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The following story ran yesterday on MNB:

“Faced with diminishing sales because of the impact of the recession, many restaurant chains are developing products that can be sold in the nation’s supermarkets as a way of bolstering their brand image, according to a story in the Wall Street Journal.

“Examples cited in the piece are Starbucks, which is looking to sell more bagged coffee and Starbucks-branded ice cream in grocery stores; Burger King, which will start selling its Apple Fries (apple slices designed to look like French Fries) in supermarkets this fall; and other chains including Dunkin’ Donuts and California Pizza Kitchen.

“The Journal writes, ‘Some restaurant chains began developing grocery items prior to the recession as a way to boost brand recognition, but now they are finding that packaged food helps them offset some of the loss in traffic to their restaurants’.”

This isn’t an entirely new issue here at MNB…and I was consistent in my commentary, which read, in part:

I understand the whole notion of giving customers what they want. But I also believe that the supermarket industry is engaged in a long-term battle for share-of-stomach with anyone and everyone that sells food. And while supermarkets never will have 100 percent of the pie, I think they need to be a lot more aggressive about not doing anything that adds credibility to the competition.

This is hardball. There is a legitimate argument that supermarkets should never hype a brand with which it competes. Never. Ever.

Because the fast food and chain restaurants aren’t going to do anything to bolster a supermarket’s brand equity. Nope, they’re just going to nibble and chomp away at your sales every chance they get.

I am, to say the least, in the minority in my opinion.

One MNB user wrote:

Can’t wait to see the feedback you will receive on your rant pasted below. While I understand your point there is also the issue of relevance, which you advocate. Am I relevant to my potential customer base if I refuse to put a Starbuck’s Kiosk in my store or refuse to carry Starbuck’s Coffee in my coffee section? To what do I compare my premium private label coffee if in fact I can’t show a direct comparison on my shelf to what is accepted as the leading brand available in the market? It seems to me these decisions should be made on the basis of the sales and margins they generate for my business and the customer satisfaction they deliver to my shoppers NOT on a basis of I won’t support them because they happen to also compete with me for total food expenditures.

I am less surprised by your position on the issue as I am by the strength of that conviction. It’s as if someone stomped directly on a personal landmine of yours.

MNB user Steven Richey wrote:

I still would like to see you run a store, then it might be a little harder to come down so hard on stores selling a restaurants products. I think you need to come out of your ivory tower a bit and shop with the masses. Besides, how many products have been in stores for years that are from restaurants, I can think of a few, Night Hawk frozen dinners, Marie Callendars frozen dinners, Taco Bell shelf stable Tex Mex products

We can talk all we want to about the supermarket being an advocate for the consumer, but the bottom is still going to be making a profit, it’s what they are in business for and I still believe that when presented with a new product, most category analysts will be asking, what is my cost, what can I sell it for, will there be a market for it and how does it fit overall with the rest of the category.

I think you can stop beating this horse, it left the barn over 30 years ago.

MNB user Frederic Arnal wrote:

Did you ever think that the supermarkets might be taking sales away from fast food chains by selling their branded products? Dollars spent on frozen White Castle sliders in the supermarket are dollars not spent at the restaurant.

Maybe the fast food chains are making a mistake by enabling consumers to experience their products at home.

MNB user Paul Schlossberg wrote:

KC, your position on branded restaurant products being sold in supermarkets is very clear and consistent. Let's follow your logic forward.

Should supermarkets also stop buying from manufacturers selling to competing channels? Examples: club stores; mass merchandisers; convenience stores; chain drug; foodservice chains in fast food and other venues. After all, all of these venues are competing for "share of mouth." That's an adaptation from share of wallet. People will eat and drink as often as 6-8 times a day. Brands want their products offered as a solution whenever and where ever thirst or hunger strikes.

What would happen if supermarkets did stop buying from manufacturers serving other channels? Private label brands would come to dominate the shelves in supermarkets. And taking your logic down the line, supermarkets would get much smaller. After all, a big chunk of the profits at supermarkets is derived from manufacturer allowances.

