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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Why Do Ready-Meal Programs Fail?

Jim Prevor’s Perishable Pundit, October 15, 2008

Our piece — Questions For Fresh & Easy And Marketside: Are Americans Really Ready For “Ready Meals”? — brought a contribution from one of America’s most respected authorities on retailing fresh foods:

Good stuff, as always, about ready-to-eat meals. I might offer this:

The discussion of ready-to-eat meals, in a retail environment, is not particularly new. Two formats come to mind: Boston Chicken (now Boston Market) and EatZi’s.

I remember the industry getting all excited about these formats and making countless trips to see them. Funny thing about them… Boston Chicken went broke. They ultimately “morphed” into Boston Market, which is doing ok, but not setting the world on fire. As for Eatzi’s, I really remember all the “noise” that surrounded this format. How many are on the street today? Let’s see… that would be… ONE! And that format actually did the entire concept right! So why aren’t there hundreds? Perhaps thousands? A few things come to mind:

  1. Fixed expenses are such that it is difficult to provide the type of quality necessary for a customer to make the store a destination, and at the same time, provide the economic proposition necessary to make it a value proposition.
  2. The concept strikes me as being “stuck in the middle” between QSR’s (quick-service restaurants) and full-service restaurants. And being in the middle is never a good place to be.
  3. The American market has evolved in a totally different social order than the UK. Yet both Wal-Mart and Tesco are convinced that the Europeans (particularly western Europeans) know more about food than US food executives.

Now Ukrop’s and Wegmans have done some great work in the HMR area, but they are small and regionalized chains. Even HEB Central Market can’t provide a compelling ROI to have that great chain roll out 50 — 100 of them, and HEB executes this format better than anyone.

Then, there is the whole small-store format craze. I ask this question: How well are other companies doing? (Think Bloom, Sweetbay and the like.) Again, food executives get all excited about these formats, but how well are they doing? There is one small format doing great, and that is Aldi! Don’t recall seeing a lot of HMR choices there…

One last observation: There are 2 examples of successful companies executing take-home meals: KFC and Papa Murphy’s. Both provide a simple menu. Both provide a product that an average customer can’t easily replicate by cooking at home. And both can control fixed expenses to allow a good profit margin, and yet still provide a value.

We are fortunate to have countless examples, both good and bad, that provide some insights into this whole issue. All we have to do is look…

Yes, we suspect that many a deli director has been fired because the chain needed a fall guy after the CEO’s push for HMR backfired. Typically the CEO went to a “Meal Solutions” conference or, worse yet, on a trip to London and came back, as they say, enthused.

Yet as our letter-writer indicates, it is not clear why. Fresh & Easy did not bring ready meals to these shores. Tesco has no unique technology.

Tesco wasn’t even the first British chain to try these in America. Marks & Spencer tried that 20 years ago when it acquired Kings in New Jersey.

Plus America’s food giants have long been trying to crack the nut. Look at this from The New York Times in 1987:

…entrepreneurship is not a new concept at General Foods. Three years ago, anxious to get into a new area of the food business — the preparation of fresh refrigerated take-out meals of about 400 calories — the company assembled a venture group and turned over to it the complete development and marketing of the product.

The Culinova Group, a subsidiary of General Foods, was put together by Richard G. Powers, a 14-year veteran of General Foods who selected the members of the team.

“It was an unusual approach for General Foods to take,” Mr. Powers said at Culinova’s Hawthorne headquarters recently. “Very original. General Foods set us up in our own quarters away from the corporate headquarters and gave us free rein in running our own business. They wanted to see if, by giving us autonomy, away from the distractions of a large corporation, we could implement the strategic plan and set a new food-category course in the area of fresh food that would reposition the company for the future.”

“It was such an exciting concept that I didn’t have any difficulties in recruiting multidimensional managers for our team,” he said. “Yves Coleon, our director of marketing, has returned from his own business enterprise to General Foods to work at Culinova — bringing more than 13 years of marketing experience to his position — and Dr. Nabil A. El-Hag is vice president of technical research and operation for the new group. Dr. El-Hag is another General Foods veteran and works on both the scientific and financial sides.”

