Dive Brief:

• Grocers such as Whole Foods are building restaurants inside or adjacent to their stores, drawing coveted millennial consumers with flavor-forward dishes, craft beer and wine, according to NPR.
• Retailers including Hy-Vee, which uses store products to make dishes at its Market Street Grille locations, rely on synergies between the grocery and restaurant locations. 
• Grocers have partnered with foodservice vendors like Starbucks Coffee and are beginning to see increased interest in partnerships with more upscale restaurant chains. 

Dive Insight:

While underperforming chains like Chili’s and Applebee’s are losing customers, grocery-run restaurants are seeing surging demand thanks to their low prices and surprisingly sophisticated fare. Hy-Vee, which operates 115 Market Grilles, offers $2 pints, 20 tap handles, an extensive wine collection and dishes like double-cut pork chops and blackened fish tacos.

In a crowded grocery industry, restaurants can help retailers stand out from the crowd. In June, Whole Foods opened its first standalone restaurant, a Brazilian fast-casual concept called The Roast, located in Atlanta. The restaurant lets customers order from digital kiosks and features a rotating lineup of seasonal dishes and ingredients. Each “bowl” that customers create incorporates a protein, greens, a grain and a sauce. It costs between $7 and $8.

With their craft beer, wine and flavor-forward menu items, grocery restaurants also are courting high-value millennial consumers. According to a study by Bankrate.com, 54% of millennials say they eat out three or more times each week. Hy-Vee has taken aim at millennial consumers with its after-work drink specials. H-E-B has taken advantage of this trend with its True Texas BBQ restaurants, which operate in several stores throughout the Lone Star state. The locations offer barbecue sandwiches, ribs and chopped meats as well as barbecue breakfast tacos, served daily from 6am to 11am.

Done right, restaurants can build brand loyalty and invite shoppers to see a different side of a grocery retailer. There also can be profitable cross-pollination between the restaurant and the supermarket, both in terms of foot traffic and food offerings.

However, operating a restaurant is very different from operating a grocery store. Customers don’t always trust that a company that sells juice and bread can grill up a good steak. Also, restaurants require additional staffing and bring operational and regulatory challenges that are quite different from day-to-day grocery work.

Ultimately, restaurants like Market Grille and True Texas BBQ are building on the success grocers have had with prepared foods. Not only are the locations delivering on the freshness, convenience and unique flavors shoppers are demanding — they’re redefining what a grocery store can be.