being managed by several veterans of both the chain-restaurant industry and fine dining.

The 5,000-square-foot eatery, which opened in June, also boasts that its offerings are made using three of Safeway's own store brands: O Organics, Primo Taglio and Rancher's Reserve, leading some observers to speculate that even though the connection to Safeway supermarkets might not be evident, the restaurant may be serving as a billboard for those private labels.

In the opposite corner of the country, Publix Super Markets in Lakeland, Fla., has been helping in the expansion of Crispers, a restaurant that also falls into the fast-casual category. Publix first invested in the chain in 2002 when it had 13 units, and has since helped Crispers expand to 43 locations by lending expertise in several areas, including real estate and marketing, Crispers executives previously told SN. However, it was not clear what benefits Publix was garnering from its position in Crispers.

Ron Paul, president of Chicago-based restaurant consulting firm Technomic, said such investments make the most sense for supermarket operators that have little experience in in-store meals preparation.

“If everything in their store has been commissary-prepared, and they want to really learn about in-store prep and inventory and everything that goes on within the four walls of a restaurant, then that's one thing,” he said. “But if you've already got ovens, and you are doing your own baking and so forth, there's probably less that can be learned.”

Given the fact that restaurants generate a fraction of the sales volume that supermarkets do, it probably doesn't make sense for supermarkets to invest in opening restaurants as a business opportunity, Whitmer said. However, in so far as food retailers may be able to expand their in-store food-service offerings through the knowledge gleaned from such operations, venturing into the restaurant arena makes sense.

“Food service is less than 1% of supermarket sales now, but if they can add another 1%, that's significant,” Whitmer said.