Natural Foods Merchandiser logo

Is foodservice in your future?

April 24, 2008

6 Min Read
Is foodservice in your future?

Six and a half years ago, Kathy Jones bought a 2,700-square-foot natural foods store in Frisco, Colo. ?When we bought the store, our intent was to get a deli in as soon as possible,? she recalls. ?We did it within the first three months and the business took off.?

Within the first year, Alpine Natural Foods? sales almost doubled, Jones says, and after four years it outgrew its space and expanded into a 4,000-square-foot location. ?Now we make 28 sandwiches to order, we have juice, espresso and smoothie bars, and we make baked goods like cookies, cakes and scones,? she says.

Ah, foodservice. It can give a natural foods store just the boost it needs to be competitive in today?s marketplace. It?s a great tool to attract new customers, to use inventory that might not otherwise sell—such as bruised and wilted produce—and to transform a food store into a community gathering place in the bargain.

?It sets a tone of theater and excitement for the whole store if it?s done right,? says Troy DeGroff, director of sales and marketing for Earth Fare, an 11-store chain based in Asheville, N.C.

Market realities are almost demanding that natural foods retailers offer some sort of foodservice. Right now, 47 percent of consumers? food dollars are spent on restaurant meals and takeout, according to Bill Stewart, founder of Real Foodservice Inc. in Boulder, Colo. Within five years, he says, that percentage will increase to 53 percent, overtaking retail?s percentage of the food dollar.

But foodservice has its challenges. Up-front costs to install a foodservice operation can be substantial. It can be the part of your store that experiences the highest staff turnover. And it requires knowledge of a world that is very different from natural foods retailing, say those who have done it.

That?s why, according to natural foods retailers and foodservice consultants, it?s important to answer some key questions before making the decision to institute foodservice as a profit center. The Natural Foods Merchandiser?s editors culled their collective wisdom on the subject and came up with the following five key questions.

1. Can you afford the resources it takes to institute foodservice?
According to retailers, foodservice set-up represents the greatest expenditure in new store costs.

As a result, it?s important to have a clear plan from the outset for what programs, equipment and financial resources will be needed, says Allen Seidner, a principal at Thought for Food in Fairfax, Calif.

?The way I know how to help people create new foodservice departments involves harmonizing the menu, available space and construction budget. One of those things will always be a limiting factor. If the limiting factor is vision—your plans are too grand—scale back. If it?s money, wait, save up and borrow more or scale back. If it?s space, well, that?s obvious.?

2. Does the space you?ve committed to foodservice return the same or greater sales and margins as your retail space?
Unless they?re expanding, store operators have to give up retail space to institute foodservice. As a result, they need to make their investment in foodservice return the same or more than it would had that space been devoted to traditional store offerings.

Seidner says foodservice departments typically ring between 8 percent and 12 percent of total store sales. Earth Fare, with a reputation in the Southeast for its foodservice, rings about 15 percent of its total sales in foodservice and devotes about 20 percent of its floor space to it. Jones? Alpine Natural Foods rings 25 percent of its total sales in foodservice and devotes slightly less than 20 percent of its floor space to it.

Margins for all departments in a natural foods store should approach 25 percent of sales, consultants say. ?If deli has margins of 67 and labor of 33, for example, you end up with 25 percent of sales,? Seidner says.

The cost ?on the plate? should equal 30 percent to 35 percent of the total sale price. And the plate represents labor costs, energy costs and payments for equipment, as well as food costs. ?If you?re running food costs of 60 percent, you?re not making money,? Stewart says.

3. Can you provide unique offerings, and can you make your foodservice beautiful?
Natural foods retailers that offer foodservice are not competing with conventional supermarket delis, but rather against the so-called supernaturals.

?You have to live up to industry standards,? Stewart says. ?You have to have interesting flavor profiles. It?s not enough to have tofu. It must be flavored in an exotic fashion.?

To compete with the supernaturals, find a foodservice niche they don?t serve. ?Can you do a better job for vegan or gluten-free customers, or with vegetarian food or seafood?? Seidner asks. ?What other simple program can you do that some of the big guys might not be willing to bother with??

As far as beauty goes, presentation is key. ?Consumers buy with their eyes,? Stewart says. And eating spaces themselves have to be inviting. Earth Fare?s in-store cafes, for example, have fireplaces and booths as well as tables. ?That?s made them very attractive,? DeGroff says. ?They?re like self-serve restaurants.?

4. Have your customers requested foodservice?
If they have, you?ve got a rationale for doing it. If your customers haven?t requested foodservice, ask them if they would support it. This is best done via surveys, which are relatively easy to conduct at the checkout counter. ?Your customer is standing there with nothing to do but pay the bill,? Stewart says. ?It?s a way to interact and say you care about their business.?

5. Who, internally, is in the best position to lead the creation of a foodservices department?
Jones says having previous foodservice experience is a huge plus. ?It?s a totally different ball game,? she says. ?Hire someone with experience in foodservice.? The world of foodservice vending is new territory for many natural foods retailers. And it?s sometimes difficult to get the product you need when you need it. ?It?s a battle to get consistent product,? says David Taylor, owner of Nature?s Harvest Market in Tampa, Fla. ?We?ve had to do more inventorying so we can stay ahead.?

But Seidner says previous experience is not always the key component to a good foodservice department head. ?Hire someone who knows how to run a large project and who is open to pulling in new ideas,? he says. ?That?s the kind of person who can create a dynamic, successful new foodservice department. It has much more to do with who you are and what your project management and communications skills are like.?

Ultimately, Seidner says, when pondering foodservice, pay attention to your vision. ?Don?t limit it too early. Respect the creative process. Then, when that?s done, have the discussion of how to whittle it down to programs that make sense and make money.?

Nancy Nachman-Hunt is a writer and editor in Boulder, Colo.

Natural Foods Merchandiser volume XXVI/number 3/p. 46, 48

Subscribe and receive the latest updates on trends, data, events and more.
Join 57,000+ members of the natural products community.

You May Also Like