Manufacturers Can Cash in on $156 Million Home Meal Replacement Business

BOULDER, CO—Home meal replacement (HMR) may be a bust in mainstream supermarkets, but it’s currently producing hundreds of millions in revenue per year for natural foods retailers.

According to the San Francisco-based market research firm SPINS, between April 1998 and April 1999 HMR sales for natural foods stores totaled $156 million. Figures aren’t available for mainstream markets, but

studies have shown that supermarkets are abandoning HMR because of poor sales.

In natural foods stores HMR also draws in crossover customers who treat their local market like a convenience store, picking up bread, eggs or milk while they buy a hot meal. Creative manufacturers can take advantage, retailers say.

But the spillover effect to manufacturers from HMR shoppers is tough to calculate. Few if any manufacturers track the impact of HMR in retail operations on their overall sales.

Drew Goodman, president and CEO of Natural Selection Foods, makers of Earthbound Farm-brand bagged organic produce, says his company hasn’t quantified any direct added benefit from placing product in stores offering home meal replacement because of the obvious difficulties inherent in breaking out sales to that level of specificity. In addition to its bagged produce, Natural Selection also sells bulk produce to retailers and to the larger food-service industry. “But if we only sold to retail, [home-meal replacement] would be a benefit because it would grab that consumer who didn’t go out to a restaurant,” Goodman says.

Phillip Nabors, CEO of privately held Mustard Seed Market, with two locations in Ohio, says besides purchasing

staples, HMR customers sometimes pick up items to complement their dinner. “Hopefully we can sell a bag salad, dessert, a bottle of wine and fresh flowers to put in the middle of the table.” Nabors says.

According to Nabors, manufacturers can capitalize on the HMR trend by customizing product packages specifically for retailers that specialize in food service. “We ask manufacturers to make institution packs, like salad dressings, that we can use as part of a recipe in the deli,” he says.

Nabors says food manufacturers also can develop recipe and meal ideas not only to post for shoppers who’ve run out of ideas for dinner but also for the retailer to make and sell in the deli case.

Darrell Vannoy, food service director for Wild Oats Markets (OATS), says when it comes to HMR, natural foods stores have succeeded where mainstream markets have failed because natural foods stores already have an image of serving fresh, nutritious food. “It’s a perception thing—supermarkets haven’t done a good job with prepared foods,” Vannoy says.

OATS doesn’t break down its home meal replacement sales, but, Vannoy says, deli, coffee, juice and prepared-meal sales make up 20% of OATS’ revenues. OATS anticipates $1 billion in revenues in 2000.

“I think people do specifically come to the deli for meals,” he says. “We see food service as the draw for the crossover customer.”