It’s a progression that has been developing over the last few years. When it comes to foodservice, supermarkets are becoming more like restaurants, and convenience stores are beginning to look like small supermarkets.
Head to the perimeter of many supermarkets these days and you’ll find a plethora of fresh-prepared foods, from sushi to salads to gourmet sandwiches to Mongolian grills. Most of them now include places to sit down and enjoy the meal immediately, competing (quite well, in fact) with fast casual restaurants.
C-stores, meanwhile, are rapidly expanding their foodservice selection, offering grab-and-go items, high-end sandwiches, made-to-order pizza and more. Foodservice is the second-highest performing category for c-stores, just behind tobacco, and helped the industry reach record in-store sales of $233 billion in 2016.
While this trend has helped supermarkets and c-stores differentiate themselves and fight center-store sales slumps, it also presents a challenge. The increased selection of fresh foods can be nearly impossible to efficiently and cost-effectively prepare in-store.
Thus, the rise of commissaries.
Commissaries — central kitchens, central food production facilities, perishable food processors and meal and sandwich assemblers — fill the need for reliable, safe and affordable fresh food preparation.
In turn, the foodservice commissary market in the subject product categories and channels reached an estimated $5 billion in 2016 while c-store commissary purchases at a compound annual growth rate of more than 11 percent.
What’s driving it
According to a 2016 study by Technomic, consumers are purchasing retailer meal solutions (RMS) more often. Specifically, 94 percent of consumers now purchase RMS at least once a month, compared to just 79 percent in 2012. The increase, Technomic says, is largely driven by younger consumers aged 18-34, who are increasingly reliant on foodservice in general.
“Further enhancing the in-store experience and innovating with differentiated, restaurant-quality menu items will help retail-prepared food operators continue to steal share of stomach,” says Kelly Weikel, director of consumer insights at Technomic. “Operators and suppliers can appeal to consumers by offering dishes featuring new and ethnic flavors, such as spicy Asian flavors and regional Latin flavors.”
The report found that RMS purchases are often made at the expense of fast-food visits. In fact, 49 percent of respondents — and 60 percent of millennials — are visiting fast-food restaurants less often as a result of their increased RMS purchases. It also noted that c-store RSM is gaining ground, with nearly half of consumers aged 18-34 purchasing it at least once a week.
Nielsen Fresh data shows an increasing number of consumers are only buying a portion of their meals that’s already prepared and taking it home to combine it with from-scratch ingredients from their kitchen. This offers retailers valuable insights as the begin to consider connecting the consumer to other areas of the store.
“Understanding the choices consumers make in the grocery store are vital in helping retailers drive image, reputation and trips to the fresh prepared and deli section,” says Sarah Schmansky, director of Nielsen Fresh. “Improvements to drive increased fresh-prepared purchases can be approached in many different ways, including meal solution type, operational improvements and aligning specific food items and featured cuisines most closely to the intended store audiences.”
Commissaries can relieve retailers of myriad responsibilities that come with producing this fresh food. Labor, food safety, distribution, packaging and more can be farmed out to a central kitchen.
In fact, supermarkets account for more than half of total foodservice commissary purchases, while c-stores represent one-quarter of the market. So more than three-quarters of all foodservice commissary sales go to a retail foodservice provider.
Some of the biggest sellers to supermarkets include chicken tenders (79 percent of which sold at supermarkets come through a commissary), bagels and burritos (both 69 percent) and donuts (60 percent).
C-stores rely even more heavily on commissaries, especially when it comes to baked goods. They get 95 percent of their donuts, 93 percent of sweet breads, 89 percent of muffins and 86 percent of bagels from commissaries. Buts other items see success as well, like chicken tenders (94 percent), cold sandwiches (92 percent) and burritos (87 percent).
Dips and spreads are heavily sourced from commissaries for both supermarkets and c-stores. Nearly 90 percent of salsa, hummus and guacamole at supermarkets come through commissaries, while 100 percent of hummus and guacamole and 81 percent of salsa from c-stores does.
Signs of success
A quick look around some of the nation’s biggest suppliers reveals indicators of commissaries’ growth.
Greencore Group, an international producer of convenience foods, recently complete its acquisition of Peacock Foods, an Illinois-based food manufacturer and supplier of integrated supply chain and packaging solutions.
It was a $745.5 million deal that is expected to quadruple Greencore’s total sales in the US, thanks to Peacock’s success in frozen breakfasts, children’s chilled meal kits and salad kits.
AdvancePierre Holdings, meanwhile, has also had an eventful recent past, even before the late-April news that it had been purchased by Tyson Foods for $3.2 billion in cash.
Prior to that news, AdvancePieere acquired Allied Specialty Foods and speculating that more mergers and acquisitions could come in 2017.
“In terms of M&A acceleration, I think now that we have an engine in place, particularly around cost containment, a solid engine in place around growing the business, and much of the heavy lifting of becoming a public company behind us, we will absolutely look to accelerate M&A,” says Christopher D. Sliva, president of AdvancePierre Holdings, Inc. “We’re convinced that the pacing item here is more about our own ability to integrate acquisitions than it is any constraints from our balance sheet, and our intention is to see whether or not we can’t ramp that up.”
Sliva says “flat has become the new normal for now” when talking about some trends in the food industry. But the national producer and distributor of sandwiches, sandwich components and other entrees and snacks has been able to combat this, Full-year net income of $136,288,000 was more than triple the net income in the previous year.
“Pockets of profitable growth can be found through product development that matches customers’ and consumers’ increasingly personalized requirements,” Sliva said. “At the same time, suppliers must be diligent in eliminating the costs of excess complexity that neither customers nor consumers are willing to fund … In our base product lines, we have both the resources to rapidly develop and launch new products, combined with the depth and breadth of consumer relationships, to execute a series of wins, that when aggregated, make up the steady growth spelled out in our long-term algorithm.”
Core-Mark, one of the largest marketers of fresh and broad-line supply solutions to the convenience retail industry, saw a strong 2016 thanks in large part to the acquisition of Pine State and the addition of large new customers that fit well with the company’s strategic goals.Core-mark saw an 18.4-percent increase in non-cigarette sales through market share gains and an increase in sales to existing customers.
Eby-Brown, the largest privately held c-store distributor in the US, leveraged its success by expanding its flagship tradeshow, Eby-Expo, to the East to serve its growing customer base. The expo took place in April in Cleveland with more than 900 retail partners and vendors focusing on previewing innovative solutions positively impacting c-stores and their growing need for foodservice options and evolving technology solutions.
“For the first time, we are introducing an interacting, educational foodservice show that features our Eby-Brown Foodservice and Wakefield offerings and more than 40 other vendors with food and beverage products trending in the c-store market,” says Tome Wake, co-president of Eby-Brown. We are just as excited about demonstrating to our retail partners the value we add through best-in-class category management programs, promotional offerings, and sophisticated technology like our mobile application, ESP 360, that empowers our customers with easy, efficient ordering technology from their mobile device.”