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The Future of the Deli

November 30, 2009
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It is a fine time to be a supermarket deli. With the slowdown in consumer spending resulting in declining restaurant activity, delis are in a position to experience a sales bonanza from convenience - and cost-minded - meal seekers.

Indeed, Technomic Inc., a Chicago-based food industry research firm, forecasts negative 2.2 percent growth for the restaurant industry in 2009, including negative 6.0 percent growth for full-service locations. Technomic reports that it will be the worst year for foodservice since the company began tracking performance in 1972.

A 2008 Technomic survey also found that 74 percent of consumers are likely to visit both quick- and full-service restaurants less often. In addition, more than 50 percent of consumers - including more than 70 percent of higher-income persons - plan to spend less money when they do visit either type of restaurant.

“Delis are the perfect outlets to serve time-starved customers who also are looking for an economical meal,” says Richard George, professor of Food Marketing at St. Joseph’s University in Philadelphia. “People who used to visit restaurants still want delicious food that they don’t have to cook themselves.”

To position the deli as a dinner destination, George recommends that retailers create displays that contain various meal elements, including entrées, side dishes and desserts. Such initiatives can include co-merchandising ventures with other store departments, including bakery and wine.

Stores also can generate more attention for their prepared meals by displaying the items on end caps and featuring them in weekly advertising circulars, George says.

“There is a need to change the ways shoppers view the deli as a source of meals, and the only limit is our vision and imagination,” he states. “The deli is a high-margin jewel.”

While the potential for generating large revenues from consumers seeking convenient meals is immense, added activity already is occurring. The Perishables Group, a Chicago-based fresh foods consulting firm, reports that in 2008, prepared foods accounted for 58 percent of deli sales volume and 50.8 percent of dollars. Dollar volume was up 5.8 percent from 2007.

Meat - the next largest deli segment - was responsible for 17.9 percent of volume and 23.3 percent of dollars. Within prepared foods, chicken accounted for 27.7 percent of dollars - an increase of 6.2 percent. It was followed by salads, at 21.2 percent; entrées, at 13.1 percent; and sandwiches, at 12.5 percent.

Sherry Frey, Perishables Group vice president of account services, notes that the shift of budget-conscious shoppers away from white tablecloth restaurants, as well as fast-casual outlets such as Applebee’s and T.G.I. Friday’s, is benefiting supermarkets. Delis that offer wide varieties of flavorful and unique prepared foods are in the best position to prosper, she says.

“Consumers, many of whom are used to eating in ethnic restaurants, are looking for tasty offerings with a gourmet twist,” she states.

In addition to providing shoppers with high-quality prepared foods, delis also must ensure that transaction times are swift if they are to retain the time-starved buyers. Recent Perishables Group research, for instance, found that shoppers spend an average of 5.5 minutes at the full-service deli counter, which Frey notes is unacceptable for many consumers.

“We may end up losing customers if the entire shopping trip takes 20 minutes and a quarter of that time is spent in line at the deli,” she states. “Retailers must figure out how to lessen the wait, while getting shoppers to maximize their purchases.”

Some stores are streamlining the buying process by installing kiosks in delis that enable consumers to electronically place their orders. The systems enable customers to shop while their deli selections are being packaged, and then retrieve the items on their way to the front checkout.

St. Louis-based Schnuck Markets Inc., a chain of more than 90 stores in Missouri, Illinois, Indiana and Iowa, recently rolled out self-service kiosks from Lombard, Ill.-based ADUSA Inc. In addition to taking deli orders, such kiosks also provide product information and suggestions, and allow shoppers to recall their purchase history.

A 2007 study by Wisner Marketing Group Inc., a Libertyville, Ill.-based retail research, consulting and marketing organization, found that information kiosks also could trigger incremental sales.

A test at three supermarkets in Northwest Indiana revealed that shoppers who accessed kiosks that provided data on food and wellness spent an average of 39 percent more on their purchases than non-users. Users, on average, also made one or more incremental purchases 75 percent of the time after accessing the kiosks. The additional sales occurred throughout the store.

In addition to kiosks, grab-and-go snack packs are among the innovations that are likely to attract the interest of time-oriented shoppers, Frey states. Similar to the smaller amounts of sliced fruit that are sold in produce departments, such deli packages can contain one-serving portions of such offerings as salads or desserts.

Frey also agrees that prepared meals have the potential to be strong revenue generators when they are cross-merchandised in conjunction with other perimeter departments. Indeed, a Perishables Group test revealed solid sales of complementary products such as produce that were marketed near deli entrées.

Many retailers, however, eschew joint programs because of disagreements over which department should get credit for the sale, Frey states.

