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Why do investors find the RTE market so attractive today?


Grocerants: How merging of supermarkets and cafes is going?

RTE Meals (Ready-To-Eat Meals), i.e. meals you don't have to cook. Formally, canned food and pastries also qualify as RTE meals, but today this term is more often used to describe culinary dishes in individual package you can buy in supermarkets.

The abbreviation RTE has not yet become part and parcel of business slang, nevertheless, the RTE segment is very much in evidence in the groceries market and it has to be taken into account. As of 2016, the global RTE market volume was estimated at USD 195 bn, with 40% of RTE meals being sold in the USA, while Russia accounting for about 1/6 of total RTE sales, according to some estimates. The analysts predict that the next 10 years are going to see sustained growth of 7-8% a year in the RTE segment, and, seeing how canned food still accounts for a lion's share of the Russian market and how the global trends in the RTE segment are moving towards chilled and frozen food, we shouldn't be surprised to see even faster growth in the domestic RTE segment.


Why the RTE market is on the rise



People cook at home less around the world. According to Marius Robles, founder and Director General of Reimagine Food, in 2015, the Americans spent more money in restaurants than in grocery stores. And even in Russia, where the economic status of population is rather unstable, more and more people are choosing to eat out. According to Nielsen, in 2016, about 56% of the people they surveyed went out to a cafe at least once a month, which is 3% more than in 2015. The share of the employed Russians that prefer to take homemade lunch to office has gone down from 52% to 48%.

Sociologists cite the following reasons for this:

• A very high percentage of employed women.

• An increase in the percentage of solvent millennials (people born between 1980 and 2000) who prefer to have snacks on the go and eat out.

• A general trend towards tighter work schedules among white collar staff: a lot of them no longer get a full length lunch break.

• Considering RTE as fast pleasure, when RTE meals are treated as an affordable alternative to other forms of entertainment under the conditions of instability and general economic downturn.

"For quite some time now, we have been seeing sustained growth in the sales of RTE meals in our chain," says Dmitry Medvedev, Head of Marketing at retail chain Carrefour (Perekrestok). "Thus, in October 2017, sales of RTE meals were up almost 15% in the same period of 2016... RTE meals are very much in demand among those who are not used to spending time on cooking meals at home. In addition, since household income hasn't exactly been growing lately, a lot of people choose our RTE meals as an alternative to eating out in a cafe or restaurant. The demand for RTE meals has also been affected by the increase in supply: new manufacturers and suppliers are pouring into the market. Supermarkets, including our chain, are expanding their competencies in the production of RTE meals, offering our customers very decent and high quality meals."


New opportunities for stores



As demand grew, the natural response of the market was to expand the range and improve the quality of RTE meals available in grocery stores. In the past two years, a new phenomenon called a grocerant has appeared; it's a coined word that combines grocery and restaurant into one and is used to refer to a new retail outlet format that combines a grocery store with a restaurant. It's important to understand that a grocerant isn't simply a stand with RTE meals, a grocerant must also offer some service such as: tables and seats, free Wi-Fi, a menu, waiting staff or sales staff that can consult people.

The grocerant format is first and foremost found in the upmarket stores: as a rule they build their competitive advantage on a unique product range, service and atmosphere rather than based on low prices and proximity to people's homes.

The famous American chain Whole Foods already operates 30 full-fledged restaurants (where you can order meals from a menu and get served by waiters) as well as 250 fast food cafes. The new restaurant in Atlanta allows guests to pick their own bowl (that's where you pick a bunch of different meals and ingredients and put them all in one bowl), a model that's been quite successful in the fast casual healthy eating format.

The merging of the cafe and grocery store format is also relevant for big retail outlets: people spend a lot of time in big stores and normally they tend to like the idea of having a meal break in the middle of their shopping. The IKEA stores offer a very good example of this model: their stores offer self-service restaurants and bistros with hot dogs, cold drinks and soft ice cream.

The benefits for customers are obvious: getting a quick meal at a grocerant is easier, faster and less expensive than in a more traditional cafe or a restaurant; moreover, the meals that retail stores offer often have at least the same quality. Meanwhile, retailers can use this format to grab market share in the eating out segment, while also increasing the time shoppers spend at their stores and the average receipt, getting a competitive edge by expanding their total product range and creating a unique customer experience.


Don't pass up the trend



In order to develop the RTE category in supermarkets; it makes sense to look at this issue from four angles: the basic product range, the cooking, the quality and the presentation format.


Basic demand



When deciding on the basic range of items on offer, consider the ratings of the most popular meals such as the Yandex rating that features some of the most traditional and well known meals in Russia such as the meatballs and Kharcho soups, crab salad and, naturally, the Russian salad. Most consumers are quite conservative when choosing their meals, so the most well known and common dishes are the safest bet. They also must taste as close as possible to what the Russians are used to. However, if you strictly follow this paradigm, you'll only be able to compete against canteens and cafeterias, at best. If your goal is to grab market share from cafes and restaurants, you've got to up the ante.


