I have been working in retail and more specifically with Grocers, restaurants, convenience-stores, and big box retailers for close to 25 years. Never have I seen such a crossover between these verticals. Prior to just a few years ago C-stores, quick service restaurants (QSRs) and grocers would not have thought of the other as direct competitors. However, the lines between these three formats are blurring as consumer demand for freshly prepared “to go” meals continue to surge. We now see grocery retailers offering more fresh foods like salad bars, pizza, and made-to-Order (MTO) sandwiches, while QSRs look to expand their customer reach by increasing convenient locations — closer to home and work.
With these blurred lines, the unprecedented growth that the global grocery store market which stands at $4.2 Trillion in 2021 would not have happened without the foray of grocers into the Fresh Prepared segment.
At the same time Gas stations have undergone a transformation, no longer limited to just fuel and gum. Convenience stores have upped their game to rival grocery & QSRs.
Remember Clark Griswold from the National Lampoons Vacation movie (The original version starring Chevy Chase, not the disappointing remake!). Clark has been in the car for so long that he says, “I’m so hungry I could eat a sandwich from a gas station.” Well Clark was not wrong back in 1983 but I think he would be now. When I travel up 95N with my kids for a soccer tournament, we intentionally pass by the signs for Chick-fil-a and McDonald’s. Instead, we make a beeline for WaWa, where we indulge in a delicious Shorty hoagie and a Philly pretzel. Surprisingly, this “gas station” food is really good.
Now that doesn’t mean the QSR market is one to be left behind. The Global QSR market is projected to reach a staggering $1.6 trillion by 2027! This growth is mainly driven by the increasing number of QSR locations. In the United States alone, we can expect a growth rate of 2.5% in 2023.
With that being said, it’s not just about all supply and no demand.There’s a strong demand for QSR food in the US. Sounds crazy but the average American spends around $1,200 per year on food at QSRs/fast casual.This just goes to show the incredible potential and profitability of this market segment. There is also high growth in specialty QSR with incredible popularity.For example,Cava.
Cava is a Mediterranean fast casual restaurant that started close to where I live in Bethesda, MD in 2011. In just 12 years, they have grown to over 400 locations and gone through an IPO and is now worth over $1.5B. Oh, by the way you can buy their lines of dips and spreads in many local grocery stores including Whole Foods. Technology in the store, a great consumer mobile app with a strong to-go (delivery/pickup) strategy have helped fuel that growth.
Exploring the blurred lines
The grocery store and quick-service restaurant (QSR) industries have traditionally existed as separate entities. However, in recent years, these two realms have started to merge, with grocery stores introducing foodservice options and QSRs expanding their menus to include fresher, healthier choices.
This convergence is driven by several factors. Firstly, the growing popularity of meal kits and other prepared foods has made it more convenient for consumers to grab a healthy meal on the go. Secondly, the demand for convenience has surged as individuals strive to save time in their busy lives. Lastly, the increasing cost of dining out has made consumers more conscious of value for money.
Consequently, grocery stores and QSRs now find themselves vying for the same needs. Let’s dive deeper into the underlying factors driving these trends and the challenges that grocery stores and convenience stores must tackle head-on.
Convenience Stores and the Rapidly Growing Made-to-Order (MTO) Trend
The pandemic has really changed the way families and millennials get their meals. Literally overnight consumer and retail behavior was forced to change. With the rise in demand for fresh prepared meals at convenience and grocery stores, many of us have turned to takeout as a safer and more convenient option. It’s rather obvious, but statistics actually show that COVID has accelerated this trend, with a whopping 57% increase in takeout order since the start of the pandemic.
At many popular convenience store chains like WaWa, Sheetz, Circle K, Kum n Go, and others, they offer a wide variety of delicious food options. From mouthwatering subs and fresh salads to piping hot pizza, these c-stores have truly expanded their menu to cater to different tastes and preferences. What’s even more impressive is that they also provide healthy food options, ensuring that customers can make nutritious choices even on the go.
If you’re a fan of pizza and live in the mid-west, you have probably tried Pepperoni, Pepperoni, Pepperoni Pizza from Casey’s General Stores. It’s a cheesy, pepperoni-packed delight that will have your taste buds dancing with joy! So, watch out Domino’s because Casey’s is now the 5th largest pizza chain in the US selling $30M pizzas a year.
Grocery Stores and the surge in Fresh Prepared
Grocery retailers saw something similar except they were one of the only stores that remained open during the height of the pandemic. Grocers scrambled to stand up ecommerce and delivery and then demand for Prepared Foods and MTO skyrocketed.
Convenience and safety took priority for consumers. With limitations on dining out, easy-to-grab, ready-to-eat meals started to look like an attractive alternative to home cooking. Additionally, the evolving consumer mindset towards health and wellness led to a preference for fresh, high-quality meals, which these grocery stores were able to provide.
Thanks to technology, grocers have also been able to keep up with this surge in demand. Now they are offering customers made-to-order (MTO) sandwiches, meal kits with pre-measured ingredients that can be cooked quickly and easily at home.
Speaking of cooked easily, Did you know that Costco, sells a staggering 100 million rotisserie chickens every year? The popular $5.99 Costco rotisserie chickens are such a hit as they make dinner cheap and easy.
