The Power of Foodservice 2018 | Part 2 an In-Depth Look at Foodservice at Retail Through the Shoppers’ Eyes

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The Power of Foodservice 2018 | Part 2 An in-depth look at foodservice at retail through the shoppers’ eyes

Presented by: Rick Stein Anne-Marie Roerink

Made possible by: FMI is the trade association that serves as the voice of food retail. We assist food retailers in their role of feeding families and enriching lives. The Association:

Our members are food retailers, wholesales and suppliers of all types and sizes

FMI provides comprehensive programs, resources and advocacy for the food, pharmacy and grocery retail industry

CONSUMER & FOOD SAFETY GOVERNMENT INDEPENDENT CENTER STORE COMMUNITY AFFAIRS & DEFENSE RELATIONS OPERATOR PRIVATE BRANDS SUPPLY CHAIN TECHNOLOGY

ASSET COMMUNICATION EDUCATION FRESH FOODS HEALTH & WELLNESS INFORMATION RESEARCH SUSTAINABILITY WHOLESALER PROTECTION SERVICE Fresh @ FMI FMI is committed to the growth and success of fresh companies and their partners. FMI provides resources and networks that support the interests of member companies throughout the global, fresh produce supply chain, including family-owned, private and publicly traded businesses as well as regional, national and international companies.

Emphasis on fresh • Produce Rick Stein • Meat Vice President, Fresh Foods • Seafood Food Marketing Institute • Deli/In-store, fresh prepared foods and [email protected] Fresh Foods assortments 202.220.0700 • Bakery • Floral FMI Fresh Foods

Research and Education Networking Advocacy In-depth information, trends and Share ideas, explore best practices Understand what is going on in insights to foster innovation, take and develop business relations Washington and make your voice advantage of new opportunities heard and help develop winning strategies FMI Fresh Executive Committee (FEC)

John Ruane (Chair) John Haggerty Rick Findlay Frank Romero Ahold USA Burris Logistics Fresh Thyme Kroger

Rick Steigerwald (Co-Chair) Mark Hilton Jim Lemke Amanda Dentici Lund Food Holdings, Inc. Harris Teeter LLC CH Robinson Fresh Fairway Markets Fresh Foods Paul White Tom DeVries Geoff Wexler Steve Howard Luckys Markets Giant Eagle, Inc. Wakefern Food Corporation Bristol Farms/Lazy Acres The FEC is.. John Beretta Kirk Laboyteaux Emily Coborn Nicole Wegman* Albertsons, LLC Brookshire Grocery Company Coborns Wegmans Food Markets, Inc. Comprised of FMI Member Dave Bornmann Dan Murphy Jerry Goldsmith companies, Retailers and Publix Super Markets, Inc. SuperValu Spartan Nash Wholesalers * Silent members Scott Bradley Pat Pessotto Mike Papaleo Target Corporation Longo Brothers Fruit Markets Inc. C&S Wholesalers

Jerry Chadwick Nick Carlino Anthony Sattler Fresh Solutions MDI Distributors C&S Wholesalers

Alex Corbishley Don Sanderson Target Corporation Meijer, Inc. Pat Brown Albertsons LLC Buddy Jones Geoff Waldau MDI Distributors Food Lion Terry Murphy Wakefern Dan Koch John Grimes Associated Wholesale Grocers, Inc. Weis Markets Scott Evans Price Chopper/Mkt 32 Nate Stewart Mark Doiron Hy-Vee Fresh Thyme Randy Riley Kroger FMI Fresh Foods Leadership Council John Ruane (Co-Chair) John Knorr Ahold USA Tom Super Phillips Seafood National Chicken Council Rick Steigerwald (Co-Chair) Mike Celani Lund Food Holdings, Inc. Jarrod Sutton Wonderful National Pork Board All- FEC Members Chandra Macleod FMI Fresh Executive Council Joe Watson Aqua Star Seafood Produce Marketing Assoc. Chris Dubois Jeff Thompson IRI Joe Weber Trident Seafood Smithfield Foods Inc. Michael Eardley John Dunne International Dairy-Deli-Bakery Assoc. Art Yerecic Acosta Yerecic Label Jason Jerome Lynn Egner National Cattleman's Beef Association Brad Roche Hormel Foods Hill Phoenix Sarah Schmansky Sally Lyons Wyatt Nielsen Perishables Group Greg Livelli IRI Hussmann Paul Mastronardi Wendy Reinhardt Kapsak Mastronardi Produce Robb MacKie Produce for Better Health (PBH) American Bakers Assoc. David Sherrod Michael Lang SE Produce Council Jim Huston Invatron Johnsonville Tom Daniel Jeff Oberman Chad Gregory Sterilox/Chemstar United Fresh Produce Assoc. United Egg Producers Randy Evins Janet Riley Jessica Harris SAP North American Meat Institute Earthbound/White Wave Eric Gassaway Tom Windish Galit Feinreich Monsanto Cargill Ready Pac Foods, Inc. The Power of Foodservice 2018 | Part 2 An in-depth look at foodservice at retail through the shoppers’ eyes

