Deals, Meals Brighten Deli’s Appeal

Supermarket delis have netted healthy benefits from the at-home eating trend, which is poised to help astute and aggressive grocers secure higher sales and larger customer counts for the foreseeable future

Research by Debra Chanil Analysis by Meg Major

With more consumers turning to supermarkets for convenient meals and "fresh values," the in-store deli, which includes the increasingly important meal solutions segment, is serving as a linchpin in grocers’ efforts to fuel higher sales and secure shopper loyalty, according to results of Progressive Grocer’s 2010 annual Deli Operations Review.

More than half (52 percent) of retail deli executives participating in this year’s "state of the deli department" study reported higher sales in the 12-month period ended March 31, 2010, good for a 3.5 percent net change compared with last year’s 40 percent tally reporting increases.

As the only annual deli operations study of its kind in the marketplace, PG’s annual retailer-driven survey is based on direct input from a diverse sample of supermarket deli executives from around the country, who were asked to share benchmark estimates for their average deli department operations — inclusive of same-store sales performance, leading departmental challenges and opportunities, labor forecasts, category management, and fastest-selling items, among other operational issues.

As depicted in the adjacent charts, while the previous year’s sales were up for more than half of the respondents, 65 percent projected even stronger sales performance for 2010 in total — a far cry from last year’s cautious 31 percent outlook. What’s more, another 29 percent of retail deli executives expect to continue seeing stable gains for the next nine months, indicative that many retail deli operations have finally hit their stride — and have perhaps at last acquired the necessary know-how and confidence — to better compete head-on with foodservice competitors with higher quality fare, variety and operational proficiencies.

All told, the average grocery deli official polled in the survey anticipates netting a 5 percent same-store departmental sales gain between now and the end of the year. About 65 percent expect to see an increase, which handily rivals the 6 percent who believe their deli sales will slide in the next three quarters.

If the stronger reputation supermarket deli departments have steadily commanded in the past 15 to18 months is any indication, it seems comparatively clear that for the laggards, increased in-store deli business is theirs to lose in light of the many grocers that are effectively positioning their deli offerings as true solutions that fit consumer lifestyles.

And there seems to be ample reason for continued optimism for deli department performance, an as "aerial view” of the total sales pie depicts an overall 3.5 percent year-to-year gain of $18 billion vs. last year’s 3.2 percent/$17 billion sales sum. Meanwhile, the deli department’s 3.2 percent share of supermarket sales remained static with last year, with the percent of total supermarkets with service delis numbering 29,250 from last year’s 29,025, again reflective of deli departments now being factored into most new store projects. Average weekly sales tabbed $11,782 in 2010 vs. $11,469 the year earlier, while the average annual deli sales per store rang up $612,650 compared with $596,388 a year ago.

When weighed against the total store, weekly deli sales per square foot inched upward to $7.48 vs. $7.35 the previous year, as did the size of the average in-store deli department, which this year measured 1,575 square feet. The number of full-time equivalent deli employees also remained unchanged, at 6.8 per average store, which equated to an average $43.32 in sales per employee hour vs. $42.79 last year.

When reviewing service deli performance operations-wise, gross margins dropped slightly, by .04 points to 43.2 percent, with labor costs accounting for 27 percent of sales in 2010, on par with last year’s estimate. Shrink as a percent of deli department sales continued to hover in the 5 percent range.

Among the most significant highlights of the study was revealed in the profit results: 52.6 percent of this year’s deli survey participants reported that department profits were up in the past year vs. just 23 percent tallied in the previous year’s study. Further, 13.2 percent reported declining deli profits this year compared with 45.5 percent in last year’s study, and another 34 percent said their year-to-year deli profits kept pace.

A perusal of the problem index, which ranks retail deli survey participants’ most problematic departmental issues faced in the past year, shows there’s been a few shifts in the rankings during the past year, save the top-ranked "Recruiting Effective Employees” concern, which held steady in first place this year vs. last, followed by labor costs, which was pegged as the second-highest-ranked departmental concern, up one slot from last year.

Yet, while the economic outlook is allegedly on the mend, local/ national economic conditions, which ranked at No. 3, continues as a foremost top-of-mind concern for the average supermarket deli director, a statistic that feeds directly into the fourth operational hot spot: attracting more shoppers to deli department. Another labor-related consideration is accounted for on the fifth rung — employee training — while profits, other supermarket competition and non-supermarket competitors weigh on the minds of deli survey as the sixth, seventh and eighth issue, respectively.

Among the operational challenges identified in the survey, equipment costs were cited on the ninth rung; shrink/waste, 10th; product and/or ingredient costs,11th; and customer satisfaction, 12th. Food safety, sanitation and product quality, which tend to be the issues that shift up and down to the greatest degree in PG’s annual deli studies, rounded out this year’s lineup of top operational challenges.