The Culinova staff — 20 from management and 25 working in the kitchens — is described by Mr. Powers as a tight group. “This is a small, intimate building and more interaction is possible,” he said. “ All of us share the same proprietary feelings that this is our company and we want it to succeed.”

The feeling, Mr. Powers said, is evidenced by such entrepreneurial behavior as management coming in early and leaving late. “We don’t work the usual corporate hours, we’re thinkers and doers, not watchers, and when we’re working out a problem, we don’t stop because it’s 5 o’clock.”

The entrepreneurial spirit, along with what Mr. Powers would only say was a substantial monetary commitment from General Foods, enabled the Culinova Group to get its products to market in record time.

“It took us nine months,” Mr. Powers said proudly, adding that he believed the development of the product was speeded up because there were no barriers set up between members of the group. “All of us wore a lot of hats; we had to, we’re a lean organization in which everyone has to play more than one role.”

According to Dr. El-Hag, Culinova products — fresh, nutritionally sound meals — are prepared daily by the culinary staff and reflect years of research and development in new methods of food preparation and preservation.

“Culinova meals are never frozen and no chemical preservatives of any kind are used,” Dr. El-Hag remarked during a tour of Culinova kitchens, where workers wearing gloves, face masks and shower caps staff the small food-assembly line. “The ingredients are of the finest quality,” Dr. El-Hag said. “Every dish is prepared from scratch using recipes developed by our chefs in our kitchens, and the finished products are delivered in our own refrigerated trucks to select supermarkets twice a week.”

Dr. El-Hag, who held a series of management posts with General Foods for 11 years before he became a founder of Culinova, said: “We are pioneers and everyone in the industry is watching us. We are on the threshold of becoming a major business by the early 90’s.”

What makes Culinova different from its competitors in the fast-growing fresh-meal business, he said, is that Culinova meals feature sophisticated fare — such as sole with saffron sauce, filet mignon Madagascar, and scrod with chablis sauce.

And they have a longer shelf life, Dr. El-Hag said. “They’re sealed by a special process. They keep their freshness for 21 days.”

The typical Culinova customer, according to Mr. Coleon, the marketing director, is just as likely to be a family in which neither the husband or wife work, as it is likely to be a family in which husband and wife both work.

“Both family types represent large markets for us,” Mr. Coleon said. “The two-income, affluent, busy professional couple is well-known to marketers. Much has been said and written about the spending habits and tastes of this group.” What is perhaps less-known, he said, is that the empty nesters — those families who no longer have children living at home — or those who have opted for retirement, also make up a large market for quality take-out food.

The company is “competing with everybody else who sells take-out foods,” he said. “The Chinese restaurant, the pizza parlor, the trendy gourmet shop. But we’re counting on the public’s passion for freshness and flavor in convenient food to pull ahead of the pack.”

The public can expect more products from more companies to fulfill its hunger for ready-to-eat meals. According to a recent survey made by the Lieberman Research Company of Manhattan for the supermarket industry’s trade group — the Food Marketing Institute in Washington — and the Campbell Soup Company, Americans spend $62.4 billion a year on fast foods. The survey also indicated that supermarkets could increase their yearly revenues by catering to the growing numbers of customers who eat 40 percent of their meals outside the home.

Takeout sales in supermarkets are expected to increase by 18 percent a year, compared with a 6 percent yearly growth for all food products, the survey said.

“In June, we introduced our line in 16 supermarkets,” said Mr. Coleon, “including 11 Food Emporiums and two Associated Stores on Manhattan’s East Side, with its large concentration of urban residents, plus an outlet in the World Trade Center; and two Westchester markets — Food Emporiums in Port Chester and Eastchester.”

The results, Mr. Coleon said, were “far above our initial expectations.” He added: “Repeat business is, after all, the proof of the pudding and repeat business is strong also — acceptance of our menu selections ran 80 percent, which is very good.”

