Eats, drinks and spends merrily - Connecting with the Customer: Gourmet Foodie

DSN Retailing Today, Dec 16, 2002 by Mike Duff

Aficionados of all walks have long maintained that food is the first luxury and people will spend their disposable dollars on better, tastier, more satisfying food before they will spend them on anything else. But not until gourmet starting showing up in the mass channel roughly a decade ago did this theory encounter its first true Litmus test. And by the looks of its proliferation today, gourmet is as comfortable at mass as Martha Stewart and Mossimo.

The gourmet spin within the channel can be applied in a variety of circumstances, and flexibility helps. Gourmet food comes in forms as diverse as rich, sweet triple-chocolate cake to light, flaky nutritious sea bass. After all, in addition to flavor, the qualities that make gourmet food desirable include health, style and social dimensions.

While consumer dollars spent on food traditionally shift with the economy (including fewer gourmet items and less eating out during recessions) that hasn't necessarily been the case in the latest economic slowdown. It's true that meats and a small handful of other categories have experienced deflation, but upscale food retailers and food service operators haven't had the kind of problems one might expect in a down economy.

"Consumers are 'trading up' on food. In today's tight economy they are spending, but they are being selective," according to Gary Silvers, vp of consumer research firm RoperASW "We are seeing the Starbucks-ation of many quick-serve restaurants."

According to the National Restaurant Association, 858,000 restaurants in the United States should reach $407.8 billion in sales in 2002, gaining almost 4% over 2001. About 54 billion meals will be eaten in restaurants and school and work cafeterias by the end of this year. Today the food industry gets about 46.1% of each dollar Americans spend on food, the association says, and it expects that proportion to increase to 53% by 2010.

Restaurant trends and trend in food retailing are paralleling each other in many respects. NRA's Restaurant Industry Forecast for 2002 revealed that consumers in general are showing a rising interest in sandwiches and ethnic cuisine in food service settings, just as they are on the food retailing side, where whole new classes of prepared dishes, such as bowl meals, have taken off recently. The gourmet or aspirational element of such dishes is evident in their pedigree, with many deriving from cuisine traditions recently popular in food service, such as Thai.

The aging of the population also should drive the gourmet food segment. As Baby Boomers age, they are likely to shift their purchasing patterns away from bigger homes and flashier wardrobes to the sort of pleasures and passions that drive retirees. After a lifetime of self indulgence, though, they aren't likely to sit home eating Saltines. Rather, they will lean more toward the kinds of pleasures they already enjoy things like home entertaining and travel, both of which have a food component.

"Aging Baby Boomers realize they need to eat healthy, but won't skimp on taste," Silvers said.

Travel has experienced a revolution with the advent of cheap airfares and today is considered a driving force behind the acceptance of new cuisines as travelers become accustomed to new culinary traditions in moving around the country and globe. Travel and experience tend to have concrete manifestations in stores. For example, ACNielsen's Homescan Consumer Facts 2001 report indicates that the more affluent empty nesters are more likely to purchase specialty and imported cheese than any other lifestage category the company tracks.

At the same time, the home has become a center of entertainment, encouraging consumers to try cooking what they have discovered in the food service setting. The so-called cocooning trend has kept the home business cooking through the economic downturn. Different folks address home entertaining in different ways. While some simply purchase a big-screen television, others take a more hands-on approach. Whatever the case, cocooning has popularized categories broadly enough for names like Calphalon, in cookware, to develop a mass-market component for Kohl's and Target. The International Housewares Association's annual State of the Industry Report included significant growth in the cookware category last year, when it advanced to 12.2% of total housewares sales versus 9.6% in 2000.

Sometimes such trends take interesting twists. Both Bed, Bath & Beyond and Linens 'N Things recently have been adding and expanding gourmet food operations in their stores, with the larger units sometimes offering department-sized presentations. Commenting on Linens 'N Things in a report, Alan Rifkin of Lehman Bros. noted that specialty food sales at the retailer are "expected to double" in the fourth quarter of this year compared to last. Gourmet food, whether as an indulgence or gift, gets customers into the stores more often, he noted, and as good customers visit six to eight times a year, a couple of extra store trips can have a significant impact on business. Thus, home retailers are recognizing that the growing popularity of gourmet food items is an opportunity they can build upon. Other retailers have used this as a driving factor for some time. Cost Plus World Markets (CPWM) uses two elements to drive its sales, imported general merchandise and gourmet food, both imported and domestic. Cost Plus typic ally targets less affluent consumers than other retailers who specialize in exotic items, but its success is testimony to the growing appeal of the sector. Rifkin noted that "in a difficult retail environment, CPWM's recently reported third quarter '02 same-store sales increase of 14.1% provides dear evidence that the value approach it portrays is winning over customers." In the five years from 1997 to 2001, CPWM's sales grew from $260.5 million to $568.5 million and net income increased from $10 million to $20.2 million, as the company store base expanded from the western half of the country to the East Coast.