Could grocery ranges help turn the tide for casual dining

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Associate Consultant Lucy Herriot discusses the advantages which grocery and retail ranges can bring to casual dining as many operators shift towards a multichannel business model.

This week Pret A Manger launched its first foray into a sales channel outside of its own stores. The chain has launched its first retail range online and is looking at other ways to sell more products via other channels. Soon three different Pret coffee products will be available on Amazon – two types of organic ground coffee and a whole bean roast. Consumers will be able to play a Pret Barista and enjoy the chain’s organic brews from the comfort and safety of their own home. Pret UK Managing Director Claire Clough said ‘we know how much customers are missing it from their daily lives at the moment, so we’re delighted to be launching our first retail range with Amazon. This marks the first time that our customers can make their favourite Pret coffee at home’.

Pret has reportedly been planning this move for a while, but the launch was significantly hastened by Covid-19, while lockdown forces households into making their own coffee as restaurants and coffee shops are either shut or only now slowly reopening for takeout or delivery. It also comes as the company, owned by private equity firm JAB Holdings, is in talks to raise a €100m urgent loan from banks in an attempt to restart and transform its business in the wake of the situation driven by the Covid-19 pandemic. Pret’s Chief Executive said that the company had sufficient funds to weather the lockdown but it needed funding for a ‘test and learn stage’ to create new systems and offerings post-Covid-19. Perhaps this retail range is the first cautious step in that transformation. Pret said in a statement that the move to selling via Amazon ‘marks the beginning of a wider retail offering planned by Pret, with additional products under development for future release’, telling us that the chain growingly sees grocery outlets, supermarkets, and possibly even other cafes and restaurants as key elements in its sales strategy.

Pret’s choice of Amazon as its first sales partner is telling. It has completely bypassed supermarket chains with bricks-and-mortar presence for now, likely due to the risk of long-term restrictions on physical retail, and perhaps due to Amazon’s skyrocketing site traffic and sales during lockdown and its superior distribution and delivery network. It’ll be interesting to see whether the deal involves exclusivity or whether we’ll see the products popping up in Pret’s own stores or elsewhere, online or offline.

Although this is a first for Pret A Manger, it’s not uncommon for high street restaurants and casual dining operators to launch retail ranges – even under normal market circumstances – to supplement their core income and extend the brand’s scope and customer reach. Pizza Express was one of the earliest players to do this – it now sells most of its pizzas outside of its 520 restaurants, in major supermarkets. The company says that ‘we’re no longer running restaurants, but that we’re a multichannel brand’. This move has helped Pizza Express weather the downturn on the UK High Street and recently paid off ten-fold as the company had the existing facilities and supply-chain network to ramp up production of supermarket pizzas as it faced into the prospect of little to zero revenue from its restaurant operations while the Covid-19 situation unfolded in the UK. This flexibility and diversification in revenue streams has proven invaluable during crises and in helping the business to face down a black swan event.

A growing cast of brands are deploying this multichannel strategy as the faltering casual-dining industry diversifies away from the core dining experience into shelf-stable and fresh grocery ranges in a bid to supplement core revenue. Restaurant outlets require large capital expenditure, and grocery ranges offer a way to reach customers without incurring this cost. There’s also a marketing advantage to displaying brand logos in shops which have far greater footfall than restaurants do, fuelling the virtuous cycle where new customers who enjoy the grocery product are then compelled to try the restaurant outlet, and vice versa.

Operators must be flexible coming out of the Covid-19 pandemic, which has compounded the many issues already plaguing the high street restaurant sector. It looks growingly likely that – even post-lockdown – bricks-and-mortar restaurants, food outlets, and dining may never be the same again. So now more than ever, retail ranges look to be one of the key diversifiers which casual dining and fast-casual outlets would be wise to consider in order to spread their bets and diversify income away from their primary products and core sales channels.

There are however pitfalls to launching grocery ranges – there’s always a risk that supermarkets copy a product which retailers bring into their stores, producing and selling it at a cheaper pricepoint themselves. Some chains overestimate the power of their brand and branch into retail ranges too early – Wahaca scaled back its supermarket ranges in 2018 following lower-than-forecast demand and losses in listings at Tesco and Ocado. Bella Italia also had to back-track on its supermarket range of pastas following weak consumer demand. However, with the right timing, sales partners, and savvy marketing, launching a grocery range can take a casual dining brand to the next level by transforming it into a multichannel brand. Leon’s first grocery product, an aioli sauce launched in 2019, exceeded sales forecasts by 60% and Nando’s peri-peri sauce is now the UK’s best-selling chilli sauce. Costa, Starbucks, Crussh and Yo! Sushi are a few more names which have seen big gains from distributing ranges in supermarkets and grocers.

In time we’ll see which way the online retail range goes for Pret and whether grocery ranges could be part of a long-term solution to the problems faced by the casual dining sector. In any case, opening up new online revenue sources does look to be a good move at the moment as it seems growingly likely that bricks-and-mortar retail and customer footfall will be impacted by Covid-19 well into the longer term, even after restaurants and retail stores are allowed to re-open.

Thanks very much for reading,

Lucy

Author


Lucy Herriot

Associate Consultant

 

 

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