When the onset of the pandemic devastated indoors seated dining, food trucks were able to bring their menus to people where they were."
After a tumultuous year and a half, food brands are focused on the supply chain and leveraging opportunities at retail created or accelerated by the pandemic.
Still, there are two markets that are ripe for growth that most brands simply aren’t optimizing: food trucks and micro markets. Both of these retail segments were on a growth trajectory before COVID-19 and, in some ways, are even better positioned now to meet the needs of consumers today and in the future.
Let’s take a look at each one.
There are some 32,300 U.S. food truck businesses (up 12.1% over 2020), representing a very fragmented — no company has more than 5% market share — and very underserved segment of the food industry, according to IBISWorld.
Much like sales in brick-and-mortar restaurants, food truck sales vary by location and menu, with those in large, high-traffic metro areas that specialize in high-end or “gourmet” menus pulling in $20,000 to $50,000 sales each month, while those in smaller metro areas with more “entry market” menus such as hot dogs, sandwiches and simpler fare, making $5,000 to $16,000 per month, according to Profitable Venture.
On the expense side, food truck operators have two primary costs of doing business, wages (27.4% of revenue) and purchases (43.2% of revenue), presenting a huge opportunity for product manufacturers and distributors to have a significant, positive impact on each operator’s business — and generate loyalty.
When the onset of the pandemic devastated indoor seated dining, food trucks were able to bring their menus to people where they were, even as “where they were” changed drastically. As COVID-19 significantly reduced foot traffic in business districts, where a large share of food trucks operators had based and grown their businesses, many pivoted to neighborhoods, essential businesses such as factories and hospitals, and to rest stops as more travelers hit the road, rather than rails or sky. Some began offering groceries. And, in what was a long-needed upgrade, many implemented mobile and digital payment options, which advanced this technology throughout the segment.
But one thing that didn’t change is how food trucks buy their food and supplies. Most visit regional foodservice commissaries, club warehouses and foodservice wholesalers like Restaurant Depot. The problem: Few brands have a sales force that adequately calls on the regional foodservice commissaries that specialize in food trucks. And minimums for delivery, especially on refrigerated items, are a challenge. If brands start thinking of food trucks as very small restaurants with very limited storage space, they can begin to imagine how their items, packaging and pricing strategies could better meet the segment’s needs.
Food truck operators are hungry for attention from consumer packaged goods manufacturers and want their products and support, which could be offered in the way of ingredients that support menus for dayparts that align with new locations and, in the absence of trade funds available to other channels, more competitive pricing.
Sales through vending and micro markets, which were projected to see continued sales growth before the pandemic, were hit extremely hard by COVID-19 as 2020 revenue fell 45% to $13.3 billion, according to Automatic Merchandisers’ State of the Industry report. Even so, vending companies’ micro markets, the unattended, grab-scan-and-swipe vending machine/c-store hybrids, were a bright spot in the segment.
Forty-three percent of vending operations had micro markets in 2020, unchanged from 2019, according to the report. While sales in the micro market segment were greatly impacted by lockdowns and a change in shopping behavior, 37% of those operators reported an increase in micro market revenue in 2020 (compared with 80% the previous year).
Micro markets were protected, in part, by their locations. Most are found in manufacturing and office locations. While office buildings became empty buildings, growth in the segment came from manufacturing sites, hospitals and other health care facilities, and other semi-public locations, such as large apartment complexes.
The timing of the pandemic supported the already growing realization that micro markets have great potential as an alternative (or addition) to labor-intense corporate cafeterias. Another pandemic-caused tailwind: Consumer demand for contactless food purchases is at an all-time high and is expected to remain a desired part of the shopping experience for groceries and food to go.
Like any retailer, micro market operators who succeed in this very different shopping environment will be those who bring new customers into the stores and get current customers to spend more, which requires offering an always-fresh mix tailored to each location. In 2019, almost 60% of micro market operations reported monthly product updates and repositioning. With supply chain challenges and other pandemic fallout last year, the number of operators refreshing at that rate dropped to 27%, according to Automatic Merchandiser.
Now more than ever, micro market operators, vending distributors and brands have an opportunity to leverage AI technology and rethink merchandise mix to tap into snacking and other consumer trends and offer an improved customer experience, all while keeping labor costs down and increasing operational efficiencies. This is especially true as people return to office settings and seek safe shopping and healthier eating experiences. But this happens only if operators have access to — and are able to warehouse and manage — a greater variety of items.
Brands would also benefit by viewing micro markets as small-footprint convenience stores for product trials that could prove out the viability of their products before selling into other retail locations.
The pandemic has brought so many challenges to the small grocery and foodservice operator. But it’s also shined a light on new opportunities in two important segments that aren’t getting the attention they deserve.