At prices ranging from $3.29 for a special pasta salad to $6.99 for the filet-mignon meal, the Culinova Group executives said that the meals offered good value. “We’re priced far lower than comparable dishes in restaurants and not very far apart from what it would cost a home cook to try to duplicate some of our recipes in the home kitchen,” Mr. Coleon said.

Future growth for Culinova calls for expanding supermarket sales and establishing regional operation centers nationwide. “We expect to have our products in other supermarkets shortly, and regional operations in select areas across the United States will be set up in the next five years,” Mr. Powers said. When asked if the people in the Culinova Group were uneasy about the General Foods corporate restructuring plan, which analysts say jeopardizes the jobs of many of the 2,000 General Foods employees at the White Plains headquarters, Mr. Powers replied: “No. We’re already doing what Phillip Morris recommends. We’re decentralized. Management is close to business, which makes us responsive to the demands of the market and quick enough to move off the dime. I guess you could call us a group of corporate entrepreneurs.”

In truth, we were questioning the viability of Tesco’s prepared food offering since before the first Fresh & Easy store opened. Here is what we wrote:

Prepared foods have a history of failing in America. General Foods tried Culinova, Kraft had Chillery, Nestle freshNes and a hundred more.

Some upscale retailers, such as Wegmans, Whole Foods or HEB’s Central Market, do a great job with prepared foods but they have a particular clientele and a particular price point..

Most prepared foods operations fail for a simple reason: Sales are too slow to support the production and frequent delivery of a diverse range of prepared foods offerings.

The choice then becomes continuing to offer a broad range and having unacceptable shrink or cutting the range, which makes the whole offer less appealing and tends to decrease sales while the distribution cost is close to fixed.

So why did Tesco build its concept around this offering… and why has Wal-Mart chosen to also walk down this path?

In the same piece about prepared foods and Fresh & Easy we wrote this:

Tesco has a big disadvantage as it enters the U.S. market: Its executives speak English.

That may sound counter-intuitive but have no doubt — it is good to have a customer just like yourself, it is OK to understand that your customer is totally different than you, but the worst possible situation is to think you are similar to your customer, yet your customer turns out to be very different.

The British are trying this because they know it is successful back home so they think it has to be somewhat successful in the US if done properly. Wal-Mart may be trying this because its executives are afraid Tesco may know something Wal-Mart does not.

Of course, everyone at retail wants to believe there’s a future for ready-made meals because ready meals would be a possible solution to the long-term secular trend of consumers spending more of their food dollars at foodservice.

Yet changing consumer habits is very difficult. Warren Buffett himself has marveled at how a company his Berkshire Hathaway conglomerate owns, See’s Candy, a very successful candy company in California, can’t seem to sell candy in Manhattan — this despite many efforts over many years by very intelligent, very knowledgeable, well-financed people.

There is nothing wrong with trying again. The packaging technology is more advanced and, at Marketside, by focusing on Southwest food and having the product made locally, they may overcome a lot of the logistical issues that have bedeviled these efforts in the past.

Still consumers have to want the product. And there are fundamental problems. If a consumer wants to do a dedicated weekly shop, buying these ready meals to consume seven days later is problematic. Ready meals are more expensive than frozen. Restaurant take-out has advantages in reliability, quality and convenience.

Our correspondent makes the interesting point that deep fried chicken and pizza are both difficult for consumers to make on their own and he gives examples where chains have found success.

Marketside has a pizza program and a rotisserie, but we didn’t see fried chicken. Fresh & Easy sells no hot food at all. Tesco made a big point of all the consumer research it did before launching its Fresh & Easy concept. Maybe, though, market research of what consumers actually buy provides a more useful guide to consumer wants and needs than any amount of interviewing.

Both Fresh & Easy and Marketside emphasize a kind of hip, healthy food aesthetic, presumably because that is what consumers say they want. Purchasing behavior, though, may be telling us something else. Is it possible that what both of these chains really need is a deep fryer?

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