Restaurants are competing with CPG brands for shelf space in grocery stores.
After establishing DTC channels to sell packaged products — like condiments, seasoning and snacks — restaurants are now eyeing grocery stores as a stable revenue driver. Momofuku, a restaurant known for its higher-end restaurants, estimates that its consumer goods business will generate about 50% of its revenue by the end of the year. The popular New York City Magnolia Bakery also announced this week that its banana pudding cookies will be available for purchase in hundreds of grocery stores like The Fresh Market and Harris Teeter.
These restaurants’ entry in the CPG category accelerated around 2020 when the food industry saw thousands of restaurant closures and sales slip $240 billion below the National Restaurant Association’s pre-pandemic forecast. What was once a means to survive the pandemic has now become a steady stream of income for many restaurants. To drive further growth, restaurants are now stealing shelf space from traditional CPG makers by distributing popular products at grocery stores and having a team dedicated to the success of their packaged goods.
“They see a better profit margin opportunity because, when you think about dining in, the costs associated with dining in are pretty high,” said Andrew Hogenson, global managing partner of consumer goods and retail for Infosys Consulting. “This becomes another way for them to capitalize on their brand.”
Restaurants are headed to shelves
Running a restaurant is pricey. Hogenson said the real estate cost, employee-to-customer ratio and even the price of heating and decorations can eat away at restaurants’ profits. The slim margins have historically been a reason why many restaurants fail within just a few years of business. Additionally, 47% of restaurant operators expect the competition to be more cutthroat this year compared to 2022, according to the National Restaurant Association.
In contrast, selling consumer packaged goods at grocery stores offers higher profitability and lower risk, Hogenson said. Building a partnership with grocery giants will allow restaurants to reach more shoppers without the cost of running a full-service restaurant in the area. Hogenson said that being in grocery stores is an opportunity for restaurants to capture a demographic of shoppers who often prefer to cook at home.
By being in grocery stores, Marguerite Mariscal, Momofuku Goods co-founder and CEO, said that the company is able to reach there followers wherever they may be located. Momofuku currently has eight restaurants across cities like New York, Los Angeles and Las Vegas. Meanwhile, its line of seasoned salts, chili crunch and noodles can be currently found in 2,000 locations, and by the end of the year, they will be in 3,500 wholesale doors — which includes Whole Foods, Target and Publix, among others.
“CPG is tough requires a lot of planning and a lot of forecasting [than restaurants],” Mariscal said. “The planning that has to go into that over the spring, summer is something that was new and took I would say a couple of years to get right.”
Momofuku first released its line of sauces in 2020 online, but it quickly garnered the attention of grocery stores. Now, the restaurant chain has 14 SKUs, and just this week, it announced that it raised $17.5 million in growth funding. Momofuku’s goal from the beginning was to have a 50-50 revenue split between its restaurant and CPG business, and it is on track to achieve that this year.
Because the CPG category is an entirely different business than a restaurant, Mariscal said that the company has developed an 18-member team across sales, operations and finance dedicated to its consumer goods business. Mariscal said that the company wants to keep growing in the global aisle that it currently exists in. It has also been experimenting with new products, such as the Momofuku Goods x Raaka Chili Chocolate Crunch bar it released last month.
Being a well-known restaurant also makes Momofuku an attractive partner for grocers looking to stock their shelves with trendy products. “It gives us a leg up because we already have a relationship with a lot of the customers that are coming through,” Mariscal said. “Some of the products say ‘restaurant grade’ and we mean that because it has the stamp of approval of these restaurants.”
Like Momofuku, CPG products from restaurants are also gaining the attention of grocers and are expanding their assortment. Chef and TV personality Stephanie Izard’s This Little Goat — which offers sauces, spices and chili crunches — saw a 60% sales increase across all channels in 2022. Dessert company Milk Bar made its ice cream pints available for purchase at all Whole Foods stores nationwide in 2021.
Magnolia Bakery is also seeing a similar demand. Eddie Revis, chief marketing officer at Magnolia Bakery, said that the number of retail partners it has is changing every week due to the amount of interest it is seeing from grocers. It will have three SKUs available in stores that are mostly located in the northeast and all the way down the eastern seaboard, among other key markets.
Revis sees the company’s entry into grocery stores as an opportunity to diversify its channels and bring products into new markets. “We have a footprint of bakeries and we have a nationwide direct-to-consumer business,” Revis said. However, “shoppers are in the grocery store every week.”
Its CPG and restaurant businesses have a symbiotic relationship. Revis said that people that have eaten in one of Magnolia Bakery’s locations would ideally be interested in buying their products in grocery stores. Those who discovered Magnolia Bakery in grocery stores might also be interested in going to one of its bakeries.
“We’ve operated as a retail brick-and-mortar bakery for almost 27 years,” Revis said. “We’ve grown, and the last channel to tackle after retail and the direct-to-consumer business was the grocery channel.” Magnolia Bakery plans to build out a team and offer in store sampling to grow the presence of its CPG business.
Despite the potential opportunities, restaurants are entering a highly competitive industry, Infosys Consulting’s Hogenson said. Traditional CPG businesses have already established their name in grocery and have more developed operational capabilities. He said that restaurants will have to leverage their brand as it is associated with better quality compared to traditional CPG makers.
“Traditionally, you’ve got your traditional CPG companies that compete with one another for shelf space,” Hogenson said. “And now you’ve got a new entrant that brings a whole new angle to the market.”