EXECUTIVES WEIGH RECIPE FOR FOOD-SERVICE FUTURE

BRENDA LLOYD

ATLANTA -- How will supermarket and food-service executives adapt to the continued blurring of the border that separates the two industries?

At fast-food chain Churchs Chicken, it means pushing for more home-meal replacement partnerships with such supermarket chains as Kroger Co., Cincinnati, and Fiesta Mart, Houston, where some Churchs' units already operate.

At wholesale grocery distributor Supervalu, Minneapolis, it means developing a total food-service operation orientation and methods to help retailers provide better quality food.

And for food-service distributors such as Dot Foods, Mount Sterling, Ill., the changes could mean treating supermarkets like a new version of today's minimall.

Speaking at a panel session during a conference here on HMR sponsored by Food Distributors International, Falls Church, Va., were executives representing those firms. Hala Moddelmog, president of Atlanta-based Churchs Chicken; Bob Beckerman, corporate director of deli/bakery operations for Supervalu; and Patrick Tracy, chief executive officer of Dot Foods all discussed how the new world of HMR is affecting the operating strategies of their respective companies.

Moddelmog said she wants her company to be doing business wherever people congregate, and that desire is pushing the restaurant chain to enter alternative venues and to explore new ways to get consumers to buy its food.

Moddelmog told her audience, "We're going to be poultry to the people. We need to put food where people are. We're looking at where people are on a weekly or daily basis. There are some retail frontiers that haven't been tapped yet and, if we can be the first, we'll have a leg up on things."

Churchs' domestic sales have been growing rapidly the past few years, from $439.1 million in 1993 to $526 million in 1996. International sales totaled $667.8 million.

Moddelmog said she plans to achieve $1 billion by 2000 primarily through alternative venues, which already have pushed sales upward.

This year, Churchs plans to open 110 restaurants, half of which will be attached to or inside convenience stores; the chain already operates 110 of these.

The supermarket restaurants, which maintain a simple, core menu and concept, are still in experimental stages, Moddelmog said.

Studies show that they are attracting Churchs' traditional customers, but not doing as well in attracting supermarket customers.

Those units aren't hitting the dinner peak as well as Churchs wants, and the company wants them to attract more female shoppers, she added.

Churchs is currently testing its "Four Star Takeout" concept, a model that executives hope will attract customers in supermarkets as well as within Churchs outlets. The concept is currently undergoing a test run.

"We're thinking of a ready-to-heat type of product," that would include chicken, such sides as coleslaw and potato salad, desserts, and beverages such as iced tea and sodas, merchandised in a refrigerated case, Moddelmog said. "We're trying to put in that case everything that makes a complete meal."

Another concept being tested is a grab-and-go kiosk that Churchs can put into various venues, including mass merchandisers like Home Depot as well as convenience stores and supermarkets, Moddelmog said. Churchs is testing them in some convenience stores, and is looking for more partners, she said.

The Churchs executive also stressed the importance of continuing to serve restaurant-quality food, as it moves into different venues, and that Churchs now is developing new packaging and technology to raise the food quality to a restaurant level.

"I need to make sure that the first quality of my brand stays where it needs to be," she said, adding that she doesn't want to lower customers' expectations.

To the supermarket executives in the audience, she said, "I can be a threat to the supermarket industry if we're seen as taking an area where you can make more money, or we can be seen as someone you welcome because we're strategic partners. We're the expert in restaurant-quality food service. Let us come in and do that and fulfill the needs."

Supervalu's Beckerman said that while retailers have identified HMR as an important initiative, supermarkets are not currently being designed or positioned to function as food-service entities.

Wholesalers like Supervalu, which owns more than 470 retail stores and supplies nearly 4,000 others, "have to rethink our operation and we've tried to do that, and thoroughly orient ourselves in food service."

Addressing competitive challenges, Beckerman said that the deli-bakery needs to offer better, fresher and more nutritious food than quick-service restaurants.

