Why 'Grocerants' Are The Future Of Food Shopping

In hindsight, the portmanteau was kind of inevitable. A year after consumer spending on restaurants finally surpassed grocery sales, evidence in two new reports is suggesting that neither restaurants nor grocery stores are the future of food shopping. Instead, what could dominate is a hybrid of the two: "grocerants."

According to evidence in one NPD group report and one research note from Oppenheimer, both out this week, Americans (and Millennials in particular) want someone else to cook for them, but they don't want to stop going to the grocery store, either. The compromise between the two? Purchasing prepared food from the supermarket.

NPD's food-service market research found that in-store dining and take-out prepared foods from grocers has grown 30% over the past eight years, accounting for $10 billion of consumer spending in 2015. By NPD's count, more than 40% of the U.S. population purchases prepared food from grocery stores -- and this number could grow as Millennials increasingly warm to the crazy idea of getting their food not from Seamless but from the supermarket.

“Millennials’ interest in the benefits and experience supermarket food-service offers will continue to be strong over the next several years,” David Portalatin, NPD's vice president of industry analysis said in a statement accompanying the research. “This forecast bodes well for food manufacturers and retailers who have their fingers on the pulse of what drives this generational group. Give the Millennials what they want — fresh, healthier fare and a decent price — and they will come.”

According to NPD spokesperson Kim McLynn, "grocerants" can range from yuppy-chic (see New York City's Eataly) to conventional-seeming grocers, like H-E-B Grocery in San Antonio, Texas, Buehler's in Wooster, Ohio, Hy-Vee in Bloomington, Illinois and Whole Foods in Austin, Texas.

While many grocery chains seem to be catching on to this trend, it's Whole Foods that has made some of the largest strides in capturing dining dollars for its prepared food offerings. In a separate research report released this week, Oppenheimer analyst Rupesh Parikh assessed the company's new "365 by Whole Foods" initiative and found that its pre-made food selection was a notable strength.

"We were impressed by the overall prepared foods offering, which could represent a point of differentiation versus other specialty concepts such as Trader Joe’s," he wrote. "The main components of the prepared foods offering included two cold salad bars and two hot bars that included items such as pizza, soup, chicken wings and samosas. There were also other “prepared food venues” including a case filled with pre-made sushi, sandwiches, salads, etc. and an area where customers can order via iPad select items such as hot dogs, pizza, and rice/veggie bowls."

Beyond simply offering prepared food, Parikh and his team said they saw "an extensive assortment of value-priced prepared foods," too, including Seared Albacore Sashimi for $10.00; a Chinese-style salad with chicken for $4.50; peanut butter and jelly sandwiches for $3.50 each; a BBQ-style chopped salad for $4.00; and a chicken Caesar salad bowl for $10.00.

Ultimately, the Oppenheimer team estimates that 365 by Whole Foods could capture 20% to 30% of its market share from traditional restaurants:

"Based on our study of the concept and competitive backdrop, we believe the 365 format can help to attract a new customer and broaden the market share potential for the chain," Parikh concluded. "We view the new concept as very on-trend, catering to some of the hottest trends out there currently including fresh, natural/organic, and growth in away-from-home spending."

Of course, Whole Foods isn't the only grocer beefing up its pre-made meals. In reporting its first quarter fiscal 2016 earnings results Thursday morning, Kroger -- the second-largest food retailer, behind Wal-Mart -- made a point of highlighting its new investment in Lucky's Market, a specialty grocery chain with a strong prepared foods department.

"We invested in Lucky’s because of their great people and unique go-to-market strategy, which includes a culinary department that showcases amazing, restaurant-quality prepared foods," Kroger CEO Rodney McMullen said in prepared remarks Thursday morning. When the call was opened up to analyst questions, McMullen did not rule out the possibility of additional partnerships -- including, he said, something with a meal-prep company like Blue Apron.

"The short answer is absolutely," he said. "And as you can imagine, we would look at any and all approaches."

Including, it would appear, one day morphing into a grocerant.