Supermarket delis are taking on new identities. While most customers have historically perceived outlets as venues for fresh and prepackaged meats and cheeses, an increasing number of shoppers now are seeking hot and cold prepared foods.
In response, deli operators—looking to leverage the growing base of time- and taste-conscious consumers—are merchandising wider arrays of gourmet-quality entrées, side dishes and appetizers that are created by in-store chefs and marketed at service counters.
Stores also are targeting the vibrant grab-and-go sector with pre-made sandwiches and salads and wide arrays of supplier-branded ready-to-heat and ready-to-eat meals.
A key aim is to attract the plethora of consumers who typically purchase meals from take-out restaurants, particularly fast-food and fast-casual locations.
“There’s a real opportunity—instead of just selling more of the same products—for delis to really understand consumers and meet a broader range of their needs,” says Steve Dragoo, president of Franklin, Tenn.-based Service Solutions Consulting.
Retailers already are generating greater revenues by responding to changing shopper dynamics.
The Perishables Groups, a West Dundee, Ill.-based consulting firm, for instance, reports that prepared food dollar sales grew 6.8 percent in 2007.
“There are only three growing take-out formats for dinnertime in America: casual dining outlets, sandwich shops and supermarkets,” says Harry Balzer, vice president of the NPD Group, a Port Washington, N.Y.-based market research firm. “Supermarkets have an advantage with location. They’re already in the flow of our lives.”
To further increase prepared food revenues, delis need to think less like grocers and more like foodservice operators, analysts say. And some already are following that model.
Publix Super Markets Inc., a Lakeland, Fla.-based chain of more than 900 stores in Florida, Georgia, South Carolina, Alabama and Tennessee, is expanding its hot deli offerings in some locations to better attract restaurant customers, a spokesperson says. Some Publix stores already offer approximately 80 prepared entrees at about a half-dozen deli food stations.
Ukrops Super Markets Inc., a Richmond, Va.-based chain of 29 stores in Central Virginia, meanwhile, is mimicking the foodservice practice of offering daily specials. The retailer’s “Chef’s Specials,” for instance, can include such fare as Salmon Cakes and Parmesan Chicken Tenders. A Gourmet Soup of the Day also is available with such selections as Chicken Tortilla and Milanese Minestrone.
In addition, a daily “Dinner for Two” features an entrée and side dishes. Among the choices are Meatloaf, Butter Beans and Corn, Scalloped Potatoes and Biscuits for $11.99.
“There is a large opportunity for supermarkets to turn their shoppers into meal seekers,” says Brian Salus, a Midlothian, Va.-based food consultant.
Unique recipes also are enabling delis to standout in a crowded market.
Indeed, Bill Pizzico, president of The Prizm Group, a Fort Washington, Pa.-based marketing communications firm, notes that signature items can evoke instant recognition.
“Becoming known for meals that are always available is the thought process that is followed by fast-food restaurants,” he states.
A deli also can create a reputation of offering quality prepared foods by piggybacking on the success of national brands, Salus notes.
Stores, for instance, might offer hot rotisserie chicken in packages that display the logos of such “credible” brands as Perdue or Tyson, he says.
In addition, retailers can promote the use of branded ingredients in their prepared foods, such as Hellman’s mayonnaise in chicken salad or Stouffer’s macaroni and cheese, he adds.
Delis also can strengthen their prepared foods merchandising by offering wider arrays of proteins. Hot cases, for instance, might feature various pork and beef entrées—which analysts say are underutilized—along with traditional varieties of fully cooked rotisserie chicken.
Such fare can include the “Pocket Roast,” a new mild-flavored two-pound pork roast cut from two muscles on the hind leg that is being promoted by the Clive, Iowa-based National Pork Board (NPB).
“It can be netted and cooked on the rotisserie in the same time as chicken,” says John Green, NPB director of strategic marketing.
Randy Irion, director of retail marketing for the Centennial, Colo.-based National Cattlemen’s Beef Association (NCBA), adds that beef items suited for the deli—because they typically won’t dry out quickly—include pot roast, beef teriyaki and fajitas.
“Items that are braised or cooked with moisture do best in the hot case,” he states.
It is important, however, that the proteins are versatile enough to appeal to an increasingly diversified shopper base.
Among the key segments are consumers who are likely to visit the deli or bakery more than the typical shopper’s average of 3.6 times a month.
Many of those consumers are from households with incomes of more than $100,000, Hispanic and frequent customers of club stores and specialty supermarkets, according to the Madison, Wis.-based International Dairy-Deli-Bakery Association (IDDBA).
“Delis need promotions that target more than one demographic group, including younger, older and family shoppers” says Bob Bova, a Springdale, Ark.-based deli consultant.
Retailers, to appeal to an even wider range of palates, also must offer items that are in line with current taste and lifestyle trends. Many are staying current by leveraging newer items from suppliers.
Tyson Foods Inc., Springdale, Ark., for instance, recently launched Tyson® Gourmet Wraps, premium wraps in four varieties that are designed to enable deli operators to capture incremental sales during peak hours and when the service case is closed.
