Capitalizing on Opportunities in Fresh Prepared Foods - LEK ...
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Executive Insights Food & Beverage Analysis Capitalizing on Opportunities in Fresh Prepared Foods With the increased focus on investing in the perimeter of the grocery store, fresh prepared foods is one of the most interesting growth areas for U.S. grocers. The lines of retail and foodservice have been blurring as grocers realize there is a golden opportunity to capitalize on consumers’ desire for fresh prepared foods and drive foot traffic. This Executive Insights profiles the high-growth category of fresh prepared foods and why retailers and suppliers alike can expect to find significant opportunities in this market for years to come. Capitalizing on Opportunities in Fresh Prepared Foods was prepared by Rob Wilson, Jon Weber and Dan McKone, Managing Directors at L.E.K. Consulting. Rob is based in Chicago and Jon and Dan are based in Boston. For more information, contact consumerproducts@lek.com.
Executive Insights
Food & Beverage Analysis
U.S. grocers: increased focus on high-quality fresh prepared foods
Unlike their international counterparts, Total U.S. fresh prepared foods market – grocery channel
most U.S. grocers are still learning how to (2011-21F)
meet consumers’ desire for fresh prepared Forecast CAGR
foods. 52 ~$51B 2011-16 2016-21F
~$48B ~7% ~8%
48
~$45B
For example, ask any consumer who’s 44 ~$41B
been to London recently: The fresh
40 ~$38B
prepared to-go offerings there are far
36 ~$34B
superior to what can be found in the U.S.
Billions of dollars (RSP)
32 ~$31B
Consumers in the U.K. can grab premium ~$29B
~$27B
wraps, ready-to-eat ethnic meals with 28 ~$26B
~$25B
interesting flavor profiles, delicious salads 24
and a large variety of other offerings. 20
While there are some good offerings in
16
the U.S., they are limited and inconsistent.
12
The race is on to increase quality at a
national scale. 8
4
The $34 billion fresh prepared foods 0
2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
market has been experiencing accelerating
growth and grew 10% last year, with Yoy
~7% ~7% ~8% ~10% ~10% ~11% ~9% ~8% ~7% ~6%
strong growth expected to continue into growth
the future.
Source: L.E.K. analysis
2 Capitalizing on Opportunities in Fresh Prepared Foods
Executive Insights
Food & Beverage Analysis
Fresh prepared foods comprises five mega-categories
Prepared meals & center plate Fresh prepared produce In-store bakery Sides Other
Ready to eat value-added meals Fresh sliced vegetables Bread Chilled and hot bar soups Chilled sauces
(artisan loaves, focaccia, etc.)
Ready to cook Fresh sliced fruit Desserts (in-store bakery) Chilled dips Leafy salad bar
value-added protein
Rotisserie chicken Ready to eat Decorated sheet cakes Nonspecialty (nonleafy) Other sauces, dips,
(nonleafy) specialty salads deli salads condiments, etc.
3 Capitalizing on Opportunities in Fresh Prepared Foods
Executive Insights
Food & Beverage Analysis
Which trends are contributing to strong growth in the U.S.?
Consumers
Health and wellness Consumers are increasingly focused on reading ingredients and searching for clean label and organic/natural products
“On the go” eating and snacking has become increasingly popular as consumer sentiment as it relates to snacking has dramatically
Convenience needs
improved since the 1990s
Eating away from home In April 2015, foodservice spend away from home surpassed spend on food at home and has been outpacing retail growth since 2010
Shopping in store perimeter Household grocery trips to purchase fresh foods have increased 1.0% YoY vs. a 1.3% decline in overall grocery trips
Grocers
In the search for healthier food, specialty and locally sourced “food with a story” suppliers are making inroads against and driving
Farm-to-table local sourcing
disruption in big CPG
Private label penetration is believed to be ~45-55% of the overall ready-to-eat value-added meals market as retailers can promote
Private label growth
“made in-house”
Foodservice “in-store” Increased desire for ready-to-eat (RTE) options as consumers look for “an experience” in their grocery trips
Regional producers (e.g., commissaries) still supply the bulk of fresh prepared foods; food safety remains a concern, with variability
Nascent supply base
in quality and consistency across national chains
4 Capitalizing on Opportunities in Fresh Prepared Foods
16
2 Industry disruptor South
30 Con: 36.7 h GWh (16%) Existing
Next 3 years Cap: 7.2 GW (10%) 2014
23
Executive Insights
Number of states
20
Food & Beverage Analysis
10
Most retailers are underpenetrated in fresh prepared foods 0
2014 15 16
Although Example
“best in class” fresh
client, Fresh prepared dollar sales as percentage of total grocery sales
category A (2016)
prepared foods retailers like Whole
3
Foods
3
and Costco
3
lead the way with
strong penetration rates, the overall ~20
U.S. market averages just roughly 4%.