“Supermarket chains are run by operators, not marketers,” adds Jim Wisner, Wisner Marketing Group president. “It takes someone in the organization who has the guts to tolerate failure to launch new programs.”

Wisner notes that large companies, in particular, tend to be resistant to novel marketing initiatives.

“They don’t encourage experimentation unless the idea comes from the top, so innovations tend to emanate from smaller, regional chains such as Wegmans,” he says.

Indeed, many industry insiders consider Wegmans Food Markets Inc. the standard bearer for cutting-edge merchandising. The Rochester, N.Y.-based chain of more than 70 outlets (in New York, New Jersey, Pennsylvania, Virginia and Maryland) aggressively competes with foodservice locations by operating a plethora of prepared food stations that enables customers to quickly access hot and cold meals for take-out or in-store dining. Among the stations in many Wegmans locations are a pizza shop, sub shop, hot foods case, prepared foods case, sushi bar, hot oriental bar, fresh foods bar and seafood bar.

Another aggressive prepared foods merchandiser, Austin, Texas-based Whole Foods Market Inc., also operates multiple food stations that provide such offerings as hot and cold sandwiches, ethnic meals, soups, pizza, burritos, tacos, steaks, pork loins and salads. Whole Foods has more than 270 natural and organic-oriented outlets in the United States and the United Kingdom.

“There are many additional restaurant concepts that delis can incorporate, such as the drive-thru,” Wisner states. “It is a question of just picking an idea and giving it a try.”

Retailers, he adds, also should focus on developing unconventional promotions for traditional products.

“It is easy to offer such items as freshly made sandwiches,” Wisner adds. “The key is finding an innovative way to sell them, such as by using the coupons or mailers that frequently are leveraged by restaurants.”

Going forward, many of the newer and successful merchandising initiatives also will emphasize convenience, analysts say. Indeed, Jack Gordon, CEO of AcuPOLL Research Inc., a Cincinnati-based consumer market research and product testing firm, says - based on recent activity by his clients - that he expects a growing array of convenience-oriented items to be launched over the next three years.

“Almost all the new products are aimed at convenience or ease of use,” he states. “Anything that saves the consumer work is becoming more popular.”

Gordon adds that delis - because shoppers perceive the sections as having the highest-quality foods in the supermarket - are well positioned to attract time-conscious meal seekers.

It is important, however, that delis consistently develop new options to keep pace with evolving foodservice offerings, adds Faye Greenberg, director of neighborhood marketing - affluent for Jacksonville, Fla.-based Winn-Dixie Stores Inc. Winn-Dixie, which operates 520 outlets in Florida, Louisiana, Georgia and Mississippi, is remodeling its locations and adding such elements as chicken wing bars, olive bars, prepared foods stations and rotisserie stations.

“The key is to [ensure] that deli foods remain restaurant-quality,” Greenberg states. “It also is often beneficial to have chefs running the deli or prepared foods department, which enhances trust and credibility in the minds of consumers.”

She says that the possible deli menu choices are “endless,” and stores should aggressively promote the offerings so the items resonate with shoppers. Effective vehicles include in-store signage, bag stuffers and supermarket Web sites.

A Winn-Dixie outlet in Delray Beach, Fla., for instance, recently was using a standalone aisle sign to spotlight the deli’s “Dinner of the Week” offering. The dinner consisted of eight pieces of fried chicken, 1 pound each of mashed potatoes and vegetables, one-half of an apple pie and Italian bread for $14.99.

To attract the widest range of shoppers to delis, outlets’ selections should be based on the demographics of consumers in each neighborhood, Greenberg says. Winn-Dixie supports that strategy by developing specific merchandising programs for three clusters of stores: “affluent,” “urban” and “Hispanic,” she states.

Delis that switch their offerings during the day to keep pace with changing customer dynamics also are better positioned to increase sales, Greenberg notes.

“A location could be considered ‘affluent’ in the afternoon and ‘working class’ at night,” she adds. “A core item such as rotisserie chicken will always sell well, but other foods may not.”

While harsh economic conditions are creating strong opportunities for delis, analysts warn that it is crucial that operators, in their efforts to keep prices attractive, do not sacrifice quality.

“There is a tendency to make things appear cheaper during a downturn,” says Ben Ball, senior vice president at Dechert-Hampe & Co., a Northbrook, Ill.-based sales and marketing consulting firm. “But while people are looking for a good value, they also want a strong presentation and high-quality food for their families. They see the food as a reward.” PLB


Editor’s note: Richard Mitchell is editor in chief of Meat & Deli Retailer, a sister publication of PL Buyer. This article first was published in the May 2009 edition of Meat & Deli Retailer.

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