The Future of Foodservice
Foodservice has bounced back from COVID-19, but operators still face challenges. See what the future looks like to the 250 industry insiders we surveyed.
Volume XXV, Issue 30 |

Fresh prepared foods (FPF) were a large and high-growth market prior to the pandemic, with sales accelerating 7%-10% year over year for the past decade. The market benefited from increased consumer trials during COVID-19 as restaurants shut down, and demand has remained strong even now that foodservice operations have reopened. 

Offering FPF is a way for retailers to compete with Amazon and other ecommerce players. A fresh, hot prepared meal keeps their store footprint relevant and drives traffic by creating a destination for consumers. 

Consumers have discovered that FPF not only contribute to quick and easy meals, but also provide a chance to extend those meals beyond their cooking comfort zone. FPF like sushi bars, stir-fry stations and grab-and-go pastas provide access to new cuisines. Premade items like ready-to-eat soups, side-dishes and deli salads save time in the kitchen. This is particularly relevant for those working from home who are looking to substitute a restaurant or grab-and-go meal near the office for lunch. 

Grocers have expressed commitment to additional investments in FPF, which will require producers to keep pace. But what does it take to succeed? Let’s find out.

A large and growing market  

FPF include a variety of different products (see Figure 1). This market includes packaged ready-to-eat products, bulk ready-to-cook products like marinated meats or meal kits, and hot bar, deli and grab-and-go products. 

Retailers are investing in this section of the store as a differentiator. FPF are a great way for retailers to differentiate from other brick-and-mortar grocers and to defend against online players. While Amazon can deliver groceries to your door, it cannot provide a fresh, hot prepared meal that is ready to eat. Grab-and-go items are seeing particularly high demand — according to a recent study by Supermarket News, 66% of respondents suggested grab-and-go products are the best way to fight competition for prepared foods sales.

Food retailer investments

Investments in FPF and in-store foodservice are cited as the most successful strategies retailers can execute (see Figure 2). According to an FMI study published by Grocery Dive, 75% of food retailers said they used product-differentiating strategies within FPF in 2021; now, more than a year later, 70% of those who implemented such a strategy responded that the efforts were a significant success.

New grocery chains like Dom’s Kitchen & Market are doubling down on the demand for FPF. An upscale grocer, Dom’s provides expansive fresh prepared food offerings, a wine and coffee bar, and indoor and outdoor seating to enjoy meals and drinks. It opened its second location in Chicago in November 2022 and plans to open 15 new locations by 2025.

More established grocery chains are also taking notice: Schnuck Markets, a Midwest grocery chain with over 100 locations, plans to increase partnerships with local restaurants that started during the pandemic to offer grab-and-go entrees. Sixty percent of food retailers also cited success with juice bars, highlighting an additional avenue for differentiation. 

Other strategies such as full-service restaurants, catering and in-store dining did not prove to merit investment, as only 38%, 36% and 21%, respectively, of respondents claimed to see success with these offerings. 

Recent successes and tailwinds from shopper preferences and macroeconomic factors are leading food retailers to allocate additional space, enhance offerings, and increase staff for FPF, including grab-and-go, chef-made-to-order stations and self-service. 

In a survey of food retailers and wholesalers conducted by Supermarket News, an overwhelming 48% of retailers plan to increase space allocated to prepared foods (see Figure 3). The next-highest category is deli at 29%. In the same survey conducted a year prior, in 2021, prepared foods were also the highest-ranked category at 39%, underscoring the conclusion that food retailers believe prepared foods are here to stay.

Analogs in other markets 

Despite recent growth, the FPF market in the U.S. remains underdeveloped relative to international markets. Retailers in Europe have much better fresh prepared food offerings — a trip to a Tesco grocery store in London during the weekday lunch rush will find you surrounded by people deciding which affordable lunchtime “meal deal” they should try that day. Offerings range from ready-to-eat traditional British fare to ethnic meals to premium soups and salads. Compared to the U.S., online penetration of ready-to-eat meals is much more robust in the U.K. 