New to this year’s survey, PG asked participants to rate the effect the at-home eating shift has had on deli department dollar sales, which increased 67 percent for the majority, decreased 14 percent for others, and showed no change for the remaining 20 percent. In terms of how at-home eating has affected deli unit volume, the story was much the same, with 68 reporting increases; 6 percent, decreases; and 6.5 percent reporting status quo volume.

When asked to rank their best-performing prepared foods items, chicken, including wings and rotisserie, continued to rule the roost at the top of the pecking order, followed again by sandwiches and wet salads (potato salad/cole slaw). Other prepared foods top sellers include bundled meal deals, fruit salads/ desserts, salad bar, macaroni and cheese, hot soup, sushi, pizza, and hot vegetables.

In a year when promotions have played a significantly more important role with consumers, the urgency was not lost on deli executives, 83 percent of whom cranked up their promotional juices to stimulate sales and repeat business, vs. the 29 percent who did so last year.

In terms of what promotional ingredients work best in the deli, most survey respondents (86.7 percent) pointed to increased on-ad specials. Further, 73 percent said they actively solicited vendors for increased promotional support programs during the past year, while 57 percent pursued an everyday low-price strategy to generate more sales. Other favored promotional tactics cited by deli study panelists included more demos/ sampling events, paying stricter attention to offering local preferences, and more robust use of in-store marketing opportunities via broadcast announcements and higher visibility POS/POP materials.

Sealing the ‘Value’ Deal

In terms of the key methods deli executives find to be most effective when enhancing the value proposition of the in-store deli department, the familiar supermarket standbys — ads, signage and price points — topped the leader board.

Meal bundles, electronic signs, "sandwich boards” in the store entrance, and "outstanding customer service" were also found to be successful drivers of the value message. As one deli director noted, "We are encouraging bundled meals in our prepared food section in new ways, and are now actually doing steaks-to-go off the broiler/grill,” while others described efforts to “make the appearance of our deli departments as fresh as possible” as playing a key role in improving deli department performance.

“We continue to add more gourmet prepared foods, along with a greater gourmet/imported cheese selection,” said another deli official, while more new products, coupled with “more associate training and seeking out higher-quality products,” was a common theme with several others. “Adding more specials and different types of sandwiches” was also deemed very important for another panelist.

Among the other enlightening comments deli directors shared in the survey pertaining to the value-proposition equation, several said they are aggressively working to alter price perceptions by offering more in-store specials, more value-added products, lower on-ad retails with whole-dollar price points (i.e., $10 instead of $9.99), and even value-priced meal deals for $2.

“We are promoting and selling more value-priced products to give people a choice,” said one deli study panelist, alongside the comments from yet another, whose stores have been concentrating on offering smaller portions and more value-added, convenient, time-saving items. “We are changing our product mix to carry less expensive items that our customers are looking for, such as $2.99-per-pound products vs. only a $6.99-per-pound line,” noted one more deli study respondent, while others discussed major undertakings to “update our entire Web site to promote our party trays/ catering. We are focusing on our meals business because we’re seeing more families using our deli more often.”

Employee training was also cited as being critical to the value equation of the in-store deli among many deli executives, one of whom noted that “we are devising new display methods and concentrating on associate training, and certification has been active on our radar screens.”

Emphasis on training customer service teams, in tandem with marketing value-priced and unique items, will remain a top priority of a sizable percentage of participants, one of whom said he is intent on “bragging more about our freshness and quality principles as well.”

Tyson’s Proven Solutions for Higher Deli Sales

Whether they’re served hot or cold, supermarket deli foods are heating up sales as consumers economize by carrying out rather than dining out.

Retailers can’t afford to miss out on these premium deli profits—and that’s where Tyson Deli’s marketing and merchandising expertise as a leader in food away from home can provide the extra edge.

The Tyson360 program gives Tyson Deli a frame of reference that is unrivaled in the industry, because it’s based on a unique breadth of proprietary data built up over several years. The company has commissioned primary research that puts Tyson at the head of the pack when it comes to offering retailers proven strategies and tools backed up by real-world experience.

Tyson Deli knows what, where, when, and how deli consumers will buy, based on a wealth of proprietary information that includes:

• Shopper observation studies
• Consumer attitudes and usage information
• Consumer attitudinal and behavioral segmentation
• Sensory evaluations

Through its Tyson360 program, Tyson Deli has also compiled statistical analyses of:

• Industry benchmark studies for key categories
• Customer and consumer data and purchase behavior
• Sales and scan data
• Highly targeted commissioned research and reports

Pulling it all together, Tyson Deli converts the data into plain language intelligence that will deliver results for retailers. From optimal pricing strategies to the most profitable product mixes, the most efficient promotional campaigns and the most effective advertising plans, Tyson Deli offers retailers the advantages of actionable insights with proven success in the deli department.

