The Hybridization of Restaurant and Retail
Before COVID-19 began, the restaurant industry had seen several years of tremendous growth. 2015 marked the first year consumers spent more money in restaurants than they did in the grocery store. This trend was on pace to continue – in 2019, $169 billion more went into foodservice than grocery, according to the USDA Economic Research Service. The coronavirus stopped this trend in its tracks. In early April, Datassential reported that foodservice sales had declined 65%, with 55% of full-service restaurant operators reporting an 80% decrease in business.
Momofuko Restaurant Group Founder David Chang noted on his April 6 podcast, “it was as if aliens came to planet earth to wipe out every restaurant on the planet within a matter of days.” He went on not to whine about his new reality, but instead offered up a brainstorming session with three-Michelin-starred chef Corey Lee of Benu about what the pandemic might make possible for restaurateurs.
One of the first changes we saw after COVID-19 began was the blurring of the line between restaurants and retailers. This is a trend that we at Midan had already been tracking, particularly pertaining to e-commerce and omnichannel meat sales. The proliferation of food choices had – even before COVID – made it possible for consumers to get nearly any food anywhere, delivered directly to their doors. The coronavirus quarantines made flexible food options even more vital.
In early April, Panera launched Panera Grocery, offering pickup or delivery for basic pantry staples (like milk and bread) that grocery stores were struggling to keep on the shelves. Another step in that direction was takeout boxes that offered raw ingredients for customers to create their own restaurant-style meals at home. For Mother’s Day, steakhouses offered ribeye steaks alongside pre-made side dishes that simply needed to be warmed before serving. Suddenly, the missing element of the celebratory steakhouse meal wasn’t missing anymore.
RARE Steakhouse, a small chain in the Midwest, began selling premium dry-aged cuts of meat butchered to order for home cooks. In an interview with The New York Times, RARE’s Executive Chef Marc Hennessy said his team has “been talking for weeks now about how the entire business is going to change forever” due to the transformations made because of COVID-19. By early June, retail sales made up about 30% of Hennessy’s business.
Before the pandemic, a trend was emerging for cross-over butcher shop restaurants, especially ones specializing in whole animal butchery. Selling certain cuts of meat directly to the consumer made nose to tail concepts more financially feasible. Now, the same idea may take hold with the broader restaurant base. A chef’s ability to not only manage his inventory but increase gross profit margins improves when he/she knows that only six filets need to be sent out of the kitchen each day because an additional four are being purchased raw. Plus, adding a meat case can use otherwise empty floor space in restaurants that have had to modify layouts for social distancing.
While restaurants were dabbling in the world of retail sales, grocery stores began expanding their offerings. H-E-B quickly set up 30 of its stores to sell ready-made meals from local restaurants. In their stores around Houston, some of the most recognizable names in the local food scene took part. Chef Hugo Ortega offered meatloaf with gravy and sides from his Backstreet Café alongside Korean braised beef and dumplings from James Beard Award-winning restaurant group Underbelly Hospitality. The idea of taking home restaurant-quality meals from the grocery store is now gaining even more traction. In early June, H-E-B opened a new Austin, Texas, location which includes a drive-thru for its True Texas BBQ chain.
As the lines between restaurant and retail become fuzzier, how can meat processors adjust their offerings to meet the quickly-changing needs of their customers? Restaurants may be ready to order more meat sooner than forecasted if they’ve found a way to make additional sales. If a restaurant is taking on retail sales for the first time, they may be looking for meat in case ready packaging to make handling easier for the customer. Chefs may even be mixing up their order and offering more cuts familiar to the home chef (if going the raw retail route) or looking for new low-and-slow cooked cuts that still shine in takeout and reheatable preparations.
As we’ve learned over the last several months, it’s critical – for restaurants and the meat industry alike – to stay nimble. We must always be ready to adjust and pivot again if necessary.
What are the most interesting pivots you’ve seen since COVID-19 began? Let us know in the comments.
This is the first post in a series of blogs diving into the future of foodservice through the lens of meat marketers. Check back soon for the next installment.