E-commerce & Internet Retail

Is Dining Out Eating Into CPG Sales?

  • May 11, 2018
  • Neil Saunders
  • 6 minutes

CPG firms understandably spend a lot of time thinking about how to compete with other brands and products on the shelf. However, one of the most serious threats comes not from within the grocery store but from outside of it: the rising number of people eating out and bringing home takeout food.

The driving forces

There was a time when dining out was reserved for special occasions and fast food was an irregular indulgence. This was probably somewhere around the mid-1950s, when away-from-home eating accounted for just a quarter of total spend on food.

Today, those dynamics are consigned to history. Last year, Americans spent more on food away from home than they did on buying groceries. Despite rising steadily for decades, the growth of non-home food spend appears to have accelerated over the past few years.

A number of trends are driving this shift, and many of these are especially prevalent among younger generations.

Foremost among them is a lack of time. Households are busier than ever before, and cooking has been one of the chores people have sacrificed to give themselves extra time. For younger households, a lack of skills and knowledge about cooking has also contributed to the increase in eating out – a sizeable proportion don’t even have the facilities to make proper meals.

A highly competitive market, especially in the casual dining segment, has also helped to reduce the price of meals away from home. This has allowed more consumers to eat out more often.

Other underlying trends, like the rise in single households, concerns about food waste, and the need to be entertained, have also underpinned the shift to dining out.

Despite its dramatic growth, the dining out market does not look set to slow. Almost 80% of consumers say they will spend the same or more on eating out over the next five years than they do currently.

Worryingly for CPG, the dining out numbers actually understate the scale of the issue, as they don’t include the increase in the number of people getting takeout food or having meals delivered via services like Grubhub or Uber Eats.

In short, the reallocation of food dollars away from traditional retail to the food service sector is a growing and distinctly unhelpful trend for CPG brands.

Meal kits: a potential solution

Many of the trends that have driven the food service sector have also underpinned the growth of subscription-type meal services, where kits containing all of the ingredients to make meals are delivered on a regular basis.

Spend on subscription meal services reached almost $1 billion last year and will grow to around $2.2 billion by 2020. While dedicated companies like Blue Apron dominate the segment, there is an opportunity for CPG firms to capitalize on this growing interest.

Some CPG firms, especially those with wide product portfolios, could develop their own meal kit services. Alternatively, CPG players could partner with other providers to offer their products in these kits. This would be particularly appropriate for items like sauces, staple ingredients and tinned goods.

As solid an opportunity as this is, the downside is that volumes are likely to remain relatively limited. This is mostly because meal kits suffer from a number of issues that hold back their advancement. Foremost among these is a perception that the service is inflexible and doesn’t fit in with consumers’ busy lifestyles. The expense of delivery and the price of the service itself is also a concern.

Wider considerations

With meal kits providing only a partial solution to the issue of changing habits in food consumption, CPG firms need to think more widely about how to mitigate these trends.

Here are five considerations:

  1. Ready-made meals or meal kits may not be universally popular in subscription form, but they are taking a more significant share of in-store spending. Traditionally, many CPG ready-made meals have been seen as down-at-heel convenience options. However, there is scope to develop premium, fresh ready-made meal solutions. Retailers like Wegmans already do a good job of this with their own label, while U.K. retailers like Marks & Spencer and Waitrose excel in the category.
  2. With so many convenient alternatives available, retailers and CPG firms need to ensure that consumer problems like “What shall I have for dinner?” can be easily addressed in stores. This might simply mean arranging products like pasta, sauce and bread together at the front of the shop during the late afternoon and early evening.
  3. How consumers use stores is also changing thanks to the rise in eating out. Customer traffic to center aisles with store cupboard staples and ingredients is down. This means CPG firms need to promote products, especially new launches, more heavily elsewhere in store and via external marketing efforts. Some of this might involve thinking beyond the traditional grocery store. Kellogg’s, for example, opened a cereal cafe in New York City.
  4. If people are eating out more, then they are making less food at home. That means CPG firms should rethink aspects of products like pack sizes. For perishable items like pasta sauce or tins of tomatoes, smaller options are sensible, as consumers may only use them to make one meal and any excess will be wasted.
  5. There should be more innovation in formulations and ingredients to maximize the taste of products used for meals. Dining out is often about taste and experience, so CPG firms need to think about how their products can deliver on these requirements in a home setting.

Conclusion

Although it is often viewed as a separate part of the market, CPG firms need to react quickly to the growing threat of dining out. Today’s younger consumers have a very different relationship with food than the shoppers that came before them. They are much more attuned to convenience and speed while not wanting to sacrifice taste and quality. Ultimately, CPG firms need to rethink their product strategies to align with this new mindset.


Neil Saunders is a retail analyst and consultant. He currently serves as Managing Director of the research firm GlobalData, where he oversees the development of the company’s retail proposition and its research output. He also works with clients to help them understand the retail, shopper and market landscape.

Neil is a founding partner of Prasentia, a firm that works with clients to help them communicate more effectively. Outside of work, Neil is an advisory board member for the faculty of business and law at the University of Southampton, an Honorary Lecturer at the University of New Hampshire, and a Visiting Fellow at the University of Surrey.

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