Retail Meets Restaurants: How Retailers Are Modernizing with Foodservice

The line between retail and restaurants continues to blur. Across the industry, it's being deliberately crossed, erased, and redrawn by innovative operators who see food service through a wider lens. With over half of food and beverage retailers offer some form of foodservice, we're witnessing a fundamental shift in how Americans shop for and consume their meals.

Take Mar Vista's Fatty Mart, where Chef David Kuo redefines the convenience store model. It's a place where restaurant-quality food meets grocery store pricing, offering everything from artisanal pizzas to rice bowls alongside daily essentials. Drawing on his success with Little Fatty restaurant, Kuo has created a culinary incubator disguised as a neighborhood market, where multicultural specialties meet sustainable practices.

And at Kelly's Market, owner Sean Crotty has channeled his grandfather's 1963 Culver City spirit into a modern gathering spot. It's a place where staff know the regulars by name (and their dogs too), combining everyday essentials with carefully curated specialty items. Here, daily grocery shoppers mingle with neighbors sharing craft beers and sandwiches – showing how these spaces can naturally become the heart of community life.

These businesses represent more than a passing trend. Their stories – and the lessons learned along the way – illuminate how neighborhood food retail is evolving for the future.

Expanding revenue streams

The evolution of specialty food retail has grown from a hot bar or deli counter, into crafting experiences that transform everyday shopping into something worth savoring. 

Kelly's Market, for example, has combined the practicality of a corner store and the luxury of a specialty market. As they put it, they're "undefinable" – a bougie bodega where your late-night Snickers run might end with you discovering a fancy cheese or small-batch natural wine you never knew you needed. This kind of culinary cross-pollination has proved particularly successful for established restaurants venturing into retail territory. 

“Offering both foodservice and grocery can be a tie-breaker in the decision process,” said Crotty. “A customer is looking for a lunch spot and also needs to pick up a few items for dinner later.”

At Fatty Mart, Kuo has discovered that their market operations contribute a healthy 40% to their revenue stream, complementing their core restaurant business in ways that go beyond the bottom line. 

“We sell 30-40 pre-packaged hard goods, which have high margins and give us the best bang for our buck,” said Kuo. “The market opened a new revenue stream and gave our guests another way to connect with our brand.” 

The retail space has become a brand extension that keeps customers returning to explore local products and house-made specialties, with high-margin packaged goods providing the sweet spot between profitability and guest engagement. 

“Retail has expanded our horizon. The market increases our restaurant’s impact and makes us more attractive in the neighborhood – people love coming and discovering new and local goods,” Kuo explained. “It builds our brand.” 

Perhaps most crucially, this hybrid model has proven to be a masterclass in business resilience – when dining room traffic ebbs, retail sales flow, and vice versa. By diversifying their revenue streams, these establishments have created a safety net that not only protects against market fluctuations but opens up fresh avenues for growth, whether that's launching house-made product lines or expanding into new neighborhoods.

Transforming errands into experiences

Some of the most successful businesses are crafting businesses that transform everyday shopping into memorable experiences. 

Kelly's Market did just that – morphing from a simple storefront into a vibrant neighborhood hub where commerce meets culture. 

Picture this: a former barista station reimagined as an intimate wine bar, where locals can uncork a bottle from the retail shelves or settle in with a glass while local musicians set the evening's soundtrack. The space doubles as a rotating gallery, with local artists' works adorning the walls – turning routine shopping trips into potential discoveries of both new wines and new talents. 

Over at Fatty Mart, Chef David Kuo has tapped into the ability to transform dining into cultural exploration, then extend that journey into customers' homes through their market offerings. 

“Our superpower is our food,” he said. “Our restaurant is where you experience great food and new cultures in person. The market is where you bring them home – and meet your neighbors who like the same things.” 