Don't forget that there are leading manufacturers with branded products featured at various foodservice venues. Think about soft drinks, table-top condiments, snacks/candy, and branded ingredients that are featured on the menu. There are many, many more examples.

Should restaurant operators stop buying from manufacturers whose brands are sold in supermarkets and other retail venues? Market research I was involved in (going back to the '70's) indicated that restaurant patrons expected to find their favorite brands at restaurants. It is highly likely that restaurant patrons still expect to find their favorite brands on the menu and on the table-top.

Let's be very careful about initiating a protectionist campaign in America's retail and foodservice channels. This could be a marketing and merchandising version of the Smoot-Hawley Tariff Act.

Brands have impact beyond the traditional definitions of channel structure. We are looking at a new world with "all channel brands." Shoppers should decide if restaurant brands will sell in supermarkets. If shoppers don't buy it, supermarkets won't keep it on the shelves.

Shoppers do not think in terms of channels or market segments. They think about where (based on their location) they can get a beverage, a meal, a snack. When they get to a venue, their choice/selection criteria usually gets down to their preferred brands. It actually starts with thirst and/or hunger, then categories of products and then brands. The choices are made around brands.

Supermarket shopping, fill-in or pantry loading, might be a different process. It's not based on immediate consumption. But brands still emerge as the final choice. Exposure to those brands, from advertising, on-line, at restaurants, etc., will influence favorable (or possibly unfavorable) reactions. That is what will drive shopping decisions in supermarkets.

MNB user Philip Herr wrote:

As I started to read this I anticipated your comment. And after hearing it quite a few times, I still don't agree with your position. After all, supermarkets are in the business of selling food and if offers from Burger King or CPK help to bring people into the store, then so be it. If you extrapolated your argument, you would need to conclude that supermarkets should sell only private label. Because every branded product on the shelf in some way competes with their own label -- so out it goes!

My point is that brands drive traffic and ones from so-called competitors contribute as well.

MNB user Alfred S Kober wrote:

I have to agree with you up to a point. Supermarkets do compete with fast food outlets, but a high quality minded retailer does not nor can they compete with high end restaurants for experience. No retailer can offer the reward, the theater, the celebration that comes from eating and entertaining by going to a really great restaurant.

One offers necessities and the other luxuries. There is a totally difference in the mind of the consumer between these two. Therefore they can gain synergy by joining together to enhance the experience of both. This is especially true when the intrinsic quality of the meal is equal in both … The problem it creates when the retailer tries to compete with the high end restaurant using lower quality. Then they will lose. When the same quality if offered in both, then both can grow and benefit because then, the only difference to the consumer is, do they want a great eating experience in a home atmosphere or a great eating experience in a restaurant atmosphere. Many of the country’s best retail and food service operators understand this and support one another.

MNB user Rhonda Williams wrote:

I tend to be leery of superlatives. Using this line of reasoning, why would a retailer opt to carry products that compete with its own Private Label brands? If you sell your own PL peanut butter, then why sell Jiff, Laura Scudders and Peter Pan? I think you are throwing out the baby with the bath water here. If I can buy BK’s apple fries from my local grocer store, along with the ground round and hamburger buns, isn’t that better than not buying any of those items at the store and giving the business to BK?

Yet another MNB user wrote:

I work for a restaurant franchise called Cafe Yumm!. Our restaurant sells bowls of different organic ingredients and calls it a Yumm! Bowl. One of the ingredients in our Yumm! Bowl is Yumm! Sauce, an invention created by one of the owners. It's a blend of savory spices and organic ingredients. It can be used as a dip, sauce, dressing or topping. It is one of the most beloved items in our restaurant.

Since the start of Cafe Yumm!, customers began requesting Yumm! Sauce at retail. We started selling the sauce only in our restaurants and have since expanded where we offer our product. Now, our loyal customers can buy Yumm! Sauce in several natural foods stores in Oregon and in every Whole Foods store in Washington. I am proud of our product because it's actually a healthy alternative to most salad dressings and dips. I think grocery stores who support us by offering our product on their shelves are doing a good thing for us and for themselves: 1) they support local business by offering Yumm! Sauce in their stores and 2) Yumm! Sauce sells quickly so they're making money from the product.