To do that, supermarkets need to stop overcooking food, which he said has been a significant problem.

"We [wholesalers] also must develop food-service sales and service strategies that address HMR for supermarkets that convey competency, adequacy and confidence for the customer base," he continued.

Supervalu customers' needs include inventory control, electronic ordering, costing, nutritional information and training.

The wholesaler is focusing on cost improvement, including waste management and removal to increase profitability in the operation, he said.

Wholesalers must also rethink how they execute at the store level and what it means to satisfy customer needs. In addition, wholesalers must develop the capability, capacity, facilities and systems to deliver competitive solutions to their customer base.

"Limited menus and seasonal flexibility is the way we're trying to pursue this opportunity," he added. "We have to have the variety available to be able to deliver this menu that the customer wants.

"While we're doing this, we're trying to develop and offer competitive food-service expertise that can produce satisfactory results in a supermarket environment," Beckerman said. "It isn't easy."

Supervalu is trying to adapt its merchandising and promotional expertise to food service by adding culinary professionals to its staff and training employees to manage, deliver and execute a food-service package properly.

Finally, retailers must also be educated to execute a consumer-satisfying HMR program that contributes to store profitability. And, he concluded, food safety, sanitation and freshness must be moved to a higher level.

"We have to have a lot of resolve because nothing comes easy very often," Beckerman concluded. "And the last thing that has to be there is leadership from top and middle management."

Tracy, speaking for distributor Dot Foods, described just how much supermarkets have changed and will continue to change to accommodate cross merchandising.

"Is today's supermarket tomorrow's minimall in disguise?" he asked. "We're time poor. We want to go to one place and do everything, and the supermarket has done that. You can work a fax, make photocopies, get a pizza. They're really minimalls, and in minimalls there are a lot of opportunities for fast food and restaurants."

The question for the supermarkets, he said, is whether they should handle the food service, or work with an outside company. He recommended that the experts in HMR handle the burgeoning business for supermarkets.

"Let [the experts] figure out the channels of distribution and so forth," he said. "Run the business that you know," and let outside providers supply ready-to-heat and ready-to-eat meals while paying supermarkets for the store space used, Tracy said.

Tracy questioned how HMR food products will flow -- through grocery wholesalers, food-service distributors, or some other, hybrid channel. Grocery wholesalers have already established solid customer relationships with retailers, he said, adding that it seems natural to him that they could provide HMR service to stores too.

The grocery wholesalers have the advantage of an established distributor pipeline moving products through the stores and the lowest cost channel.

However, the challenges are that as HMR adds a significant amount of stockkeeping units to shelves, it calls for new vendor relationships and marketing practices. Unfamiliar support services are also required for successful food-service operations, especially those required for meeting restaurant standards of quality.

For food-service distributors, the opportunities include an existing stock of the SKUs required for HMR foods and established food-service expertise. The category also represents a significant new volume opportunity for them. "Everyone is looking for new business," Tracy said, "and this is a viable way to get it."

However, buying through food-service wholesalers means higher costs, Tracy said, because of the structure of the industry.

Also, the potential customer is "captive" to the wholesaler, and additional support services are needed. "This is a foreign area for most food-service distributors," Tracy said. "They'll need to gain some additional expertise."

Other channels to handle HMR could include convenience stores looking for additional growth and expertise to pursue the supermarket end of the business, or HMR distributors, Tracy said.

The manufacturers also have challenges to embrace in pursuit of the HMR market, especially in deciding what division handles what. For example, the customer relationship is with the retail division, but the food expertise is with the food-service division, which also is designing food (including restaurant-type prepared foods).

Likely, it will be a combination, Tracy said, but added that logistics is another area for decision-making, not to mention who will be developing new products.

"The manufacturers that stepped up to the plate and made decisions on how to address the market and develop strategy to handle it were the successful ones," Tracy said.