The restaurant industry prides itself on the fact that more American’s eat out today than ever before with the industry boasting a 49% share of the food dollar. This trend hasn’t gone unnoticed by retailers who are expanding offerings to compete head on, according to a recent report.  Supermarkets are leading the race, owning nearly two-thirds of prepared foods purchased at retail, while convenience stores are slowly entering the arena as well.  The Pantry and Quick Chek have recently announced plans to expand their prepared foods offering. How will this trend affect traditional restaurant revenues and profits? Do restaurants face real threats from C-Stores and Grocers?

Many C-stores cite opportunities to drive significant margin growth by cross-selling prepared foods to gas and tobacco customers as well as driving new traffic from the pump into the store. In other cases, c-stores are teaming up with established quick service and casual dining brands to create an integrated offering, such as Pilot Travel Centers’ partnership with Denny’s. Grocers are responding by upgrading meal solutions in an effort to maintain differentiation: Kroger’s bistro includes tilapia and pork loin while Wegmans’ Market Cafe offers gourmet pizza and sushi. Even drug stores are getting in on the act, with Duane Reade and Walgreens recently announcing an expansion of its fresh food offering, the latter headed by former Tesco director Jim Jensen.

One significant advantage for restaurants and grocers lies in their experience mitigating the unique risks inherent in food service. Equipment is pricey, food preparation is highly labor-intensive, building a successful menu is challenging, and profits can erode quickly if spoilage is not properly managed.  Evaluating prepared food expansion plans by running a small scale, limited-risk test has proved the best tactic for a number of sophisticated convenience retailers, including Wawa.