2018 Foodservice Report

Erin Rigik Del Conte
February 23, 2018
CSDecisions

From experience to delivery to healthy options, foodservice trends are evolving faster than ever. As a result, c-stores are ramping up innovation to keep pace with the competition.

In 2018, expect to see foodservice operators scrambling to differentiate their offerings on everything from price to quality to technology and innovation.

NPD Group, a global information company, forecasts flat to sluggish traffic growth for foodservice operators in 2018. Operators are looking to change that trajectory in a variety of ways, including focusing on the lower end of the price spectrum. McDonald’s, for example introduced a $1 $2 $3 Dollar Menu this January to better compete on value.

The NPD Group predicts limited time only (LTO) items will be a major strategy for food operators as they target infrequent buyers, as will encouraging customer visits via loyalty programs.

Expect customers to be even more strapped for time, meaning the demand for convenience especially around the dinner daypart will grow. NPD Group predicts delivered meals will be a source of growth for certain retailers, along with other convenient meal solutions. Customers will also be looking to order digitally via text messages and mobile apps, but one size doesn’t fit all.

Rather, for convenience stores, realizing what foodservice solutions best meet the expectations of its customers will be as important to operational success in 2018 as it has been in the past.

Nearly 50% of dinners purchased from a restaurant are consumed at home, and many in-home meals are a blend of dishes people prepare alongside ready-to-eat meals purchased at a foodservice establishment, according to the NPD Group.

As new channels such as online grocery ordering disrupt food shopping, the ways in which retailers must appeal to customers are changing. Excellent customer service will be a key consideration for customers.

MILLENNIALS LEAD THE WAY
Eric Richard, education coordinator, for the International Dairy Deli Bakery Association (IDDBA) noted crafting an experience is a must for brick-and-mortar retailers and something Gen Z—and Millennials especially—are demanding.

“They want to go into a store and learn. They want to sample. They want to taste new flavors and new ingredients. That’s something you can’t get online,” Richards said.
Creating an experience lends itself to another trend: transparency. Let customers know what ingredients are used. If a retailer bakes its own bread, it can better engage consumers by highlighting the ingredients, the simplicity and freshness of the goods, Richards said. Let customers see employees making the food and allow for customization.

“Traditional brick and mortars are really going to see this resurgence and it’s because new competition is making them maximize their potential as destinations,” said Richards.

In different channels, Millennials have been driving the demand for ethnic cuisine the last few years. According to IDDBA’s “What’s in Store 2018” report, almost 45% of Millennials identify as ethnic or multicultural, making the generation the most diverse in U.S. history. Millennials the most likely generation to incorporate a customized eating approach, like meal planning, using paleo and other diets, and purchasing local and environmentally-friendly products.

Millennials’ spending power hit $3.5 trillion in 2017, and they will account for nearly 30% of consumer-packaged goods (CPG) purchased by 2020. Richard also explained that Gen X and boomers are adventurous in choosing what items they purchase.
Drilling deeper, Millennials hunger more for single-serving options, such as a mini pie or slice of cake slice rather than a whole, full-size dessert, said Richards.

“They don’t want to commit to that without tasting it. Also, they might not have a big family or a large group to feed,” Richards said. “So buying a large-size product doesn’t make a lot of sense for them.”

Millennials are also a group of U.S. consumers pushing for fresher product, more transparency and foods derived from local sources. They shop the perimeters of grocery stores instead of going right for dry goods like past generations. They want to know the origin of where their food comes from.

“If a chain is able to potentially work with a local producer, local grower and able to offer those products in the store, that’s a big plus,” Richards said. This allows the store to craft a story about the food being created or grown nearby.

“You can build this whole story-telling component of the store and that really connects with a lot of people,” he added.

In addition, IDDBA’s report indicated meal kits are particularly appealing to younger adults—43% of purchases are from consumers between 18-34—and men are more likely to purchase them than women and households with children at home. Convenience operators are in a unique position to craft their own meal kits using items from the c-store, Richards pointed out.

Mike Kostyo, a researcher and senior publications manager for Datassential, concurred that because c-stores have both foodservice and CPG options, they should look for more opportunities to combine those two categories in ways that customers increasingly prefer.

Breakfast is also in high demand. “C-stores are in a great position to really capture that breakfast crowd by looking beyond just doughnuts and coffee to having a robust coffee program and really robust breakfast sandwich program made to order…It’s building that experience and allowing people to customize their food purchases,” Richards said.

HEALTHY GROWS STRONGER
The definition of healthy continues to evolve. Kostyo explained that we began with Healthy 1.0—low-fat and low-calorie, and moved to the feel-good terms of Healthy 2.0, like organic and local, to the functional benefits of Healthy 3.0, focused on terms like “protein-enhanced” and “energy-enriched.”

“Now we’re really reaching peak Healthy 3.0, particularly in regard to protein, which is now called out in so many of the products found at c-stores —jerkies, trail mixes, smoothies, etc.,” Kostyo said. Next up, c-stores should prepare for the next generation of functional foods, like algae- or seaweed-based energy bars, drinks made with adaptogens that reportedly help the body respond to stress, and prebiotic yogurts that support the growth of probiotics, he said.

Clean labeling with natural ingredients is also top of mind for food customers, said Richards. “We’re seeing this continued shift where people are okay with certain ingredients that in the past maybe they shied away from, like real sugar. They want real ingredients,” Richards said.

HIGH TECH ON DECK
An omnichannel approach using online, social media, as well as traditional marketing is key. As Amazon and other companies disrupt traditional retail, considering delivery, mobile ordering and the ways “convenience” is changing are crucial.

“It could be online shopping with a delivery component or it could be online shopping with the pickup component…It’s really important to offer as many different options as possible to consumers and not pigeonhole the store into one style of operation,” Richard’s said.

“Technology is going to move into the food space at an unprecedented rate and a lot of things that sound far-fetched today will be a normalized in only a few years,” said Kostyo. “Self-driving cars and delivery robots are already on the roads and sidewalks.

Digital voice assistants are about to truly be everywhere. Amazon is opening up its Alexa platform so that third-party manufacturers can incorporate it into wearables like headphones and fitness devices, while Google is partnering with a number of companies to put its Google Assistant into cars and kitchen appliances.”

Kostyo noted nearly one-third of Millennials prefer using a self-order kiosk to ordering it from a human. “Even if you don’t roll out these technologies in 2018, this should be the year you start preparing for them and taking them seriously,” he said.

According to Datassential’s Foodservice @Home Keynote Report, 37% of consumers order delivery or pick up food to take home at least once a week, and at least 40% of consumers say they’ve increased their rate of food ordering in the past year.
Kostyo noted c-stores represent about 5% of delivery and pickup orders currently, but are competing well against quick-service restaurants (QSRs) and fast casuals. “This could be a real area of opportunity for the segment.”

Stay tuned to CSD  for more in the coming days as c-store retailers share their thoughts on key food trends, including breakfast, delivery, healthy and on the go.