I’ve been helping retailers and quick-service restaurant’s build viable foodservice programs for more than 25 years, and I was thrilled when CSP asked if I could review the results of its recent retailer study about the State of Foodservice. And I’m pleased to report the results paint a picture of an industry that is eager to grow the category and make the investment to make it happen.
Let’s dig into some of the numbers
Food made on-site, beverages and packaged foods are certainly getting the investment they deserve from retailers surveyed, with 92% of chains investing in this segment. While investments in food made on site is the largest category invested in by retailers, 29% of retailers also called out a quick-service restaurant (QSR) franchise being used to drive the food business model.
The growth of foodservice is prevalent throughout the chains that have invested in the segment. Within the survey, 75% of the chains saw foodservice sales grow, with 39% saying they were up significantly. They are further optimistic about the future, with 80% expecting the category to continue to improve going forward.
In addition to overall foodservice optimism, dispensed beverages were especially called out for growth including core categories, but there is also a lot of enthusiasm around the growth of specialty coffee, frozen beverage, premade specialty coffee, made-to-order frozen beverages (e.g. smoothies and milkshakes) and specialty coffee drinks. These last categories show that retailers are investing in platforms that can rival QSR level quality and service.
This is great news for the convenience channel as consumer trends continue to embrace elevated and innovative food and beverage platforms in the convenience channel. While this needs to be planned carefully as it adds operational complexity, brands are seeing the positive results of the investment.
Where retailers are investing
Wisely retailers are planning to invest in dayparts, marketing and digital platforms to drive their business forward. This investment complements the investment in food platforms and innovation. These tools will drive awareness of the new products and platforms and accelerate trial of the new items.
Loyalty programs, meal deals, social media marketing, and limited time offers are being embraced as marketing tactics to drive their business. This is a very positive trend as the innovation and improvements need tools to drive awareness and trial.
Mobile ordering, third-party delivery and touch-screen kiosks, and carryout are being invested in to accommodate the guests experience—giving them options for ease of ordering and efficiency of their time. Higher quality ingredients and made-to-order items are also getting investment to highlight a better-quality food message.
Retailers are a bit more cautious in regard to specialty and health-forward food platforms. What they have invested in, to a certain extent, are low-calorie/low-fat options, locally sourced food products and health-forward options such as vegan options and dairy/lactose free, GMO free and hormone free. While this may not be a segment that will drive growth for every retailer, it is a trend in foodservice overall.
American Natural, where I had the opportunity to be a leader, had invested in some of these type of menu items and while we had great success in driving local and higher quality products, we learned that healthy items needed to be highlighted and carefully managed to be successful. Vegan and dairy/lactose-free items also are getting on the menu, as well as items with quality cues such as cage-free eggs. The claim that is getting the highest investment is protein. This is a health-forward option that is getting traction in many parts of our consumers’ lives and deserves attention on menus.
Biggest threats to foodservice
When asked about GLP-1 drugs (e.g. Ozempic, Wegovy) and whether they had any impact on foodservice operations, the majority said that there was no noticeable impact. However, they felt this could have contributed in some way to the higher demand of smaller portion sizes, snack items, healthier food options, or the shifting toward a preference for high protein options.
When the subject of the biggest threat to your foodservice program was asked, a number of strong concerns came up. Some were external and some internal. One important internal threat that was identified was consistency of execution. The operators called out the need to make sure the programs are not too complicated and whether their team might struggle with consistent execution.
I agree, a retailer can be his or her own worst enemy if they don’t commit to a solid strategy and invest in training and operational standards to make sure the vision is shared by employees and executed well.
The comment also called out that it is execution throughout the entire store and not just the foodservice or QSR platform, as a poorly executed experience will make it less likely for the guests to engage in purchasing food. Well-known competitors entering the market—both convenience and QSR competitors—were also called out as a threat. Other concerns include consistency of profitability, food costs, value menus introduced by competitors, labor, speed of service, waste management and staffing consistency.
There is also the threat of the economy being unstable and the potential for a down economy, higher labor costs, lower consumer spending, and unfavorable legislation regarding SNAP benefits.
Leaning into innovation
Retailers are actively leaning into innovation and flavor excitement in both food and beverages. Promoting a unique flavor profile can help a retailer standout from the crowd, and rotating in innovation through LTOs gives a customer a reason to come back regularly to explore what’s new. In my experience LTOs have a halo and help drive core products and traffic to the store. Health benefits have also been prioritized with products that use real sugar, lower sugar and fruit flavors with antioxidants.
Flavor expansion has also been invested in food platforms. Development of flavors such as hot and spicy, leaning into more Hispanic-centered flavors and Tex-Mex profiles have been added to the menu.
The retailers have embraced the idea that flavor excitement will not only engage their guests with new and compelling things but also is a strategy that will drive transactions and better compete with QSR.
Something to keep in mind with the introduction of LTOs and healthy items is that overall traffic count and sales/profits should be the measure of success as consumers may walk in the door thinking about getting something new, but walk out with their usual order, which is fine as long as transactions and sales show growth.
What’s the State of Foodservice?
So, what’s the State of Food Service? Based on the results of CSP’s survey, retailers are rightly invested in moving that category forward and making it a strong traffic (and profit) driver. They are embracing the challenge of creating something compelling and meaningful to their guests and a win vs. traditional QSR. While foodservice will add some complexity to operations, many brands are showing us all that it is something that can be managed and it also can be a platform to energize and grow your brand.
Jeff Keune is founder and principal consultant for 4910 Consulting, based in Boston. 4910 specializes in driving performance and profitability, physical space behavior, strategic initiatives, menu and merchandising innovation, brand management, and digital activation including loyalty optimization. Keune is a former retail executive who was instrumental in building successful food and merchandising programs for Yesway, Thorntons, American Natural and other convenience retailers and QSRs. Reach him at jeffkeune@4910consulting.com.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.