I understand grocery stores are giving up a piece of real estate to a competitor when they put our product on the shelf, but consumers drive what the shelves are stocked with and if they want Yumm! Sauce, they're going to get it! The restaurant examples you've given in your excerpt are mostly the fast food chains Americans have literally GROWN to love... I just wanted to make the point that not all restaurant product offerings are bad and it doesn't necessarily mean that the grocery store is giving up a piece of the money pie.

Another MNB user offered:

Why would any supermarket want to promote a restaurant chain product? One word. Profit. Restaurant visits are down nationally. Families are eating at home more and more. You preach that this is the time for stores to be snatching food dollars. What a better way than to offer the same California Pizza Kitchen dinner for less than half the money at home. I know that we, as a family, have picked up several of the restaurant fares being sold at our local Winco instead of going out for dinner. Most retailers will place the lost leaders on the bottom shelf and the items at eye level will typically be your higher margin items. Any guesses where the 2 varieties of Pizza Kitchen pizzas are located?

And, from another MNB user:

While I totally agree with your premise the food stores compete with restaurants and they shouldn’t help the competition, I think that today this argument is like closing the barn door after the cow gets out. The proliferation of restaurant branded food in today’s supermarket is so great that any store that takes out restaurant brands is likely to lose customers to stores that carry the products they want. These products by and large are convenient, carry a quality image, and generally have a value equation compared to buying at the restaurant so they fit a consumer demand.

There was some sympathy for my position:

MNB user Chris O'Brien wrote:

I enjoyed your response under the article “…And How Restaurants Seek To Get A Piece Of The Action.” I think that consumers will just as gladly buy a package of Ore Ida French Fries if they find the TGI Fridays Fries are not on the shelf. And they won’t be reminded of TGI Fridays next time they’re thinking about what do for dinner.

MNB user Gary Harris wrote:

Don’t sugar-coat it for us, Kevin, tell us how you really feel!

I get your point, and we certainly don’t do a lot of this (we do have Starbuck’s coffee) but I don’t see it as being as vile a practice as you do. We do need to differentiate ourselves as much as we can, but with the variety of choices available we have to decide which items we can make our own and which we might want to piggy-back on due to their success and acceptance by our customers.

Anyway, as always thanks for the commentary. It always gets us thinking, and re-thinking.

Another MNB user chimed in:

As I pondered the position you took regarding never selling restaurant branded products in grocery chains, a thought crystallized in my mind.

What is the purpose of private label in this era? While one may argue that a value proposition to branded emulations is the key driver, it is clearly only one such strategy. The recognition of private label innovation as a core strategy has been mastered by many retailers and it is certain that the food service industry is a fertile area for ideation of emerging consumer trends. Why not evaluate the best products from the restaurant industry and design similar or better than products for first to market implementation in their own brand?

Another MNB user wrote:

You are so right on! Look at the success of Trader Joe's and Aldi's! We stopped in San Cristobal, Chiapas, MX on the way home and bought 2 KG of their locally grown coffee, which was recommended by a visiting Columbian. It is some of the best coffee ever. We are looking to import 5 KG. So there are many opportunities to differentiate and create ones own brand and a reason to go to the store!

For the record, I am not demonizing restaurant brands. And I understand that few retailers would adopt the absolutist position that I advocate…and to be honest, I am trying to be a little provocative here.

My position is simple. Too many retailers, even today, do not consider their own brand equity as a high priority. Why is it so radical to suggest that instead of selling Dunkin’ Donuts, a supermarket should have a bakery section featuring selection and quality uniquely its own? That’s the essence of my argument, and I think you can apply it to most sections of the supermarket.

“Compete” is a verb. Now more than ever.

And I just think that retailers need to find every differentiating advantage and exploit each and every one to the greatest possible degree. As opposed to focusing too much time and attention on items that also are carried by the competition in a variety of venues.

Why is this such a radical position? Is it because it requires a rethinking of supermarket strategies and tactics that, sure, have existed for years…but aren’t necessarily right just because they are established?
KC's View: