Grocers take a meaty gamble

High food and energy prices are driving busy Americans from restaurants for the first time in decades. But that doesn't mean they've suddenly discovered a love for the kitchen.

Indeed, large supermarket chains are taking a big gamble that, with family budgets squeezed ever tighter, consumers will indulge more in prepared foods that can be heated and served within minutes, but cost significantly less than a sit-down meal at a restaurant.

Supervalu Inc., the Eden Prairie-based parent company of Cub Foods, Albertsons and Jewel-Osco, on Wednesday introduced 150 new prepared-food items, including ready-to-cook meals like Thai-style curry roasted chicken and chicken marsala over linguini.

The new items will be marketed under a new Culinary Circle label and will be priced 20 to 25 percent below casual restaurant food, according to Supervalu.

The move comes as a growing number of supermarket chains -- from discounter Target Corp. to higher-end grocers such as Lunds and Byerly's -- expand their prepared meals, buffet lines and salad-bar offerings in the hopes of attracting dollars migrating from restaurants. It's no longer enough for a supermarket to offer rotisserie chicken and potato salads. Now, a chain isn't competitive unless shoppers can walk out with gourmet soups, sauces and fresh bread -- which carry higher margins than a box of cereal.

High gas prices have driven the consumer shift. Seven out of 10 Americans say they are cooking more and eating out less, in response to higher energy prices, according to a January survey by the Food Marketing Institute in Washington.

But some industry analysts fear that supermarket chains are overreacting to what may be a shortlived phenomenon. Though people are eating out less than they were two years ago, the past 25 years has been marked by a steady, upward increase in the number of meals eaten at restaurants.

Food prices are rising at their fastest rate in nearly two decades, but that hasn't translated into stronger sales for supermarket chains such as Whole Foods that are known for their prepared-food offerings, analysts said.

The average American ate 207 restaurant meals in 2007, up from 168 meals in 1984, according to the NPD Group, a market research firm in Port Washington, N.Y.

Cheap and lazy

"When it comes to food, Americans are cheap and they are lazy," said Harry Balzer, a vice president at the NPD Group. "As soon as the economy improves and people have more money in their pockets, they will go right back to their old habits."

And putting ready-to-eat food in grocery aisles -- that people actually want to eat -- is more difficult than it appears, said Scott Mushkin, a retail analyst with Jefferies & Co. in New York. Prepared foods may be popular in more densely crowded, urban stores, where people stop regularly to buy meals.

They are less effective at large suburban stores where families may go once every two weeks to bulk up on multiple items, Mushkin said. The whole business is dependent on volume; if the prepared products don't sell, they have to be tossed, and the losses can be significant.

"The execution is very, very difficult," Mushkin said. "The supermarket was designed to bring packaged foods to the masses and to sell lots of it. ... But the most gourmet meal, if it's not selling, won't look good."

Restaurants are struggling

For now, groceries are hoping to capitalize from the restaurant industry's struggles. On Tuesday, Darden Restaurants Inc. warned investors that its quarterly profit will be less than expected and cut its forecast for the year, sending its shares down 15 percent. Traffic at the company's chains, which include Red Lobster, Olive Garden and LongHorn Steakhouse, was worse than expected.

In July, the parent company of Bennigan's and Steak & Ale Restaurants filed for Chapter 7 bankruptcy liquidation and shut its doors.

Restaurant chains have had difficulty responding to higher fuel prices with price cuts because their costs for basic food items, from eggs to beef, have soared over the past year. "Cost-conscious families are still looking for a convenient meal, and supermarkets are giving them an alternative," said Bill Greer, a spokesman for the Food Marketing Institute.

But David Livingston, a supermarket consultant with DJL Research near Milwaukee, said grocery stores do better with prepared foods when they specialize in just a few staples that people want daily. He expressed concern that Supervalu may be introducing too many sophisticated entrees that won't appeal to shoppers during a time of austerity.

"You want to be known as the store with the best fried chicken, because that will bring people back," said Livingston. "The people who are really worried about high gas prices aren't going to buy exotic foods."

Chris Serres • 612-673-4308