In-store restaurants help give grocers a competitive edge

As competition heats up for every food dollar, more grocery banners are partnering with well-known restaurants and chefs to give consumers another reason to visit their stores. The restaurant-within-a-store concept can drive traffic — a critical advantage as food retailers battle for share in a marketplace teeming with options.

“If you change the experience, and the prepared food becomes entertainment, chains can leverage best practices in other areas of the store to increase sales per square foot and sales per hour by shift,” says Joshua Korn, CEO of Culimetrics, a San Diego-based restaurant and hospitality consulting firm.

“Partnering with locally known chefs and upscale brands allows retailers to leverage the connection between the local community and a known restaurant brand,” explains Korn. “A strategic partnership with a chef provides instant brand recognition and a quality statement about the types of food served.”

Built-in credibility

Tien Ho, head of culinary and hospitality at Austin, Texas-based Whole Foods, seeks partnerships with local chefs who come with an established fan base in local neighborhoods. Local outreach provides a good way for Ho to bring shoppers more of what they love, while also allowing Whole Foods staffers to learn more about local tastes.

Ho explains, “In a lot of cases, we like to collaborate with chefs on a new concept just for Whole Foods, because that helps us push the envelope and try something new.” Ho says the company’s goal is to create win-win partnerships with chefs and restaurants in a variety of cities and neighbourhoods across the country.

“The key is finding the right menu concept for that community of shoppers,” he points out. “We work to understand whether the neighbourhood is looking for fast family meals, vegan options, sit-down dining or perhaps a bar venue. Once we can understand how to best serve those shoppers, we find the right chef or restaurant partner to help bring that vision to life.”

Whole Foods has been particularly busy reaching out to restaurants in the Los Angeles market, where the company acquired a minority stake in L.A.-based Mendocino Farms, an emerging chain of fast-casual concepts focused on organic, locally sourced ingredients.

In November 2016, Whole Foods began a program to add Mendocino Farms outposts in some of its locations in the Los Angeles metro area. In a recently remodeled Tustin, Calif., store, for instance, Mendocino Farms anchors the prepared food section with a full-size restaurant and a full menu of gourmet sandwiches and salads for lunch and dinner. Menu highlights include on-trend items such as Pork Belly Banh Mi sandwiches and Avocado and Quinoa Superfood Ensaladas. The Tustin store also features a Hangar Bar restaurant with 36 on-tap beers, a dozen wines by the glass, signature craft cocktails, and chef-driven, seasonal cuisine.

Walmart's easy-grow approach

Retail giant Walmart recently partnered with Grown, a concept developed with former Miami Heat basketball star Ray Allen and his wife, Shannon. Billed as “slow food for fast people,” Grown is a contemporary health-food concept serving organic, clean-label and on-trend food in an upscale setting.

Consultants see these strategic partnerships with chefs or brands becoming more important as chains try to attract millennial and Gen Z consumers.

“These consumers are sophisticated, and they want more choices for higher-quality heat-and-eat or takeout meals and are willing to eat in a supermarket if it offers them a quality option,” says Culimetrics’ Korn.

Shari Grunspan, a spokeswoman for Grown, says since the Walmart Grown location is owned and operated by the Grown team, Walmart can offer an upscale dining option to its customers with minimal effort — an important consideration. Retailers are taking a closer look at how profitable grocerants can be, while at the same time realizing how challenging day-to-day restaurant operations are.

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“The grocery business and the restaurant business are very different and require different skill sets,” notes Bob Goldin, partner at Pentallect, a food business management consulting firm based in Chicago. “Smart supermarket retailers realize they don’t always have the category competence to run restaurants, so outsourcing the space makes sense.”

Location, location, location

Retailers typically offer their grocerant-branded partners a leaseback arrangement or a lowered negotiated rent. As in all real estate matters, “location is king,” stresses Korn. “If a supermarket retailer can generate enough foot traffic, they are an attractive location for an upscale quick-service concept. They have a built-in consumer base focused on buying food, have store hours that enable three dayparts and can push the limits on late-night shopping as well as delivery.”

Goldin cautions that the approach isn’t feasible for every chain, or even every market.

“The concept could be appealing to millennial shoppers in urban markets,” he observes, “but even in those settings, there are so many other options available to consumers that there has to be a big draw.”

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