Presented by: Rick Stein Anne-Marie Roerink

Made possible by: “We’re still trying to figure this thing out”

Deli/prepared department growth $ growth Unit Growth

8.2% 7.3% 6.0% 5.9% 5.2% 4.2% 3.4% 3.1% 1.8%

2013 2014 2015 2016 2017 -1.3%

9 Source: IRI, MULO, 52 weeks ending 12/31/2017 | Picture: 210 Analytics Continued growth is very possible

While participation is high, room to improve purchase frequency & spend per trip

17.1 Households Average Annual deli/ purchasing basket prepared trips Deli prepared 96.7% $8.56 32.7 trips for total deli .

10 Source: Nielsen, xAOC, 52 weeks ending 3/25/2018 The Power of Foodservice 2018 — Part 2 ▪ Third in the series ▪ Commissioned by the Food Marketing Institute ▪ Conducted by 210 Analytics ▪ Made possible by Hussmann and The Shelby Report

▪ 360 view of foodservice at retail ▪ Understanding opportunities, habits, preferences and trends ▪ Shopper survey to determine attitudes, interests and behaviors ▪ Sales overlay by IRI and Nielsen ▪ Visuals to illustrate report findings

▪ Developed for the industry by the industry

11 FMI | The Power of Foodservice at Retail 2018© Study definition for consumer understanding

Throughout the remainder of the survey, “deli or prepared foods” refers to items that are fully or partially prepared and are usually found in the deli ▪ These grab-and-go or heat-and-eat items provide convenient alternatives to cooking or restaurant/fast food ▪ They can be used in combination with items cooked from scratch or as a complete meal solution for breakfast, lunch or dinner ▪ Examples are rotisserie chickens, sushi, salad bars and pizza

12 FMI | The Power of Foodservice at Retail 2018© Today’s agenda

DINNER IMAGE AND CHANNEL VALUE EXECUTION REPUTATION CHOICE SEEKING

TECHNOLOGY NUTRITION, OPERATIONAL KEY INFLUENCE BALANCE & DECISIONS TAKEAWAYS HEALTH

FMI | The Power of Foodservice at Retail 2018© 13 Home-prepared meals Meal planning Deli prepared as solution What a meal looks like DINNER EXECUTION

14 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Home-prepared meals average drops

4.9 August 2017

4.6 April 2018

15 FMI | The Power of Foodservice at Retail 2018© However, kids are an important turning point

4-5 days/week: Trends: Home-cooked with Declines across demographics some level of ▪ Young Millennials: 4.2 preparation ▪ Older Millennials 4.5

Kids are a turning point ▪ Millennials w/o kids 4.0 ▪ Millennials w/kids 4.7

16 FMI | The Power of Foodservice at Retail 2018© But where foodservice should be winning, it isn’t Food spending

1950 Source: USDA 1950-2016 2016

17 FMI | The Power of Foodservice at Retail 2018© But consumers do seek convenience Convenience is driving sales across the store, undermining deli/prep

53% Scratch + semi/fully prepared items

At home dinner 39% preparation Mostly from scratch 8% Mostly semi/fully-prepared items

FMI | The Power of Foodservice at Retail 2018© 18 Opportunity as a meal solution and meal ingredient; but how about reality?

Known dinner plans 2 hrs before mealtime 35% Frequently know what’s for dinner (5+ days/wk) 45% Sometimes (3-4 days/wk) 17% Hardly ever (1-2 days/wk) 3% Never

19 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Go to destination?

