Ikea’s Ed­i­ble Ex­pan­sion

How fur­ni­ture gi­ant Ikea is driv­ing un­ex­pected growth by ramp­ing up its food di­vi­sion

Fast Company - - Contents - By Jonathan Rin­gen

The Swedish brand is build­ing out its much-loved but lon­gover­looked food di­vi­sion.

A year after the first Ikea store opened in Sweden in 1958, founder Ing­var Kam­prad in­stalled an amenity that would be rec­og­niz­able to cur­rent-day shop­pers world­wide, from Tempe, Ari­zona, to Wuxi, China: a sit-down restau­rant with a small menu fea­tur­ing whole­some Scan­di­na­vian sta­ples. And for the next 50-plus years, Ikea management con­tin­ued to think about its food op­er­a­tion pretty much the same way Kam­prad did. “We’ve al­ways called the meat­balls ‘the best sofa-seller,’ ” says Gerd Diewald, who runs Ikea’s food op­er­a­tions in the U.S. “Be­cause it’s hard to do busi­ness with hun­gry cus­tomers. When you feed them, they stay longer, they can talk about their [po­ten­tial] pur­chases, and they make a de­ci­sion with­out leav­ing the store. That was the think­ing right at the be­gin­ning.”

But some­times a com­pany can find its next growth en­gine in sur­pris­ing places, if it just looks at its busi­ness cre­atively enough. Over the past sev­eral years, Ikea’s food di­vi­sion—which also in­cludes the Swedish Food Mar­ket (where you

can buy ev­ery­thing from jars of her­ring to make-at-home ver­sions of the restau­rant menu)—has proved to be much more than just a tool to move more Vittsjö TV stands. By fo­cus­ing on this for­merly unloved di­vi­sion, and lock­ing into pre­vail­ing trends around eth­i­cally sourced in­gre­di­ents and health­ier op­tions, Ikea has turned food into one of its fastest-grow­ing seg­ments. The com­pany is now con­sid­er­ing the next phase of this un­ex­pected rev­enue gen­er­a­tor, and it might even ex­pand into stand-alone cafés in city cen­ters.

How could Ikea have missed such an op­por­tu­nity for so long? “This might sound odd, but it’s al­most some­thing we didn’t no­tice,” says Michael La Cour, Ikea Food’s man­ag­ing di­rec­tor. It turns out that Ikea’s main home-goods busi­ness is so vast—the com­pany racked up $36.5 bil­lion in rev­enue last year—that the com­par­a­tively small sales im­pact of lox sand­wiches and choco­late cake got lost. “But when I started put­ting the num­bers into con­text of other food com­pa­nies, sud­denly I could see, well, it re­ally is not that small.” Ikea Food had an­nual sales of about $1.5 bil­lion in 2013.

La Cour’s team set about ex­am­in­ing ev­ery part of Ikea’s food busi­ness, ap­ply­ing the same kind of think­ing the com­pany uses for its fur­ni­ture busi­ness. Lev­er­ag­ing its scale, it stream­lined the sup­ply chain, forg­ing a key part­ner­ship with a sus­tain­able salmon farm in Nor­way, along with sign­ing on sim­i­larly vet­ted providers of cof­fee and choco­late. It moved to ag­gres­sively re­duce waste— which is down by 30% so far in test lo­ca­tions—by im­ple­ment­ing data-anal­y­sis tools that de­ter­mine more pre­cisely how much food to pre­pare. And it ap­plied the com­pany’s core prin­ci­ples of “demo­cratic de­sign” to the menu, em­pha­siz­ing elegant form, high qual­ity, sus­tain­abil­ity, and, of course, low prices when con­coct­ing new culinary prod­ucts. (Ikea has since be­come a ma­jor global pur­veyor of cer­ti­fied-sus­tain­able seafood. Less mo­men­tous but still sig­nif­i­cant to jam fans: It’s also Sweden’s big­gest ex­porter of lin­gonber­ries.)

New menu items—par­tic­u­larly chicken and ve­gan Swedish meat­balls, which de­buted in 2015—were cre­ated in re­sponse to cus­tomers’ de­sire for health­ier, more care­fully sourced op­tions, driv­ing sales of what Ikea refers to as “the meatball fam­ily” up 30%. (Only about half the menu is Scan­di­na­vian—the other half is tai­lored to each in­di­vid­ual mar­ket, with a short-rib plate be­ing a cur­rent hit in the U.S.) Of course, the big­gest thing that dif­fer­en­ti­ates Ikea from other food chains is price. If you’re look­ing to feed a fam­ily of four for $20 or less, there aren’t a whole lot of com­peti­tors. “It’s an ex­pe­ri­ence just go­ing there, and that’s what peo­ple are look­ing for in a restau­rant meal these days,” says Bon­nie Riggs, a restau­rant-in­dus­try an­a­lyst at NPD Group. “But more than that, what you get for your money is far su­pe­rior to many other fam­ily-din­ing restau­rants.”

In the U.S., all of Ikea’s eater­ies have been up­dated to re­flect the com­pany’s new food think­ing. The restau­rants, which typ­i­cally can ac­com­mo­date 600 or more din­ers at a time, have been re­con­fig­ured into zones that roughly cor­re­spond to the dif­fer­ent cat­e­gories of fur­ni­ture shop­pers, from fam­i­lies with kids to young cou­ples fur­nish­ing their first apart­ments. In one area you’ll find a com­fort­able spot out­fit­ted with lounge chairs and so­fas—chan­nel­ing the cur­rent hos­pi­tal­ity craze of hygge (Dan­ish for “co­zi­ness”)—aimed at peo­ple who want to set­tle down with a cof­fee. There’s a kids’ play sec­tion, with an ad­join­ing din­ing area for par­ents. And there is a va­ri­ety of large com­mu­nal ta­bles, along with smaller pri­vate zones for a more re­fined ex­pe­ri­ence. “All of our de­mo­graphic groups in­tu­itively mi­grate to the right area [for them],” says Diewald. “Just based on the de­sign.”

These ef­forts have in­creased food sales by around 8% an­nu­ally since the ini­tia­tive kicked off. The com­pany now serves some 650 mil­lion din­ers a year, across 48 coun­tries around the world—adding up to around $1.8 bil­lion in sales in 2016.

Some­what sur­pris­ingly, 30% of Ikea Food’s cus­tomers are com­ing to the stores just to eat—which could present a ma­jor op­por­tu­nity. Over the past two years, the com­pany set up suc­cess­ful pop-up restau­rants in Lon­don, Paris, and Oslo, which al­lowed peo­ple to get their meatball fix with­out trekking out into the deep sub­urbs. Now, the com­pany is mulling over the idea of Ikea restau­rants that op­er­ate sep­a­rately from the tra­di­tional big-box stores. “The mere fact that we don’t need so many square feet to do a café or a restau­rant makes it in­ter­est­ing by it­self,” says La Cour. “I firmly be­lieve there is po­ten­tial. I hope in a few years our cus­tomers will be say­ing, ‘Ikea is a great place to eat—and, by the way, they also sell some fur­ni­ture.’ ”

Ikea’s main busi­ness is so vast that the com­par­a­tively small sales im­pact of lox sand­wiches and choco­late cake got lost.

Photograph by Jeff Brown

A re­tail smor­gas­bord Ikea’s food op­er­a­tion, which be­gan as an af­ter­thought, has grown into a

$1.8 bil­lion busi­ness.

In the zone Ikea’s eater­ies have been re­designed with dif­fer­ent ar­eas for a va­ri­ety of ex­pe­ri­ences.

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