Mature restaurant trends



If you consider gastronomical trends, it's important to remember about their relative popularity: even cafe and restaurant chains have a target audience that is, as a rule, narrower than that of grocery retail chains. So, stores should only follow well established mature trends that even the conservative majority has already started following. For example, focus on Georgian and Italian dishes rather than on Vietnamese or Indian ones; offer well-known and well-liked burgers and paella rather than the more trendy pastrami and ceviche. It goes without saying that there are a lot of ethnic dishes that will be right at home in retail stores, seeing how people often go on vacation to countries like Montenegro, Turkey, Italy, Spain and Thailand while Tartar, Georgian and Far Eastern cuisines are generally regarded as local in Russia.

The healthy eating trend is especially important today, a fact that's easy to see if you look at web search statistics. The name of the game today is low calorie, low fat, low sugar, high protein and fibre. Add to that healthy snacks and you can have a unique selling proposition for people who want to feel and look good but are not really keen on the idea of lugging around plastic containers with buckwheat and broccoli everywhere they go. "The main trend here is health," Dmitry Medvedev concurs. "Producers are going to expand their range of low calorie healthy dishes such as baked meat, poultry and fish, traditional green salad mixes and snacks based on low calorie dressings."

The leaders in the segment of healthy RTE meals are meat and various meat-based dishes as well as cereal snacks. Thus, the ABCs of Taste (Azbuka Vkusa) offers a conventional line of healthy dishes: cooked chicken breasts, steam cutlets, vegetable salads etc. In this context, it's interesting to consider the experience of the UK based company Waitrose Love Life Calorie Controlled where every meal is a full-fledged dish with a siding, and the company's range includes some unusual ethnic dishes such as Thai curry, Indian tikka masala, British shepherd cake etc., as well as a range of healthy snacks.

Another curious example of how the idea of healthy eating can be implemented in RTE is Graze. What put Graze on the map was a box with four types of healthy snacks selected on the basis of the customer's personal preferences. They started out as a subscription business but now they also offer their meals through the Internet and in regular stores. What sets Graze apart is that the "dull" healthy snacks (dull in the sense that natural foods tend to offer less to the taste buds than, say, chips or crackers) are presented in the most varied and unusual ways like salty nougat with peanut cookies or barbecue flavoured crispy sticks.

The so called street foods such as falafel, hot dogs and burgers, gyros and others, have for a long time now been eaten not just by the youth but by everyone, and the quality of these dishes has improved significantly as well. To get an insight on this, we can look at some interesting statistics from Local Food Market.

For a number of reasons, the Russians are increasingly opting for lent dishes that can now be found on the menus of the majority of cafes and restaurants either as seasonal offers or even as regular items: this is another trend that can be taken advantage of.


Freshness and safety



Today's customers are increasingly choosing fresh chilled meals over frozen ones. But in order to successfully retail fresh chilled meals a company has to build a proper quality assurance chain. You need a lab to develop and test new products, you need manufacturing facilities to make, portion and pack the meals at the required scale, you need high pressure processing lines for your packed meals, you need a fleet of vehicles that can deliver your meals at a temperature of below +5C. "The main goal here is to keep the meals fresh while ensuring safety throughout the entire supply chain," believes Roman Glebov, a member of the expert council of Midlberry FoodLab. "If you have your own production facility you can have full control. A factory like that will set you back around EUR 1 million, plus you will need labs, warehouses and personnel. Given the current trends, I believe these investments are more than justified."

In order to optimise the costs, chain supermarkets should create their own RTE production facilities, so called industrial kitchens.


Consumer Experience



In order to take full advantage of the grocerants concept, it's important to have an area with tables and seats in your store as well as a place where people can heat their meals and order drinks. You can use the simplest possible solutions but a few nice touches can go a long way too, like in the Pingo Doce supermarkets in Portugal where you can order a sashimi and then watch a Japanese chef cook it for you, after which it is served with a glass of iced rose wine.

If you plan to sell take-outs, think about packaging and about the "customer journey". Can people eat your sandwich while walking and keep their hands clean? Will your soup spill on the road? Is your container easy to open, can it be safely heated up without being opened (crystalline polyethylene terephthalate containers can be used for that)?

And last but not least, what does your box say about its content? A big photograph on a cardboard box that has a CPET container inside will help create the right impression and stimulate the customer's appetite.

However, it's highly unlikely that restaurants will ever completely merge with supermarkets even in the far and distant future. But the number of food consumption behaviours is surely increasing: from healthy snacks ordered through a subscription delivery service to grocerants, food halls and modern food courts in farmers markets and as customers interact with these models, new requirements for food quality and food consumption experience emerge.

And grocery supermarkets that have every opportunity today to create a unique selling proposition consisting of quality Ready-To-Eat meals that meet all the requirements of the modern consumers. However, the concept of grocerants can allow them become the gravity centre for customers while differentiating themselves from the competition.