Many of these smaller stores also feature extensive prepared food selections – home meal replacements, or HMR, in industry-speak – that have long heralded an equally transformative effect. The promise of HMR is substantially higher gross margins than the usual grocery categories: Where produce often garners a 15 per cent or 20 per cent gross margin, retail analysts say, HMR can easily grab 45 per cent. McEwan, for his part, says he hopes his prepared food department will contribute fully 40 per cent to his store's bottom line. But even though grocers across North America have spent more than a decade trying to crack the home meal replacement formula – Loblaws, in particular, has flailed at HMR with little success – the reality of the category almost never lives up to the hype.
“It's the holy grail, but it isn't,” says one grocery analyst. “It's easy to have cooked chickens: You can keep them on that rotisserie forever and then fire-sale them at the end of the week. But the minute you move out of that high-volume, high-demand stuff, you've got problems.” Caicco wrote in an e-mail, “Margins always start out looking like 45-50 per cent, but once labour, shrink and packaging are considered, it's usually not profitable.”
The upshot: Instead of grocers stealing customers from take-out restaurants, as they had hoped to do, the traffic is going the other way, says Robert Carter, a manager at the NPD Group, which tracks consumer behaviour. Canadian HMR purchases in grocery stores contracted by 6 per cent in the past year, Carter says, while takeout purchases at casual dining restaurants grew by 14 per cent. Shoppers don't want soggy fries and rotisserie chicken any more, Carter says. They want true restaurant quality and restaurant taste. “For McEwan to open now, the timing is great.”
McEwan is betting that he's immune to many of the HMR problems that have plagued so many storekeepers before him. “Most grocers want to buy salads in buckets so they can scoop them into bowls and put them out. They've not been able to bridge that, nor do I think they ever will,” he says.
This is overstatement to some extent. While many of the bigger grocers outsource their HMR lines and repackage them on site, plenty of others have begun to do better than that. Longo's has hired chefs and installed open kitchens in its new Toronto stores, while Sobeys, too, has moved far beyond stale roasted chicken and prepackaged salads. Toronto's Summerhill Market has a highly respected prepared-food program, as does Whole Foods Market. Pusateri's, meanwhile, has also invested heavily in HMR products, and prepares them in open kitchens at its two locations. But of all of these, only Summerhill Market can truly claim to offer actual “restaurant quality,” whatever that is. Pusateri's premium-priced prepared dishes are, in many cases, only slightly better than airline food.
McEwan has brand loyalty, proven business acumen, talented staff – his empire now counts 540 employees – and, thanks to his restaurant and catering businesses, intimate knowledge of what it takes to produce and serve, and profit from, massive quantities of high-end food. And so he's leveraging all that with McEwan. “For us it's a slam dunk to make this product,” he says. “I'm a chef. That's what I do.”
Restaurants feed the store
The store's grocery lines are impressive: McEwan boasts an exclusive line of (excellent) Belgian chocolates, and gets its macaroons delivered fresh three times a week. You could eat a different imported, bronze-dye-extruded Italian pasta every night for a month from McEwan's grocery shelves. But everybody carries groceries and produce, McEwan says; many retailers around the city do it very well.