By Kitchen United COO Meredith Sandland
I recently read “The Evolution of the Meal” written by Brad Slingerland of NZS Capital and loved it. Brad does a great job of weaving together isolated datapoints to extrapolate a potential future. As someone who thinks about this a lot, I couldn’t help but weigh in and add my own commentary to his analysis.
Before reading what I have to say, start by reading Brad’s take. In it he says that “I might not have the year right (as people like to say “Brad is not always right, but he is always early!”) – it could be faster, it could be slower, but the entire trillion-dollar food chain from agriculture to brands to restaurants and grocery is going to completely change. It could make the disruption we’ve seen in retail and media look incremental by comparison. At NZS Capital, we don’t like to predict the future, but we do like to assess whether certain outcomes could be considered a broad view or a narrow view. It seems like a fairly safe bet that the range of outcomes is dramatically widening for food consumption.”
Brad is right. The incredible retail (and therefore real estate) shift brought by online shopping will come to food.
Why is it happening later? Three reasons:
1) Food is harder.
Fashion may go out of style, but food can literally go bad. Shelf-life matters, and the government keeps a close watch on food safety via the FDA, the USDA, the CDC, and myriad local laws and oversight bodies. Also making food difficult is the extremely low margins throughout the supply chain. Grocery stores make notoriously low margins (more on that, later), and so do food distributors and even processors and growers. It’s not like there is a lot of fat at each point in the value chain to take out.
2) Food is already more convenient so the gap between the internet and a store is smaller.
For example, grocery stores are literally located in industry lexicon “Daily Needs Centers” meaning these places are very close to local residential populations. Big Box centers occur in America once every 5 miles or so. Malls in the traditional sense occur once every 20. Daily Needs Centers occur every 1-2 miles. As another example, have you ever seen a drive-thru book store? You have not. But food is often available in the convenient drive-thru format. Thus, books to internet is a big leap forward and drive-thru to internet…not so much.
3) Food has been pretty homogenous in America for the last 30 years.
I remember asking my mother if we were poor when I was little because we drank frozen orange juice concentrate from a can. It wasn’t out of poverty. It was out of lack of choice. Liquid, fresh-squeezed OJ did not exist in Iowa in 1980 except perhaps during certain special seasons like Christmas. It used to be amazing when our grandparents returned from Florida or Arizona with citrus fruit. Why? Because it was not commonly available at our grocery store. Now, the very best specialty foods are available nationwide, year-round. The problem of wanting something different than what is offered locally, a problem the internet solves beautifully, has not really been a problem in food.
So, in the classical consulting 2×2 of Size of Prize vs. Ease of Implementation, with bubble size representing the size of the industry, we can see that the internet went after industries in a pretty predictable order:
Nevertheless, here we are. Food, in spite of being difficult and without much to gain, is going digital. Why? The food consumer in America has changed, and technology is making it easier to affect food.
Americans are demanding a new approach to their food on two fronts:
1) IWWIWWIWI means that even a daily needs center or a drive-thru, while convenient, is not convenient enough. Delivery is the new drive-thru. Time-starved, multiple-job working, experience-seeking Millennials are not about to go grocery shopping when they can order what they need from Instacart or Amazon while riding the train home.
2) Documentarianism means that what once was a niche in Berkeley can now be a niche of like-minded online millions all over the country. Everyone can find the diet that is “best” for them. Everyone can learn about different foods or approaches to eating that before might have required finding (and reading!) a book. Everyone can access menus and recipes online that the local PTA would not have even considered publishing in their fundraising cookbook.
These two consumer trends combined mean that Daily Needs Centers and Drive-Thrus are no longer enough – they are neither convenient nor fully stocked with all the options. Suddenly, the gap between what the internet can do and what a local store can do has widened.
Simultaneously, technology is making it easier to take food online. From cloud-based inventory and POS systems to blockchain for keeping food safe, what was difficult before is becoming easier in the food world. These technologies also make it easier to combine elements of the value chain into one single profit pool, making disruption much more economically attractive.