Potential opportunities of revenue growth for grocery stores and convenience stores
So, you can see how the lines are now very blurred regarding where to grab lunch or bring dinner home for the family. Specifically for grocery retailers the question is how can they take advantage of their ‘current’ loyal customer base, increase basket size, and serve up restaurant quality meals. The most important thing for any C-store, grocer or restaurant who is taking an online order is quality/freshness, order accuracy and SPEED.
Luckily, innovation and technology are now available for these retailers to stake their claim in the market, one that is ripe full of opportunities such as:
- MTO– With a rise in made-to-order (MTO) meals and increased consumer demand for quick, high-quality food options, they are poised to carve out a significant share of the foodservice market. By incorporating MTO sandwiches/salads and ready-made meals into their offerings, grocers and c-stores can significantly boost their revenues.
- Upsells– Incorporating foodservice into their business model also provides an opportunity to increase basket size, as customers looking to grab a quick meal may also purchase additional items.
- Loyalty– Creating an online ordering experience that caters to their customers can also be a great way to drive traffic and transactional sales. By making it easy for customers to order, pay, get rewards, track orders through their mobile app or online, grocers and c-stores create a seamless shopping experience that encourages repeat business.
- In-stock – Perfect scenario for a food retailer is that they have one fresh item (or less) on hand each day maximizing sales and reducing shrink. AI based forecasting engines and digital ordering tools are crucial for the the success of this metric.
While off-premise or online orders are great, it poses some unique challenges for grocers and c-stores. For example, they need to make sure that orders are accurate and delivered on time. Plus, order volumes can spike based on promotions, holidays, and weather making it tough to manage inventory and staffing efficiently. To make things easier and as mentioned above, retailers should use technology solutions like an integrated order fulfillment platform and an AI based forecasting solutionalong with Made-To-Order tech solutions can help them handle fluctuating order volumes and provide customers with fresh meals and most importantly make things extremely efficient for labor inside the store to not add to an already complex day work.
Essential Technology and Innovation to Ensure Success
Let’s talk about the essentials. In order to optimize fresh food operations, grocers and c-stores should prioritize these essential technology features:
- Ensure that your eCommerce or mobile ordering platform is capable of efficiently handling orders for not only general grocery items but also prepared foods and made-to-order (MTO) items. This will provide customers with a comprehensive shopping experience.
- Opt for an eCommerce fulfillment solution that allows your employees to efficiently pick a customer’s weekly grocery order while also fulfilling prepared food and MTO orders. This integrated approach streamlines operations and enhances customer satisfaction.
- Implement an intelligent inventory management system that minimizes substitutions on customers’ weekly grocery orders. Nothing is more frustrating for customers than not being able to order exactly what they want or missing out on popular items like a hot rotisserie chicken.
- Take proactive measures to manage food waste, which is a significant concern for grocers and c-store operators. By accurately forecasting order volume and strategically reducing shrink, you can mitigate waste and optimize your operations.
The Future : One where worlds blend
As consumer preferences change, the grocery store, c-store and QSR industries are blending, opening new opportunities for innovation and growth. In this changing landscape, grocery stores and QSRs will need to find unique ways to stand out and catch the attention of customers. This might mean using technology to create personalized shopping experiences, adopting sustainable practices, or partnering with local farmers and suppliers. By embracing these strategies, the grocery store and QSR industries can offer more than just convenience and affordability, ensuring a differentiated value proposition in the minds of the consumers.
If you wanted to zoom in, here are some specific examples of how grocery stores and quick-service restaurants (QSRs) are already innovating to compete with each other:
- Grocery stores are incorporating ready-to-eat meal options, such as salad bars and deli counters, to attract customers looking for convenient and quick dining options within the store.
- QSRs are expanding their offerings to include grocery items, such as fresh produce and pantry staples, allowing customers to conveniently pick up essentials while grabbing a quick bite to eat.
- Both grocery stores and QSRs are investing in mobile apps and online ordering platforms, providing customers with the flexibility to order groceries or meals for pickup or delivery, catering to the increasing demand for contactless shopping and dining experiences.
- Some grocery stores are setting up in-store dining areas or partnering with local restaurants to create unique dining experiences, giving customers the option to enjoy a meal while shopping or as a separate outing.
- Grocery stores are expanding their foodservice offerings. Many grocery stores are now offering full-service restaurants, cafes, and delis. This allows them to compete with QSRs on convenience and value.
- QSRs are expanding their menus to include more prepared foods and meal kits. This allows them to compete with grocery stores on convenience and health.
- Both industries are investing in technology to improve the customer experience. This includes things like self-checkout, mobile ordering, and contactless payments.
The future of the grocery store and quick-service restaurant (QSR) industries is poised to be an exciting and dynamic one, characterized by relentless innovation and fierce competition. But at the core of their offering, is one central theme that’s going to prove to be a game-changer, and that’s the technology they use to power consumer experiences.
They will have to leverage the right technology to offer shoppers greater convenience, customization, and quality than ever before.
About Jeff Baskin
With more than 25 years of experience in the retail and eCommerce industry, Jeff Baskin currently holds the position of Chief Revenue Officer at Upshop, spearheading Global Sales, Business Development, and Customer Success. Jeff’s extensive omnichannel expertise and dynamic background further enhances Upshop’s momentum and contributes to its go-to-market strategy, customer acquisition, success, and establishment of SaaS-based partnerships with renowned global brands.