The supermarket deli is becoming an increasingly attractive protein destination.

While delis have traditionally been venues for shoppers seeking fresh lunchmeats from service counters along with pre-sliced and pre-packaged offerings, departments now are evolving into multi-faceted meal repositories with a plethora of protein options.

The supermarket deli is becoming an increasingly attractive protein destination.

While delis have traditionally been venues for shoppers seeking fresh lunchmeats from service counters along with pre-sliced and pre-packaged offerings, departments now are evolving into multi-faceted meal repositories with a plethora of protein options.

Such elements as hot and cold prepared foods, made-to-order and pre-made sandwiches, buffets and grab-and-go meals, as well as more flavorful and healthy lunchmeats, are becoming prevalent.

Indeed, deli operators are expanding and enhancing selections in a quest for greater revenues and to attract and retain shoppers who might otherwise visit foodservice locations for their meals. 

But consumer concern about price means more shoppers are turning to private label alternatives in the deli case, presenting new opportunities for retailers who can gear their product mix to changing consumer demands.

“Supermarkets over the last two years have competed very well for the infamous ‘share of stomach,’” says Peter Redmond, former vice president of deli and seafood for Wal-Mart Stores Inc., and current vice president of deli sales for Rupari Food Service, Deerfield Beach, Fla. “This is quite evident with the fall-off in numbers from food service and casual dining. What remains to be seen is what this customer will do once we emerge from the recession.”

The majority of deli dollars are being generated by prepared foods and meats, which in 2009 accounted for 50.1 percent and 25 percent of department sales, respectively, reports the Perishables Group, a Chicago-based fresh foods research and consulting firm.

The figures represent data from 13,000 grocery stores with annual sales volume of more than $2 million and do not include activity from Wal-Mart, club stores, franchise stores, small independent chains and alternative format retailers, such as Whole Foods Market Inc. and Trader Joe’s.

Within the deli meat sector, bulk offerings accounted for 86 percent of category dollars and 88.3 percent of volume.

Pre-sliced meats generated 9.1 percent of dollars and 7.5 percent of volume, and specialty meats accounted for 4.9 percent of dollars and 4.2 percent of volume.

Deli meat revenues were flat from the year-earlier period and Mintel Group Ltd., a London-based research firm, reports that price is inhibiting growth.

In a nationally representative Mintel online survey of 2,000 consumers conducted last October, two-thirds of respondents indicated that they would buy more deli meat if the products cost less.

Bill Patterson, Mintel senior analyst, notes that the average retail price of lunchmeats is more than $4 a pound. 

“Retailers need to offer lower-cost items and basic private label brands while also maintaining a balance of meat options,” he states.

A study by Manassas, Va.-based Thomas Opinion Research also reveals that price is a key purchase factor.

In a Thomas Opinion research online and telephone survey earlier this year of 2,000 deli shoppers commissioned by the Madison, Wis.-based International Dairy-Deli-Bakery Association (IDDBA), 52 percent of respondents noted that prices in their in-store delis increased in the previous three months, and 30 percent indicated that there were not enough value-priced choices in the self-service section.

Rosita Thomas, Thomas Opinion Research executive director, says many shoppers perceive the deli as being overly expensive and, as a result, some are purchasing their meal components from other store departments.

The Thomas study also reports that 34 percent of respondents are buying less from the deli than in 2004; 20 percent are purchasing more; and 45 percent are buying about the same amount.

Enter Private Label

This greater focus by consumers on cost is triggering added interest in store-branded deli meats.

Sales of private-label lunchmeats, for instance, grew 6 percent to $839 million in 2009, according Chicago-based Information Resources Inc.

The rate is higher than the 4.3 percent growth rate of the entire lunchmeat market and makes private label the third-largest lunchmeat brand, Patterson says. He notes that private label sales are up in all deli meat segments. 

Mintel reports that private label accounts for 12 percent of pre-sliced lunchmeat sales, trailing only market-share leaders Kraft Foods Inc. (21 percent) and Sara Lee Corp. (18 percent), and ahead of Smithfield Foods Inc. (8.5 percent).

“The range of private label has expanded with high-, medium- and low-end options available in many categories,” Patterson states. “Consumers also generally perceive private label as being of good quality and many say they will probably not go back to the supplier brands. They realize they have not given up much in taste and convenience by switching to store brands.”

