“Sloppy Giuseppe” became a regular at my dinner table when I moved to London in 2001. Reassuringly PizzaExpress branded, it stood out among the other ready-made pizzas in my local Sainsbury’s and is one of the first grocer-restaurant collaborations I remember as a consumer. With revenue of these retail products exceeding £100m last year, according to the latest Propel update, and with the launch of a new pod concept in Tesco, PizzaExpress cements its leading position in the contested overlap between restaurants and supermarkets.
The past decade saw supermarket food sales come under pressure from an expanding casual food sector and the ease of ordering online. Consumer preferences and habits changed, with the average person in the UK spending less and less time in the kitchen – and money on groceries. Instead, we started to eat out several times a week, turning it from an occasion to an everyday occurrence, or order in, maybe, to be eaten alongside the latest Netflix hit.
The restaurant sector – in its many forms – was the winner, particularly casual and fast casual dining. Then came covid, and now come the grocers who increasingly seem to have got their act together. In Think Hospitality, we support leadership teams address strategic food and beverage opportunities and challenges. Our clients are restaurant groups, hotels, retailers and investors across the UK, Europe and the Middle East. And we increasingly see supermarket action on the agenda.
While supermarkets and super tankers aren’t nimble, they have tremendous momentum once they turn, and many supermarkets have now decided to do something about their loss of “share of wallet”. Remember, the whole food sector is enormously competitive, and even subtle shifts in consumer spending have severe consequences for a supermarket’s business model, so it comes as no surprise that this has been high on big retailers’ strategic agenda over the past few years. One can only imagine the sums spent on projects with Boston Consulting Group, or my dear old colleagues at McKinsey.
As the magazine Forbes wrote recently: “Over the past year, UK retailers have exhibited an unparalleled appetite for innovation to compete with restaurants, hospitality venues and specialised food service operators.” And, we could add, against meal box concepts such as Gousto that briefly flourished during lockdown.
The counter offensive has several battle fronts:
• Supermarkets and, increasingly, convenience stores move aggressively to capture the UK lunch trade with their meal deals – often priced to act as loss leaders to entice shoppers to buy higher margin items along with their lunch. Choosing an alternative is now increasingly seen as a treat for many people and only fast-food outlets can match the perceived “value” of a meal deal.
• Supermarkets are also rearranging their core offer and closing down fresh food counters such as butchers and fish mongers, often replacing them with shop-in-shop to-go offers. KelliDeli, for instance, has flown under the radar even of many food and beverage insiders to become Europe’s largest sushi brand, with close to 1,000 outlets in supermarkets across Europe. The sushi is hand-made on site and the stores are mostly operated by independent franchisees with entrepreneurial energy, under strict franchisor supervision and leveraging the company’s purchasing power in the crucial salmon trade.
• We see a general lift in the quality of ready meals and restaurant-quality frozen food – often in collaborations with restaurant brands who, prior to covid lockdowns, would probably not have gone down this route. Hawksmoor and Ocado is one example, while Iceland and Sainsbury’s with TGI Fridays and Greggs are others – showing that grocer-restaurant tie-ins can work across the price range. Restaurant-branded condiments and sauces promise to pep up homecooked meals; and branded bread (like Gail’s in Waitrose) peps up the grocer’s foodie credentials. M&S’ Gastro Pub range is another example, tying the value proposition.
• Several supermarkets in Denmark have started to utilise their excess “free” space and convenient location to build dark kitchens and compete in the delivery game without risking their own brands in the process.
What happens next is the supermarkets getting down to the nitty-gritty of optimisation: getting the pricing, promotions and portfolio right. All those small tactical measures that large corporates are so good at with their vast amounts of data and armies of analysts. Tesco launched 155 novel food-to-go items in 2023, according to the Forbes article, and Waitrose underwent a comprehensive revamp of its food-to-go offerings, bolstered by the introduction of a £5 lunchtime meal deal that is said to have tripled sandwich sales. In other words, expect more aggressive innovation from the supermarkets in the years to come.
So, what does this mean for restaurateurs? In our view, depending on the market and circumstances, there are both offensive and defensive measures to be considered. The defensive tactics come down to the heart of hospitality. There needs to be good and compelling reasons for people to choose restaurant (including delivery) over grocer. Now is probably a good time to give your brand or group a thorough MOT to find out where and how the offer can be improved. We see a lot of inertia in tweaking concepts, optimising price points, engineering menus and upping staff training to really deliver on that “human experience” factor.
And maybe you should go on the offense. You won’t stem the tide, so why not ride the wave? If we are right that food retailers are only just getting started, there will continue to be a number of opportunities for restaurant brands to collaborate with grocers for shelf space or even outlet space. There are many examples of this, such as the renowned restaurateur Asma Khan’s restaurant Darjeeling Express partnering with Ocado.
This is not an easy way out, though. Getting products listed, then sold on a recurring basis and scaling up production if things go well (while earning a margin in the process) all pose challenges that even dedicated consumer goods companies struggle to overcome. But remember, branded products don’t need to be on the shelves in Tesco nationwide to add value – being found in local grocers, delis and specialty shops (if one’s business is local) can help cement a strong local position. My partner in Think Hospitality, James Hacon, explored this topic in more detail in “Restaurant diversification strategies – moving into retail” in May 2023, which you can find on our website.
For people wanting to explore this route, we recommend treating it as a proper new venture and getting someone on board who knows this game, either as an advisory board or a dedicated team or person. It takes commitment and investment. There are also companies out there worth talking to, like Young Foodies, specialising in helping small but promising brands navigate the vast and stormy sea of grocery retail.
Another strategic option that an increasing number of brands explore – not just celebrity chefs and nationwide brands – is international expansion. One benefit of operating in a highly competitive market like the UK is that the core business side is often stronger than what is found in many other markets. Concepts and operations are generally sharper, and technology more widely adopted. This may not be enough – or be the right route for your brand – but it is an option worth exploring. We are working with a number of brands and restaurateurs to develop formats that will work internationally, developing road maps for going abroad and finding the right local partners to ensure proper win-win relationships.
In any case, most foodservice chief executives would do well to develop a good, hard and fact-based perspective on their strategic options for when their lunch is about to be eaten by a more aggressive supermarket sector (pun somewhat intended). They may be going for more than just the lunch.
Michael Ingemann is the chairman of Think Hospitality Consulting, specialists in growth, performance and internationalisation strategy for multi-site hospitality brands. This article first appeared in Propel Premium.
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