Sounds like you, like many others, hadn't moved on in your view of package holidays, which became outdated once it was possible for people to book their own holidays online.
'A package holiday' as you have discovered, is simply a way of booking your flight, accommodation and transfer in one go, which gives you certain legal benefits and is much easier. The accommodation can be exactly a same as can be found online looking separately and can be AI hotels of any standard, smaller hotels where B&B is standard and you can pay for dinner in the restaurant or self catering properties such as villas, apartments or even caravans, tents etc.
In many resort town hotels, there will be people on packages as well as those who have booked direct having exactly the same holiday. There's no rule as to which is cheaper, it could go either way. We've been on a few Jet2 packages where it was a lot cheaper to book the package, other times I've priced it up and it's cheaper to book separately, even on the same flight and hotel, often because we just get a bus or taxi to the hotel. But the bonus with the package is that if anything goes wrong with the transfer or the flight, it's the tour operator's responsibility to sort it, whereas if your separately booked flight is cancelled, you still could be committed to paying for accommodation you're unable to get to.
I expect the holiday with amazing local food was quite expensive because that's where I find AI hotels lacking, unless you pay a lot. I don't want to pay for 5 star a la carte AI and we like to have lunch out, so the cost would escalate even more but I don't like buffets for lunch or dinner, I want to sit at a table in a nice square or by the sea and have the food brought to me.
I also like a lot of seafood, which was the main thing I didn't like when I stayed in an otherwise lovely adults only spa hotel in Lanzarote that did AI, but I was HB - this cost hardly anything more than BB so I ate out at lunchtime and just went to the restaurant in the evening for a glass of wine and a bit of salad. The food was lovely, just not to my taste.
It's also true that a holiday in term time and/or in an adults only hotel feels very different to one in the school holidays that is much busier with lots of children. We're child free so never go in the school holidays but there has been occasions when there's been a small overlap and the difference is very noticeable.