Both businesses work together in conjunction. Diners experience the vibrant flavors and traditions of different cuisines at the restaurant, and at the market, those same customers can recreate these culinary adventures in their own kitchens, all while bumping into neighbors who share their passion for discovery. This creates a feedback loop of taste and community, where every visit strengthens the bonds between food, culture, and neighborhood.

Using technology as an enabler

These successful operators rely on integrated technology stacks that seamlessly bridge the retail-restaurant divide. Unified platforms can help tell the full story of how products move through both sides of the business, from fresh ingredients hitting the prep station to packaged goods flying off shelves. They reveal which menu items drive retail purchases, which retail products complement dining services, and where the sweet spots of profitability truly lie.

“Toast Retail helps us dramatically reduce waste and maximize revenue by hitting the sweet spot on inventory,” said Kuo. “We used to eyeball what was in stock, but with Toast’s automatic tracking of PAR levels and daily sales analytics revealed that we were running out of our top five items.” 

For businesses managing hundreds or thousands of SKUs across multiple categories, this technological foundation is essential. Without it, tracking everything from wine bottles to sandwich ingredients would be nearly impossible. 

And, these insights can make real impacts on sales. “We tripled sales of one of our most popular take-home items because of the insights we were able to leverage in Toast Retail,” said Kuo. 

An integrated tech stack transforms these hybrid operations from parallel businesses into a single, synchronized enterprise. Kelly’s Market had multiple POS systems in the past – and it wasn’t cutting it. A unified tech stack streamlines everything from real-time inventory updates to sales data, giving managers the insights they need to spot trends and opportunities at a glance. 

When your point-of-sale system communicates with inventory, online ordering, and customer management tools in real time, you unlock efficiencies that make a unique business model truly work. The result is a unified operation where every transaction, whether retail or restaurant, feeds into a bigger picture of business success.

Lessons and outlooks

As the lines between retail and restaurants continue to blur, opportunities in this space are rapidly expanding. 43% of restaurants** see retail rising in importance over the next year, and over a quarter of restaurants** are increasing the ways they serve and generate revenue from guests in the next year. When asking these restaurants what service models they plan to add in the next year, over 17% point to retail.**

Made-to-order food has emerged as a critical growth driver, with customizable options that transform traditional retail spaces into destinations for fresh, personalized meals. But the real magic happens after that – when that made-to-order sandwich leads to a drink purchase, when that coffee run ends with a basket full of specialty items, when the customer who came in for lunch discovers their new favorite local product.

The lessons from pioneers like Kelly's Market and Fatty Mart point to a future where technology plays an increasingly central role. Success in this space needs good food and sophisticated systems that can handle everything from real-time inventory updates to easy online ordering.

Looking forward 

Fatty Mart and Kelly’s Market have shown that when you combine the convenience of retail with the experience of dining, backed by the right technology and a deep understanding of your community, you create a business model that's both more resilient and more relevant to today's consumers.

Looking forward, we're likely to see even more innovation in this space, as businesses experiment with new combinations of retail, dining, and community gathering spaces. The winners will be those who can master the delicate balance of efficiency and experience, using technology to streamline operations while never losing sight of the human connections that make these spaces special.

*Food Service defined as a convenience store, bottle shop, or grocery store that offers one or more of the following: “Made-to-Order Meals”, “Deli Counter”, “Catering”, “Salad and/or Hot Bar”. Based on blind, incentivized, survey of 445 CBG decision-makers operating 16 or fewer US locations from 5/17/24 - 6/2/24. Using a standard margin of error calculation, at a confidence interval of 95%, the margin of error on average is +/- 5%.

** To help better understand the restaurant industry, Toast conducted a blind survey of 755 restaurant decision-makers operating  16 or fewer locations in the United States including both Toast and non-Toast customers from May 17, 2024 to June 2, 2024. Respondents include a mix of both full-service and quick-service restaurants. Respondents were not made aware that Toast was fielding the study. Panel providers granted incentives to restaurant respondents for participation. Using a standard margin of error calculation, at a confidence interval of 95%, the margin of error on average is +/- 4%.