More Factors in The Evolution of The Meal
1) Groceries are Losing Ground
Yes, Americans now spend more money eating out than at grocery stores. Can they adapt? Kroger and Whole Foods are best positioned to benefit from all the changes going on. Kroger has released its “Restock Strategy” which is pretty brilliant. Whole Foods has aligned itself with Amazon, also pretty brilliant. Wal-mart and Target have invested wisely in BOPIS (buy online pickup in store), which enables them to use their existing retail footprint as DCs and their shoppers as delivery drivers – pretty brilliant. Everyone else, I’m not so sure about.
2) Demographics and Meal Preferences
The Evolution of the Meal does a great job of explaining early adoption by Millennials. However, I think it misses what happens in later stage of adoption. Imagine when Facebook first launched. Who used it? By and large Millennials and Young GenXers. Same with the iPhone. Same with Amazon Prime. But who uses these things now that they are widely adopted in American society? Boomers. Boomers love sharing photos with their long lost friends over the internet. Boomers love computers with big icons that are easy to understand and don’t require any know-how to fix.
So what will happen with Digital Delivery? I have often spoken about my Millennial husband as first to use delivery marketplaces in our household. When he first told me about it, I thought he was kind of lazy. But fast forward just one year and I (a GenXer!) started using it. The cause? I had a baby and I wanted to eat healthier. Anyone who has ever had a sleeping toddler knows that the priority is to keep said toddler asleep without your arms falling off from carrying them around. Ergo, the Drive-Thru. What’s even better? Said toddler sleeping in his own bed while hubby and I eat vegetables. Sure, you say, but you live with a Millennial. What about those Boomers? Surely they will never break their pizza-loving, grocery-store going habits. My husband has now trained his parents on the benefits of takeout and delivery. And I believe that as Boomers desire to age in place, they will embrace services that bring them food.
3) Profitability of a Meal
Time and convenience being factored into the household economics of going to the grocery store is driving behavior change. Not to mention food waste! I can’t even tell you how many heads of broccoli I buy with good intentions then throw out, mushy and uneaten, a week later. Or how many recyclable bags hang on my garage wall, forgotten and forlorn as I walk past them with yet another bag I purchased at the store because I am too disorganized to remember the bags. Can I accurately predict what our week will be like and when we will have time to cook and what we will feel like eating? I cannot.
And ALL of these problems get bigger as household sizes get smaller. Amortizing grocery and cooking time over a family of 7 is much easier than doing so over a single head of household living alone which matters a lot since more Americans are single now than married. Preventing food waste is much easier when there are 4 people who might eat something vs. cooking for 1. How many recipes are geared toward a single eater? You see my point.
4) Profitability of Delivery
In his article, Brad observes an opportunity for even better economics than what are offered for delivery today. I could not agree with this more. The participating restaurants are banking on the “incrementality” of delivery transactions. Certainly at <10% of total restaurant spend, these transactions are incremental. Incremental transactions are profitable at the margin, not at the average, so this works for all parties involved. But to unlock the great potential of delivery – adoption in the 30-70% range like in more developed markets – that means that delivery transactions are no longer purely incremental. And that instead of merely replacing grocery trips, restaurant delivery may also replace eating out. For that to happen, the economic model of delivery fundamentally has to change.
Thanks to Brad Slingerland of NZS Capital for giving me a lot to think about in his article, “The Evolution of the Meal”. As a Taco Bell Alum, I especially loved your Demolition Man inspired comment that, “We all know that Taco Bell will win the restaurant war.”
Meredith Sandland is the Chief Operating Officer of Kitchen United. Prior to Kitchen United, Meredith worked on product launches such as the Doritos Locos Taco, Breakfast, and Happier Hour for Taco Bell. She then ran Development for the brand and led the creation of 1000 new Taco Bells.
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