Facts, Figures, & the Future (F3)
Fresh prepared foods are the sweet spot for time-starved, quality-seeking consumers - between choices of costlier restaurant meals and less-catchy, more laborious packaged goods.
The opportunity is so ripe that A.T. Kearney forecasts dollar sales of the $26 billion fresh prepared foods segment will grow at a 6%-7% compound annual growth rate (CAGR) through 2017, up from its 5%-6% CAGR in the 2007 to 2012 period. This will outpace the anticipated 2%-3% CAGR of retail grocery food and beverage, and the 3%-4% CAGR of foodservice between now and 2017, the consultancy predicts.
“Smaller households (singles, couples) and urban consumers in particular want healthier, fresh products with a value orientation. These consumers may lack cooking skills, or may not have the kitchen space for food storage and more elaborate food preparation,” says A.T. Kearney, in its joint white paper with Technomic, Fresh Prepared Foods: A Growth Driver For Your Company?
“Whereas restaurant menus have not changed substantially in recent years, upgrades in retailers’ fresh foods departments are more readily apparent to the consumer,” it adds.
A separate study of select channels by NPD Group, The Retail Prepared Foods Market: Assessing the Competition, says food and drug stores account for 73% of the retail home meal replacement market, discount stores 21%, and wholesale clubs 6%. CREST data for the year ended May 2013 show the strongest traffic growth is in lunch and supper eating occasions. Over a five-year period from 2008 to 2013, lunch traffic grew by 29% to an absolute 20% share of all retail traffic for prepared foods eaten at home. Supper traffic grew by 9% to an absolute 35% share. By comparison, breakfast traffic grew by 2% to a 10% share, and snack traffic declined by 6% to a 36% share.
Millennials are a prime audience for retail prepared foods. Recent Acosta research shows that 78% of Millennials/Gen Yers brought some home vs. 68% of Gen Xers, 60% of Boomers and 57% of seniors within 30 days of being surveyed. Already, more than one in four shoppers (27%) go to the supermarket with the sole intent to pick up a prepared meal – and this trend is growing, says AlixPartners, noting households averaged 3.9 ‘away from home’ meals per month at the end of 2013 vs. 5.8 at the start of 2013.
Strong tailwinds behind the prepared foods trend should lead supermarkets to invest in programs with rotating recipes that include better-for-you ingredients, hometown favorites, chefs that are known locally, intense quality control, and perhaps commissary help, suggests F3. Hot chicken dominates sales of hot prepared foods in supermarket delis – and rotisserie birds comprise about half of the hot chicken purchases made, according to NPD Group data. Retailers often sell them in flavors, and cross-merchandise with hot and cold accompaniments, but F3 sees more potential for chicken in different forms because it mixes well with other foods and also carries other flavors well.
Retailers will need to do more than chicken well to keep Millennials and their nomadic taste buds satisfied, to be seen as restaurant quality – and to potentially use prepared foods as a springboard into catering.
And since fresh prepared foods have a “very short shelf life” and potential waste if unsold, retailers “require different supply chains focused on short shelf life, product turnover, optimized assortment, and target pricing,” states A.T. Kearney.