Retail foodservice continues to struggle with being on the radar

Go to destination for dinners not prepared yourself? 51% Restaurant/fast food vast majority/more often 25% Restaurants/fast food and deli about equal 24% Grocery deli vast majority/more often

FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics 20 Resulting in flat trips to retail foodservice

Buying deli/prepared food from your primary or other grocery store 2017 2018

34% 30% 30% 24% 25% 21%

11% 6% 7% 7% 2% 3%

Never Less than once Every few Every week Every few days Just about a month weeks every day

21 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Who is the retail foodservice regular?

Buy from retail foodservice every few days/daily ▪ Regularly/always check deli/prepared sales specials ▪ Technology-inclined users ▪ Urban shoppers ▪ High weekly grocery spend (and frequent trips) ▪ Health/nutrition-focused shoppers ▪ Older Millennials ▪ Shoppers with kids living at home (and 3+ people HHs) ▪ High income >$125K ▪ Men 22 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Program awareness Reaching beyond shoppers Advantages over cooking Advantages over restaurants IMAGE & REPUTATION

23 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Shoppers mostly learn about retail foodservice when in-store

42% Own observation/ 26% Heard from family/ 35% Weekly circular experience friends 17% Website 42% In-store signage 23% Store reputation 14% Social media 17% Emails 11% Rating apps 8% Store app 7% Texts 24 FMI | The Power of Foodservice at Retail 2018© Most areas up, but the crucial two to reach high-target consumers are flat

42% Own observation/ 26% Heard from family/ 35% Weekly circular experience friends 17% Website 42% In-store signage 23% Store reputation 14% Social media 17% Emails 11% Rating apps 8% Store app Increase Flat Decrease 7% Texts 25 FMI | The Power of Foodservice at Retail 2018© 22-27 28-37 Learning about retail foodservice 62-75 42% 41% Personal observation/experience 46% 40% 41% In-store signage 42% 22% 35% Weekly circular 38% 34% 33% Family/friends word-of-mouth 19% 27% 28% Store reputation 19% 17% 26% Grocery store website 9% 25% 28% Social media 3% 12% 19% Food/restaurant rating apps 4% 16% 17% Emails 6% 21% 12% Grocery store app 2% 9% 14% Text messages 3%

26 FMI | The Power of Foodservice at Retail 2018© Time and immediacy top advantages over cooking

Top five 67% Saves time on cooking 50% Allows for immediate consumption 47% Saves time on meal planning Where is the food itself? 46% Saves time on cleanup 35% Saves time on shopping

27 FMI | The Power of Foodservice at Retail 2018© Regulars emphasize the food itself Saves time on cooking Variety for all HH members Saves time on planning More complex meals Allows for immediate consumption Avoids waste Saves time on shopping More nutritious Saves time on cleanup Fresher ingredients Tastes better Made by pros No need for infrequently-used items Cheaper Ability to sample/try new items Higher Same Lower

28 FMI | The Power of Foodservice at Retail 2018© | Buy retail foodservice every few days/daily Greatest win over restaurants is combining chores

Top five 55% Can be combined with grocery shopping 41% Is faster to order/pick up Where is the 37% Better cost food itself? 30% Closer/easier to get to 25% Better control over portions

29 FMI | The Power of Foodservice at Retail 2018© Deli regulars see advantages very differently +5 Faster to order/pick up +20 Better quality -13 Can be combined w/ grocery shopping Much more focus on +12 Fresher +11 More nutritious the food itself and -1 Better cost the customization of +5 Closer/easier to get to portions and meal +9 Better control over portions selection +12 Better item variety +13 Better customization

Higher Same Lower 30 FMI | The Power of Foodservice at Retail 2018© Supermarket dominance Conversion Average spending CHANNEL CHOICE

FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics 31 Supermarkets claim the top spot overall Millennials underindex. Can foodservice be a way to connect?

Primary store for groceries

All Young Millennials Older Millennials Gen X Boomers

54%

34%

4% 5% 3% 0% 0.4%

Full-service Supercenter Warehouse club Limited Specialty/organic Online Other (dollar, c- supermarket assortment store, etc)

32 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Supermarkets have highest conversion Store and deli trips often do not translate into foodservice purchases

Buying retail foodservice vs. majority of groceries Other store 58% Across channels 7% ---- 63% Supermarkets Mix Primary 35% store 57% Supercenters 58%

33 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Role of promotional research Merchandised sales Favorability of discount types Communicating value messaging VALUE-SEEKING

FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics 34 Average of $10 pp for a quick dinner out