Tesco tried unsuccessfully to enter the U.S. market in 2007 with a Eurocentric strategy of smaller stores and a plethora of ready-to-cook and ready-to-eat meals, which did not resonate with American consumers at the time. A second attempt may prove to be more successful as American consumer preferences for FPF are changing to match preferences from across the pond. More likely, however, existing U.S. grocery retailers will continue to take advantage of the long growth runway for FPF and build out that offering. 

Similarly, Japan has a well-developed prepared foods market. Ready-to-eat or easy-to-prepare meals, known as souzai, are commonplace in grocery stores across the country. Given limited kitchen and refrigerator storage in Japan, a growing elderly population, and the large number of single-person households, individual- and small-sized packages are most common in this department

Today’s competitive producer landscape 

The FPF producer landscape is quite fragmented today, with retailers sourcing from a patchwork supply network. A national supplier that provides quality and consistency at scale is ideal — but less common — today. Most suppliers operate regional models, shipping refrigerated or frozen products within a set radius. Others act as commissaries with facilities dedicated to a handful of key accounts. 

FPF producers tend to focus on specific categories like deli salads or ready-to-cook and ready-to-eat meals but expand as they scale. For example, Blount Fine Foods and Kettle Cuisine both started in premium refrigerated and frozen soups but added adjacent products to continue driving growth. 

Across product categories, shelf life is a key decision factor for suppliers. Shorter-shelf-life products limit the delivery radius of an item and add operational complexity, which can challenge profitability. Longer-shelf-life items can be shipped farther, create greater appeal to retailers due to reduced risk of shrink and generate production efficiencies in the form of longer runs. 

While some products have inherently longer shelf life than others, most producers utilize specific technologies and/or preservatives to extend shelf life. Preservatives are a relatively simple way to extend shelf life but suffer from a negative perception by some retailers and consumers. Given this, many producers are increasingly turning to technologies such as high-pressure processing (HPP), modified atmosphere packaging and frozen shipping to extend shelf life. Many of these technologies also have a kill step that increases food safety and enables a clean label claim that appeals to consumers. 

Levers that impact profit and growth 

  1. Embracing technical production processes to manage shelf life 
    Products with short shelf lives provide a unique challenge that is necessary to address. To manage them properly and compete effectively, companies need expertise in procurement, distribution and operations. Some products naturally have longer shelf lives; for other products, preservatives are generally accepted. For short-shelf-life products that cannot utilize preservatives, other technologies can be leveraged (e.g., retort, HPP and shipped frozen) to extend shelf life in a food-safe way, better serving national retailers with quality and consistency at scale (see Figure 4).
  1. Focusing on product category selection 
    More is not always better — a narrower category focus with product depth can simplify operations. This will inherently reduce share-of-wallet potential, thus placing a greater importance on products that have naturally higher margins. 

  2. Identifying a geography and channel strategy 
    FPF producers that serve multiple regions can provide consistency and scaled procurement to national retailers and foodservice providers. For smaller FPF producers, the choice is between focusing on a concentrated set of customers or pursuing customer breadth (the former carries an enhanced customer concentration risk). 

  3. Pursuing automation and investment
     Strong operators utilize high levels of automation and make investments in high-speed, sophisticated equipment to manage costs and improve margins. Currently, supply chain and manufacturing processes are a “Wild West,” but processes are evolving to better meet the needs of consumers and retailers.  

  4. Creating a strategic approach to new product development
     To create a strategic “moat” while managing costs, FPF providers should develop a disciplined, structured, and data-driven approach to identifying new offerings and evaluating current ones. Providers should also keep a close eye on profitability and know how to say no to customers when suggestions and requests don’t have business value. 

Room for growth 

The FPF market — high off several years of growth due to the pandemic and an increasingly busy consumer demographic — is expected to continue to expand, creating massive opportunity for producers and retailers. As the U.S. pursues European levels of FPF affinity, the industry will continue to pursue strategies for efficiency and success. With applied attention to considerations like shelf life, product categories and development, channel strategy, and automation investment, companies in FPF production face an open door of growth possibility. 

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