Outside Insights | June 2017 | By Guest Author

Why Restaurants Shouldn't Panic Over Whole Foods Deal

If the customer isn’t coming to the restaurant, the restaurant needs to go to the customer. That isn't changing.
Amazon's $13.7 billion acquisition of Whole Foods rattled the industry. flickr: Mike Mozart
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News of Whole Foods’ acquisition by Amazon last week for $13.7 billion had many people in the tech space abuzz; in the retail sector, people were downright nervous. Big-box retailers like Target, Walmart, and Costco saw their stocks drop (down 3 percent, .5 percent, and 2 percent, respectively, in the hours following the announcement), and think pieces popped up all over the web about how this move will change the way we shop for food—and possibly signal the demise of the grocery store as we know it. 

Virginia Postrel, a columnist at Bloomberg View, further amped up the fear factor, putting restaurants on warning: in a June 16 article, she cautioned that “the short-term losers may be restaurants [because] lower Whole Foods prices would exacerbate a trend that already has the industry nervous: the growing gap between the cost of eating at home and going out.”

These warning calls aren’t new to restaurants: data shows that traffic and revenue in many segments in the restaurant industry is flat or even down, and that diners are increasingly staying in to eat:

  • 82 percent of meals are now consumed at home (NPD Group). This represents an upward trend that is validated by the fact that restaurant foot traffic has been basically flat since 2009.
  • 75 percent of respondents to an NPD group survey said they are eating out less, with many citing prices as a reason.
  • Meal Kit services (Hello Fresh, Blue Apron, etc.) are currently a $400 million market and are expected to increase tenfold in the next five years. Despite market consolidation, funding is still flowing to these companies, including a $32 million Series A to Habit, among others.

People may be eating at home, but that doesn’t mean that they’re cooking at home. The data behind the stay at home habit reveals an opportunity for the restaurant industry:

  • By 2019, Americans are expected to spend over $12.5 billion on delivery food (Guggenheim Securities).
  • 61 percent of casual and fast casual restaurant transactions are take out.
  • Online penetration of the total food delivery market was 30 percent in 2016 and is expected to reach 58 percent by 2020 (McKinsey). 

Consumers want many things. Sometimes, they want an unforgettable restaurant experience with friends; sometimes, they just want to pull on their pajamas and sink into the couch. But the urge to stay at home, does not diminish the desire to dine on the kind of great food that restaurants can deliver.

So how does this align with what restaurants want? Restaurant owners will always want to sell out of a night’s special. They’ll always look for ways to upsell higher-margin items like appetizers, desserts, wine and fancy coffees. Most of all, they want to build strong relationships with their customers to drive repeat business.

This last point is where restaurants must focus: if the customer isn’t coming to the restaurant, the restaurant needs to go to the customer. In a shifting food landscape, the restaurants that are successful will be the ones who learn to meet and serve consumers wherever they are: from the local eatery and straight onto the comfort of their couch.

A consumer’s definition of “grabbing a bite” may be changing, but that doesn’t have to spell wholesale disaster for restaurants. Smart owners will shift and evolve along with their diners, and embrace the “couch to table” trend as a way to grow revenue, win new loyalties and reestablish their place in consumers’ weekly meal habits.

Rosie Atkins has worked in technology for more than 15 years and was a founding employee at Reel.com. Prior to joining Upserve, she held senior product leadership positions at Breadcrumb POS and OpenTable where she led product development. Rosie earned her B.A. from the University of Massachusetts, Amherst. Her first restaurant job was cleaning menu boards at her family’s restaurant on Nantucket Island.