Per person spend for a quick dinner out (restaurant /fast food or retail foodservice) 31% $10.05 22%

12% 12% 9% 7% 4% 4%

<5 per $5<$8 $8<$10 $10<$12 $12<$15 $15<$20 $20<$25 >$25 person

35 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics De-emphasized role for pre-trip research

Check foodservice promotions prior to going to the store 9% Always 15% Regularly However…. Planners and regulars 35% Sometimes check significantly more 22% Hardly ever often 19% Never

36 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Price promotions not a strong sales driver in deli/prepared 14% 34% of retail foodservice of total perimeter $ sales on deal (any merch) $ sales on merch

Very low promotional lift & incrementality Only 30% of trips include a merchandised item

37 Source: IRI, MULO, 52 weeks ending 3/25/2018 | Picture: 210 Analytics Shoppers favor everyday favorable pricing

5-Like it a lot 1-Does nothing for me Regulars 43% 53% Favorable everyday low prices 5% 39% $x off 6% 51% 35% Loyalty program 13% 49% 33% Free item w/meal 12% 48% 29% Special of the Day 11% 52% 26% Special featured days 16% 53%

38 FMI | The Power of Foodservice at Retail 2018© | % Like it a lot 39 Pictures: 210 Analytics Choosing the right vehicles Interest in signing up rises along with relevance

Signing up for messages with tonight’s dinner specials from your primary store

Very likely 27% 19% 17% 12%

Not at all likely 20% 31% 36% 37%

FMI | Power of Foodservice at Retail 2018© | Picture: 210 Analytics 40 Out of home dinner plans Desired functionality Application usage Digital outreach TECHNOLOGY

41 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Technology use is ramping up

Technology use to determine where and what to eat (when not cooking dinner)

4% 8% 19% 23% Nearly always Frequently 40% 37% Sometimes Hardly ever 18% 17% Never 19% 15%

2017 2018

42 FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics Technology key platform to connect

66% Foodservice regulars 31% 60% Regularly look for deli promos Frequently/always 52% Nutrition-focused shoppers use technology 46% Millennials for dinner out planning 45% Urban shoppers 42% High income

43 FMI | The Power of Foodservice at Retail 2018© And will likely continue to ramp up

Technology use in dinner planning by generation

8% 4% 13% 12% 11% 23% Nearly always 33% 34% 36% Frequently 37% Sometimes Hardly ever 34% 21% 38% Never 19% 11% 14% 28% 13% 5% 6% Young Millennials Older Millennials Gen X Boomers

44 FMI | The Power of Foodservice 2018© | Picture: 210 Analytics Matching restaurants in consumer-facing technology 4 in 5 Restaurants: helps drive sales, productivity and provides a competitive edge

45 Pictures: 210 Analytics Usage increases for all activities Research is the more common application, but technology-inclined shoppers order as well

Use technology to do… (% yes)

Finding recipes/ Sales specials Ordering restaurant Ordering meals from a 3rd meal ideas Research dinner options meals party delivery service Creating grocery lists Order routine groceries Order catering/deli at the grocery store

46 FMI | The Power of Foodservice at Retail 2018© Highly-desired functionality: menu, prices & specials Technology-focused shoppers are more demanding

Desired app/website features for determining where/what to eat

Full menu Clear prices Ordering restaurant Map/directions Sales specials meals Customize online order Delivery Advanced order for pickup

47 FMI | The Power of Foodservice at Retail 2018© Focus on healthy eating Nutrition-focused shopper profile Top nutrition features Claims driving sales Calorie labeling NUTRITION, BALANCE & HEALTH

Nutrition-focused shoppers… 70% Foodservice regulars A lot (24%) or some (46%) Technology-inclined of focus on eating Planners healthy/nutritious meals at the deli/restaurants De-emphasize price/promos Higher income

85% Healthier ingredients 83% Clean label 71% More nutritional education/info 66% Bigger variety of portion sizes 64% Items for specialty diets 41% Retail dietitian/nutritionists

50 FMI | The Power of Foodservice at Retail 2018© 51 Pictures: 210 Analytics Capitalize on diet trends: clean eating, plant-based eating and superfoods

RDBA calls fermented foods the #1 superfood of 2018

53 Pictures: 210 Analytics Restaurant menu labeling awareness flat but yielding greater action

39% Does NOT change 77% my selections Have seen restaurant menu calorie labeling 38% Tends to influence Up from 75% my selections

