Surmounting Retail Foodservice Sourcing Challenges

Foodservice at retail is a hot commodity these days.

Consequently, retailers who ignore the category do so at their own peril, according to a recent report from the Food Marketing Institute (FMI).

“In the last five years, food spending for meals prepared at home witnessed 5% growth, while spending on meals prepared away from home increased 20%, according to the Bureau of Labor Statistics,” information from “The Power of Foodservice at Retail—Part 2” says. “Spontaneous dinner decisions are now an inherent part of the shopper psyche, and a consequence is lower average weekly spending in the grocery store.”

Recovering and ideally boosting that “average weekly spending” is the goal. But as important as retail foodservice has become, the sourcing challenges it presents can be daunting—due in part to what Todd Bernitt, VP of global services for Robinson Fresh, calls the “messy supply chain.”

“Consumers want variety, but variety has the potential to create a challenging supply chain with a lot of waste,” Bernitt says.

Couple that demand for variety with constantly evolving food trends and shoppers’ ever-changing taste preferences, and the extent of the challenge becomes clear. How do grocers get the freshest ingredients available for every dish they offer? How can you they be sure everything they need for a signature dish will be available when they need it? And what about those rotating weekly specials and limited-time offers that customers expect?

Simply put, the sourcing challenge is making sure mechanisms are in place to get the right products to the right locations at the right time at the right temperature and at the right price—which is why retailers need “a consistent and reliable fresh supplier” if they want to succeed, Bernitt says.

Evaluating Foodservice Readiness

As important as foodservice has become (and by all indications will remain for the foreseeable future), it’s important for grocers to make sure they’re really ready to implement a foodservice component. However, determining readiness isn’t a simple task. “There’s no historical data or trends for retailers to gauge sales and inventory data off of, so this is a more challenging space [than other areas in the store] to think through what is necessary,” Bernitt says. “Traditional retailers are used to working off an ad pull, which involves 18 to 20 ad pulls annually.”

Understanding “the two biggest truths of retail foodservice supply chains,” he says, can help grocers gauge their readiness and ultimately help them overcome the challenges. Those truths? Supply chains between traditional retail and foodservice/prepared foods are very different and should be treated as such; and the supply chain must be truly “just in time.”

"Foodservice SKUs on retail menus are completely different than traditional retail SKUs. The typical retail supply chain will carry the most common grocery SKUs, but they might not carry the more interesting, variable items on the rotating menu,” Bernitt says. “The retail side won’t make inventory space for them because they only have so much space. This makes everything ‘just in time,’ meaning everything must be made that day or the day before. A consumer will only buy very fresh when it comes to foodservice and prepared foods, but most retailers are used to leaving produce on the shelf much longer because it stays fresh longer. This is another challenge. Do they have someone on staff to maintain this rotation?”

Before embarking on the road to in-store foodservice, Bernitt advises retailers to consider three questions:

1. Do they have a consistent and reliable fresh supplier?

2. Is their supply chain mode-neutral and optimized? “A mode-neutral logistics supply chain from ingredients to manufacture should be established,” Bernitt says. “Mode-neutral is important because, dependent on quantities needed and weather, there will not be a constant single solution.” (For more on the mode-neutral supply chain, see page xx.)

3. Does the retailer, or whoever is manufacturing their goods, have full visibility to the inputs (often a raw product) and outputs (what consumers will ultimately buy) of all the moving parts?

Outside vs. In-House: The Pros and Cons

Deciding where to source ingredients and then turn those ingredients into the foodservice products customers ultimately buy are decisions every retailer must make. As the FMI study points out, “In grocery deli/prepared foods, one size fits no one.”

The good news is that consumers don’t have a strong preference for where the dishes are prepared.

“Shoppers’ perspective on food prepared at a central kitchen versus made in-store does not decidedly give the advantage to one or the other,” “The Power of Foodservice at Retail—Part 2” says. “The largest share, 44%, believe there is no difference based on where items are made, and a fairly equal shares believe a central kitchen production is better than made in-store.”

Deanna Stephens, culinary chef, key accounts, for Jacksonville, Fla.-based Acosta Foodservice, says she has seen most retailers turn to outside suppliers during the more than 30 years she has spent working in the retail and foodservice sectors.

“By using an outside supplier, you can piggyback on products that are already being produced for other retailers, competitive and noncompetitive,” Stephens says. “This allows for lower pricing than you can do in-house, efficiencies and in-stock conditions. Pulling from a supplier’s existing portfolio of products will also shorten the speed to market dilemma.”

There are cons to using an outside supplier, too. “You may not be able to deliver the unique innovation for your customers that you would be able to by producing in store or via a commissary,” Stephens says.

Collaboration Is Key

Whatever choice retailers make regarding their foodservice/prepared food operations, and however they decide to source the items they offer, collaboration is the key that will unlock the door to success.

“The retailers that do the best job with sourcing spend the time developing a complete program on their side that will align well with their marketing strategy and serve their customers the best—then it is presented to the supplier,” Stephens says. “This allows the supplier to know exactly what the retailer is looking for and wanting.”

Portland, Ore.-based New Seasons Market—which operates 21 stores in Washington, Oregon and California—works hand in hand with suppliers. Recognized as a champion of the regional food economy, New Seasons is a model of how collaboration can help retailers achieve success in the foodservice arena.

“Local partners are key to freshness and transportation costs,” says Hilary Aspy, prepared foods program category manager for New Seasons Market. “My team has the advantage of New Seasons’ long-term investment in our local vendor relationships. This enables us to leverage existing supply chains and trust that ingredients will meet our quality demands.” Aspy credits Krista Anderson, the company’s assistant program and category manager, with fostering key relationships for the prepared-foods departments.

“She has worked with our local suppliers for years to source local ingredients,” Aspy says. “A chef herself, Krista has a focus on chef collaboration and has been a crucial player in the expansion of our prepared food offerings.” 

Retailers that commit to a collaborative approach, such as New Seasons, are those most likely to reap the rewards foodservice at retail can deliver.

“When retailers and suppliers partner together and build innovative programs that are ahead of the trend, there is a better chance of being first to market and an industry leader,” Stephens says.