W. Frank Dell, president of Dellmart & Co., a Stamford, Conn.-based retail consultancy, agrees.

“Many baby boomers who are nearing retirement will not return to their free-spending ways,” he states. “And there is less of a stigma today in buying store brands.”

Turkey, ham, beef, salami, chicken and bologna are the most popular bulk deli meat varieties by dollar volume, reports Hoffman Estates, Ill.-based FreshLook Marketing Group.

Top pre-sliced proteins are ham, turkey, salami, beef and pepperoni, according to the Perishables Group.

In addition to a greater focus on price, consumers also are increasingly seeking newer meat flavors and healthier options.

That trend is revealed in Mintel’s analysis of 580 restaurants and about 380 chains, where the fastest-growing sandwich flavors on foodservice menus include Pepper, Applewood Smoked, Spicy, Mesquite Smoked, Buffalo, Hickory Smoked and Savory.

The most popular restaurant menu items typically gravitate to delis within two years, Patterson says.

 “The popularity of complex and sophisticated flavors at foodservice should be a big wake-up call for delis,” Patterson states.

Indeed, such options will likely spur greater restaurant traffic.

After the Recession

While delis benefitted from the recession-as more cost-conscious consumers “brown bagged” their meals-an improving economy and attractive menu options are expected to lure many consumers back to foodservice outlets, analysts say.

In response, deli operators and suppliers should encourage shoppers to keep focusing on frugality in order to maintain the deli lunchmeat sales momentum, Patterson says.

Messages that spell out the yearly cost savings from consuming homemade sandwiches, and that ask shoppers if it is worth giving up those dollars for the convenience of eating out, are effective tactics, he states.

Redmond, meanwhile, encourages operators to create value meals, such as bundling meat entrées with side dishes and beverages.

“There also are retailers that have created theme days or evenings in which they take a very aggressive pricing stance for a short period and blow the doors off an item from a sales point of view. As long as retailers continue to try new ways to create meal-type values, the supermarket will win.”

 Offering more “better for you” proteins in delis also can be a powerful consumer magnet, he says.

The Mintel survey, for instance, reveals that 41 percent of shoppers purchased all-natural lunchmeats in the past year and another 36 percent are interested in doing so.

In addition, 41 percent bought low fat/fat free lunchmeats and 25 percent are interested in doing so; and 39 percent purchased low sodium/sodium-free lunchmeats and 31 percent are interested in the items.

Respondents also bought or are interested in purchasing lunchmeats that are low-calorie (36 percent and 29 percent, respectively), American Heart Association-endorsed (29 percent/36 percent), hormone-free (18 percent/36 percent), Kosher/halal (18 percent/22 percent), diet-plan endorsed (17 percent/26 percent), organic (16 percent/30 percent), free-range (15 percent/31 percent) and gluten-free (11 percent/24 percent).

Suppliers are helping to fuel the healthy eating movement as the top claims in new product launches include low/no/reduced fat, no additives/preservatives, and low/no/reduced transfat, Mintel reports.

Enhanced lunchmeat packaging that accentuates freshness, meanwhile, also is becoming more appealing to shoppers.

Forty-seven percent of Mintel survey respondents indicated that they bought products in better resealable packaging in the past year, and 37 percent are interested in doing so. 

“Freshness trumps everything when it comes to lunchmeat,” Patterson says. “And there is room for improvement, as twenty-five percent of consumers say lunchmeat packaging still does not seal appropriately.”

Indeed, more than half the respondents across all age segments indicated that they can taste the difference between lunchmeats sold at the deli counter and packaged products, with the majority noting that service counter proteins are fresher.

“Merchandisers of packaged lunchmeats should emphasize the terms ‘fresh,’ ‘deli quality’ and ‘premium,’” Patterson states. “Such messages as ‘easy access,’ ‘easy open’ and ‘resealable’ also need to be pervasive.”

 

The Private Label Deli Picture…

• Sales of private-label lunch meat grew 6 percent to $839 million in 2009

• PL lunch meat growth outpaced the overall market’s 4.3 percent growth 

• Private label market share is 12 percent of pre-sliced lunch meat

…and the Competition

National Brand Producer Share

Kraft Foods Inc. 21 percent 

Sara Lee Corp. 18 percent

Smithfield Foods Inc. 8.5 percent