+8 points 54

33% Does NOT change 62% my selections Have seen menu calorie labeling in grocery stores 21% Tends to influence Vs. 77% at restaurants my selections 42% of nutrition-focused shoppers 55

56 Pictures: 210 Analytics Retailers take various calorie & nutritional approaches

Per spoon Per ounce NuVal Central board

57 Pictures: 210 Analytics Shoppers: keep it simple

By the item/spoon As a % of daily value Per ounce

DV Oz. 67% 22% 12%

Prominently highlighted on grab-and-go deli item packaging Calories Sugar Protein Sodium Total fat Carbs Cholesterol Saturated fat No

FMI | The Power of Foodservice at Retail 2018© | Picture: 210 Analytics 59 Central kitchen vs. in-store prep Brands vs. unbranded Made-to-order vs. grab-and-go Variety Suggestions for improvement OPERATIONS

60 FMI | Power of Foodservice at Retail 2018© | Picture: 210 Analytics No strong advantage for in-store preparation, unless you make it one

22% 44% 27% Items made in No difference Items made a central kitchen between in-store vs. in-store are are better central kitchen prep. better

61 FMI | The Power of Foodservice at Retail 2018© | Don’t know/no opinion: 6% Leverage the advantages of in-store production

62 Pictures: 210 Analytics Use of familiar brands can provide an edge

36% 43% 21%

Would much I’m indifferent I would like to rather see to the use of have the branded items in branded items choice of prepared foods branded and other options

63 FMI | The Power of Foodservice 2018© | Pictures: 210 Analytics Leveraging brands for a premium ring or avoiding a restaurant trip

64 Pictures: 210 Analytics Providing a branded choice, at a cost

Shopper preferred assortment choices 64% 32% 4%

Both grab-and-go All items All the store items and made- should be needs is grab- to-order made-to-order and-go availability

Important to offer

▪ Nutritious/ ▪ Flavor/item ▪ Natural/ ▪ Good beer/wine healthy items rotation organic items selection ▪ Meat variety ▪ Locally- ▪ Good drink ▪ LTOs sourced items selection ▪ Surprise meal of the day

67 FMI | The Power of Foodservice at Retail 2018© | 4+5 on 5-point scale | Picture: 210 Analytics Variety demand rises with usage

Very important to offer features All Regulars Healthy/nutritious items 45% 60% Meat variety beyond chicken 38% 53% Frequent rotation of flavors and items 31% 48% Locally-sourced items 28% 42% Natural/organic items 28% 44% Good drink selection 25% 41% Good beer/wine selection 20% 41% Surprise, chef-inspired meal of the day 20% 41% Limited time offers 17% 35%

FMI | The Power of Foodservice 2018© | 5 – Very important on a 5-point importance scale | Pic: 210 Analytics 68 Leveraging LTOs and seasonal

69 Pictures: 210 Analytics CONCLUSIONS Perfecting the deli “eco-system” to drive sales, loyalty and total store success

1. Focus on being a solution in the trend toward lesser at-home preparation Home-prepared meals are decreasing, but retail foodservice isn’t benefitting 2. Be a helping hand in meal planning Only 35% know what’s for dinner at 4 p.m. Planners are bigger grocery spenders. 3. Sales promotions are not greatly effective at generating sales But can help drive awareness and meal planning 4. Improve triggers outside the store to drive traffic In-store signage and observation/experience are the prime awareness drivers 5. Emphasize the quality, freshness and healthfulness of the food itself There is more than the mere grocery adjacency

71 FMI | The Power of Foodservice at Retail 2018© 6. Technology uses is ramping up in all dinner/food/grocery applications Retail foodservice regulars are above-average technology users. 7. Answer health & wellness calls Retail foodservice regulars are nutrition-focused while de-emphasizing price 8. Offer alternatives with growing action based on calorie information More shoppers alter selections upon seeing calorie information, keep switchers by offering better-for-you options 9. Directly call out in-store preparation and brand advantages While many (non-users) are indifferent, in-store prep and brands can drive premiums 10. Shoppers want it all: grab-and-go and made-to-order Offer a continuum of choice for all shopper need states: grab-and-go for speed and made-to-order when time allows.

▪ Access your copy now: www.fmi.org/store/

▪ For questions or information: Anne-Marie: [email protected] Rick: [email protected]