Conventional retailers have been
pushing to catch up to higher
penetration rates. More progressive
nited Lufthansa Air
retailers like
New Trader
ZealandJoe’s and H-E-B
have fresh prepared penetration rates
around two times the national average,
Percent of states*
for flights over 3,000 miles (2006-2021F)
but there is a large segment of grocers
that has not yet35% capitalized on this
growth opportunity.
25% ~4
%
Market average
1 2016 2021F
Source: L.E.K. interviews and analysis
ons
5 Capitalizing on Opportunities in Fresh Prepared Foods
Executive Insights
Food & Beverage Analysis
Fresh prepared foods expected to continue stealing shelf space
The lines of retail and foodservice have Average shelf space per store by temperature state
been blurring in the perimeters of (2012-21F)
stores as consumers seek fresh foods Directional
that are grab-and-go or require little 100
preparation at home. By developing
the perimeter of the store, there is a Fresh /
25-30
golden opportunity to capitalize on 30-35 fresh prepared /
80 35-40
consumers’ desire for fresh prepared refrigerated
(incl. produce,
foods and drive food traffic for U.S. dairy, etc.
Percentage of square footage
grocers compared with international
counterparts. 60
55-65
40 50-55
45-50 Shelf-stable
20
10-15 10-15 10-15 Frozen
0
2012 2016 2021F
Source: L.E.K. interviews and analysis
6 Capitalizing on Opportunities in Fresh Prepared Foods
Executive Insights
Food & Beverage Analysis
Retailers struggle with consistency in a patchwork supply network
National Regional Local/in-store
Less common Most common More common
Decreasing shelf life
• Typically refrigerated, shelf • Made regionally/locally • In-store value-added foods
stable or shipped frozen • Often produced by a (e.g., cooked in-store,
• Served by companies with patchwork of locally based premium to-go offerings)
national distribution commissaries • Typically fresh/extremely
• More branded products • Perceived by consumers to be perishable products
relative to other fresh prepared fresher and of higher quality • Seasonal / rotating flavors
foods • Varied tastes and preferences
by region
7 Capitalizing on Opportunities in Fresh Prepared Foods
Executive Insights
Food & Beverage Analysis
Rapid growth with continued upside opportunities
The U.S. has nascent fresh prepared product offerings compared with the U.K. as retailers are largely underpenetrated
The lines between retail and foodservice have been blurring as consumers demand “made in store”
experiences, thus supply chains overlap
There is a current lack of scale in fresh prepared food quality and consistency because the current
network is largely a patchwork of commissaries
The opportunity that lies ahead for grocers and suppliers alike is massive,
yet many are unaware of it
How will you capitalize on this opportunity?
8 Capitalizing on Opportunities in Fresh Prepared Foods
Executive Insights
Food & Beverage Analysis
About the Authors
Rob Wilson is a Managing Director and Jon Weber is a Managing Director Dan McKone is a Managing Director and
Partner in L.E.K. Consulting’s Chicago and Partner in L.E.K.’s Boston office. Partner, and a member of L.E.K.’s Global
office. He specializes in the Consumer He leads L.E.K.’s Retail and Consumer Leadership Team. Dan co-leads Edge
Products & Retail sector, with a more Products practices and is a member of Strategy® services at L.E.K. and is the
specific focus in the Food & Beverage L.E.K.’s Americas Regional Management co-author of Edge Strategy: A New
practice. Rob advises clients on a range Committee. Jon has been with L.E.K. Mindset for Profitable Growth, a book
of critical strategic business issues, since 2000 and has extensive experience published by Harvard Business Review
including growth strategy, pricing working across retail channels and Press. He also leads the firm’s Customer
and trade spend optimization, mergers and acquisitions, with worldwide consumer brands. Experience and Loyalty service line.
profitability enhancement, and organizational transformation.
About L.E.K. Consulting
L.E.K. Consulting is a global management consulting firm that uses deep industry expertise and rigorous analysis to help business leaders achieve practical results with real impact.
We are uncompromising in our approach to helping clients consistently make better decisions, deliver improved business performance and create greater shareholder returns. The
firm advises and supports global companies that are leaders in their industries — including the largest private and public sector organizations, private equity firms and emerging
entrepreneurial businesses. Founded more than 30 years ago, L.E.K. employs more than 1,200 professionals across the Americas, Asia-Pacific and Europe. For more information, go
to www.lek.com.
L.E.K. Consulting is a registered trademark of L.E.K. Consulting LLC. All other products and
brands mentioned in this document are properties of their respective owners.
© 2017 L.E.K. Consulting LLC
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