The four selections—Turkey Club, Asiago Roast Beef, Pulled Pork & Provolone and South of the Border Chicken—are fully prepared and available in pre-packaged or foodservice pack formats.
Suppliers also are developing wider selections of bulk meats.
Butterball LLC, Naperville, Ill., for instance, is offering turkey breast in such flavors as Peppered, Cajun Style, Southwestern Salsa and Italian Style.
Consumer health and wellness concerns also present a huge opportunity for deli operators.
Indeed, in a 2007 survey of 1,147 shoppers by the Washington, D.C.-based Food Marketing Institute (FMI), 64 percent of respondents listed “healthy options” as a factor that would entice them to eat lunch at a supermarket.
Two of the consumer segments most concerned about nutrition—persons over 40 and those who earn more than $75,000 a year—already are prime deli customers.
Some deli operators, meanwhile, are leveraging a variety of merchandising vehicles to attract additional health-conscious shoppers.
Bentonville, Ark.-based Wal-Mart Stores Inc. last year completed the switch to trans fat-free cooking oils in more than 2,400 of its Supercenter and Neighborhood Market locations. Cincinnati-based The Kroger Co., the second-largest supermarket operator behind Wal-Mart, uses trans fat-free oil to fry chicken.
More retailers also are developing labeling systems that identify healthier items. Pleasanton, Calif.-based Safeway Inc., for instance, uses color codes to signify such attributes as whole grains, and low cholesterol and fat contents.
In addition, natural and organic offerings are becoming more prevalent.
Sales of organic deli meats and sausages increased 25 percent in 2006 to $38 million—higher than the 21-percent gain for all organic foods, according to the Greenfield, Mass.-based Organic Trade Association.
A spokesperson for Applegate Farms, a Bridgewater, N.J.-based supplier of 30 varieties of organic deli meats and cheeses, notes that more shoppers from a broader range of demographic segments—including Asians, African-Americans, Hispanics and younger consumers with smaller incomes—are embracing organic foods
The Perishables Group, meanwhile, reports that many shoppers are willing to pay up to 17 percent more for organic deli items.
Yet, along with the greater popularity of natural and organic proteins are category growing pains.
Many delis, for instance, are reluctant to merchandise natural and organic meats because of supply concerns, says Dan Stewart Jr., vice president of marketing for Nature’s Premium Brand LLC, a Northfield, Ill.-based supplier of 17 bulk meats and cheeses that are developed without the use of hormones, antibiotics or preservatives.
“Most deli buyers want full lines of natural and organic items, but not a lot of suppliers have those available,” he states. “Many natural producers specialize in one product or another.”
But with such influential companies as Butterball and Austin, Minn.-based Hormel Foods Corp. rolling out natural and organic deli meats, supply lines are strengthening.
Prices also are likely to fall as more products become available and natural and organic proteins edge closer to the mainstream, analysts say. Indeed, Wal-Mart is pledging to charge a maximum of 10-percent more for its organic foods compared to conventional items.
While a wider mix of proteins and prepared foods are making delis more enticing destinations, outlets looking to approach their revenue potential still must streamline the shopping process, analysts say.
“Supermarkets struggle with convenience,” notes Jim Wisner, president of Wisner Marketing Group Inc., a Libertyville, Ill.-based market research, consulting and retail education firm. “They’re not set up for short lines, or separate entrances that would enable consumers to buy take-home meals and get in and out as quick as they do at fast-food restaurants.”
Indeed, a 2004 IDDBA survey found that just 1 percent of delis operated drive-through windows—a feature that 50 percent of respondents deemed important.
In addition, only 31 percent of delis had their own cash registers, a feature desired by 83 percent of respondents, according to the survey.
A 2007 IDDBA study also found that just 14 percent of delis had entrances separate from the main store.
Dragoo says the next generation of shoppers will demand even higher levels of convenience. He notes that echo boomers—the 75 million children of baby boomers—already conduct much of their commerce over the Internet or through text messaging on cell phones.
“They’re not loyal to specific stores,” he adds. “They want something they can get quickly and easily.”
Delis, meanwhile, also are likely to face more competition for convenience-minded customers from departments within their own stores, says Bruce Axtman, Perishables Group president.
He notes, for instance, that most meat sections already offer large selections of pre-cooked, pre-seasoned and heat-and-eat entrées and side dishes.
“Produce departments have cut and steamed vegetable packs, cut fruit and salad kits, and a lot of those products almost fit under the deli banner,” Axtman says.
On the flip side, a sluggish economy could bode well for deli revenues.
Twenty-one percent of respondents to the FMI survey, for instance, indicated they were buying more prepared meals from grocery stores instead of eating out.
The Nielsen Co., a Schaumburg, Ill.-based research firm, also reported in January that 41 percent of consumers were adjusting to higher gas prices by eating out less.
In addition, the Washington, D.C.-based National Restaurant Association notes that 54 percent of eateries in January saw fewer customers than a year-earlier.
Some analysts add that additional deli marketing opportunities also still exist.
Wisner, for instance, states that many operators are not doing enough to attract nutrition-minded shoppers.
“As simple as it would be, I don’t see delis doing what Subway does and advertise sandwiches that are low in fat,” he says.
