Swedish company IKEA is a name synonymous to furniture. It is the largest furniture retail brand globally.
IKEA made ~$42 billion in revenue in 2021 across its 458 stores worldwide.
But, why would a furniture retailer sell food in the first place? Why would anybody eat at IKEA and where is IKEA going with this?
Let’s take this from the top!
Does IKEA really sell a lot of food?
Yes! IKEA’s food business across various bistros, cafés and restaurants makes a whopping ~$2.5 billion in sales annually!
IKEA’s food sales account for 6% of its total revenues and have been growing at 8% annually since 2016.
But, why does IKEA even sell food?
IKEA’s food business wasn’t a random experiment, but a well-thought out strategy to drive their furniture sales.
IKEA stores due to their size are usually located in the city outskirts and far from where regular restaurants are located. So, the initial idea was to provide food to customers in the store so that they hang around for longer without having to go outside for a lunch or snack break.
IKEA’s founder, Ingvar Kamprad, very succinctly makes the point, “Hungry customers buy less”.
These food stores were not intended to be profit-centres. The idea was to lure in customers with low-priced, tasty meals that would end in them making big ticket furniture purchases.
In essence, IKEA’s food halls serve two purposes –
- Increase the footfall i.e. drive more number of visitors
- Extend the time shoppers spend in the store leading to big ticket purchases
Got it! So, how much impact does the food business have on IKEA’s furniture sales?
Let’s take the example of the IKEA restaurant in Hyderabad, India to understand how big an impact the restaurant has on furniture sales.
Number of visitors who come to IKEA primarily to eat food
- IKEA Hyderabad restaurant has 1000 seats, and is open for 11 hours between 9:30AM to 8:30PM on all days of the week.
- Let’s conservatively assume that the restaurant has negligible rush for 5 hours, peak rush filling 40% seats for 3 hours and normal rush filling 20% seats for 3 hours.
- So, total number of daily visitors to the restaurant = # of hours x # of seats filled = 3 x 400 + 3 x 200 = 1800
- Assuming the restaurant runs for 350 days in a year (accounting for national holidays),
# of visitors to IKEA restaurant annually = 1800 x 350 = 630,000
- Now, IKEA Hyderabad store had ~2 million visitors in 2019-20. So, 630,000 / 2,000,000 x 100 = ~32% visitors came to the store for food!
In fact, IKEA learned a while back that ~30% of their visitors across the world come to the stores to primarily eat food.
So, out of the 775 million visitors to all IKEA stores in 2021, 775 x 30% = ~233 million people primarily came to eat.
Furniture sales from visitors who primarily come to eat food at IKEA
- Let’s say the average order value (AOV) for furniture at IKEA is INR 5000.
We’ve taken a conservative assumption based on IKEA’s competitor in India — Pepperfry. Pepperfry has an online AOV of INR 7000 and offline AOV of INR 32,000 .
- Also, IKEA’s revenue from the Hyderabad store was INR 566 crores in 2019-20.
- Consider 3 scenarios where 10%, 20% or 30% of visitors who came to eat food at IKEA end up buying furniture.
So, furniture sales =
A) 10% ⇒ 630,000 x 10% x 5000 = INR 31.5 crores
% revenue = 31.5 / 566 = 5.6%
B) 20% ⇒ 630,000 x 20% x 5000 = INR 63 crores
% revenue = 63 / 566 = 11.1%
C) 30% ⇒ 630,000 x 30% x 5000 = INR 94.5 crores
% revenue = 94.5 / 566 = 16.7%
So, IKEA’s food business is able to drive ~5-15% of its furniture sales!
That’s great! But, is there anything special about IKEA’s food?
IKEA opened its first self-service cafeteria in 1958 with only coffee and cold dishes. Since then it serves not just hot snacks and a la carte dishes but also offers packaged, frozen and refrigerated food & beverage items.
But, about half of the items on IKEA's menu are Scandinavian. IKEA food rose to its stardom for its meatballs, lingonberry jam and salmon. It is estimated that IKEA sells around one billion meatballs per year!
Of course, many items on the menu are customized as per the demographics of the store. For instance, you can eat spiced chicken curry and rice at the Hyderabad store.
Apart from meatballs, are there other reasons for people to prefer eating at IKEA?
Yes! IKEA food is easy-on-the-wallet and tasty.
Consider this – English breakfast at IKEA includes eggs, potatoes, beans, tomatoes and meat and costs just $4.99. Compare this to McDonalds where a Big Mac meal costs you $5.99.
IKEA Hyderabad store in India offers 2 pieces samosas for just Rs. 30 and vegetable biryani for Rs.150. That's half the usual price for these items even at pocket-friendly restaurants.
Finally, where is IKEA going with this?
The roaring success of the food business did prompt IKEA executives to try several standalone pop-up restaurants in 2017, in major cities like London, Paris, and Oslo. However, in 2018, IKEA said that no long-term decision on standalone restaurants was taken.
IKEA's external innovation lab, Space IO, is in the process of creating healthy, plant-based and sustainable food options – “fast food of the future”. But, this is limited to culinary research and is not on IKEAs menu. At least for now.
IKEA’s restaurants are an integral part of its business and here to stay. Whether the company takes it to the next level of its promised potential – we will have to wait and watch.