Proven Promotions

Retail deli departments can reap the benefits of this vast storehouse of data through Tyson Deli’s proven promotion programs that support store-level execution to spark demand with coupons, counter cards and posters. Backed up by extensive primary research and rich sources of secondary and syndicated information, Tyson Deli’s campaigns drive awareness and conversion to purchase. In 2008, for example, 10 of the 12 major retailers who used Tyson Deli’s chicken wings promotional programs saw significant volume growth in their wing category—some as high as 72 percent, according to Perishables Group Fresh Facts data.

Tyson Deli’s extensive research on the value of meal deals has also inspired dynamic product pairing promotions, such as the Spring 2010 program for Tyson Rotisserie Chicken and wine. Here’s why it works:

• 53 percent of consumers report that they serve wine with rotisserie chicken at dinner.
• Spring is a close-in opportunity to capitalize on a high rotisserie chicken usage timeframe.
• Consumers who buy $7 to $10 wines are motivated by food pairings and dollar-off discounts on wine.

Tyson Deli’s “Create Your Perfect Pairing” features a coupon booklet with five recipes plus chef tips and wine pairing ideas, along with discounts for wine and chicken purchases. The results: Promotional lifts for retailers are projected at 25 to 30 percent for the 4,500 participating outlets.

Other creative Tyson Deli promotions capitalize on custom events that research shows offer high appeal for target consumers: Chicken wings for guys’ game nights and tailgate parties, chicken tenders for movie nights.

New products that draw in consumers

Tyson has ranked No. 1 on the Cognitio New Product Scorecard for seven years, as the manufacturer that does the best job of bringing valuable new products to foodservice operators. So it’s no surprise that Tyson Deli satisfies deli shoppers’ demands for great-tasting, convenient meals and snacks with innovative products from a brand name that America trusts.

Customers can count on a positive eating experience with new products like Tyson’s new Crispy Glazed Wings, which can boost wings sales by 20 percent or more when retailers add them to the deli lineup. The Crispy Glazed product’s improved hold quality means wings remain moist and crisp through extended hold times in the hot case. They also provide better sauce adhesion to deliver more flavor to the consumer and better yields for the retailer. Made with Tyson Magnum Wings, the Crispy Glazed product gives consumers a restaurant quality eating experience in BBQ, Buffalo, Caliente, hot pepper, and teriyaki flavors.

Talk to Tyson

To tap into Tyson Deli’s merchandising expertise, please contact Eric LeBlanc, director of marketing, Deli Division, Tyson Foods, Inc., at (479) 290-3924, or e-mail him at [email protected].

On the Case...With Tyson Deli’s Eric LeBlanc

By Meg Major

Based on the upbeat results of Progressive Grocer’s annual Deli Operations Review, grocers appear to be far more optimistic this year about deli sales vs. previous years. In seeking to gauge the supplier’s perspective on the economic outlook and related deli department considerations, we asked Eric LeBlanc, director of marketing for Springdale, Ark.-based Tyson Foods Deli Division, to weigh in with his take on the state of the deli industry.

LeBlanc: I understand the optimism for better times ahead from grocers, [but] I’d have to say there are a few caution signs, including 2009 vs. 2008 sales reported by the Perishables Group, which indicate that the industry had its first year-over-year volume decline in five years. The 2010 comparison numbers on a volume basis are really no more encouraging, with most retailers struggling against year-ago volume numbers. When sales are reported in dollars, the numbers look somewhat more favorable, but increases in average retail prices have masked some of the volume shortfall.

Core categories, like fried chicken, have really suffered. Bright spots from a category perspective include wings and rotisserie chicken. In every major prepared chicken category, however, there are clear-cut winners and losers — and here is the really good news. Volume change is not correlated with promotional activity, price or any of the other usual suspects. Retailers who focus on in-store execution and drive awareness of their offering are scoring major wins. Fortune favors the brave — and those who bring a commitment to the category should expect great results. Those who are standing still will move backwards.

PG: Can you provide a few examples of grocers/concepts that you believe are making the greatest inroads to sustain their fresh meals business with consumers?

LeBlanc: In my conversations with retailers, I have been propounding a very complex strategy for growth: I think retailers should tell people they have the product, and I think they should have it. The No. 1 hurdle in driving additional business is to drive awareness. There are a number of retailers who are using cart-corral signs, out-of-store signs, and in-store off-location signage to raise awareness of the categories. Those who utilize these tactics are seeing a clear advantage in their awareness numbers. The No. 1 purchase driver, however, is that the consumer sees the product.

Old-time retailers, of which I am one, remember using the product as the billboard. Times haven’t changed. Retailers who give their prepared foods product-merchandising locations close to the racetrack, or, better, remote merchandisers at the front end, see fantastic returns in volume. Consumer promotions like the ones Tyson runs throughout the year generate promotional lifts of anywhere from 28 percent to triple digits and drive post-promotional lift because they have raised product awareness in the mind of the shopper. So, that’s No.1: tell the shopper you’ve got it. No. 2: have it. Offering an in-store guarantee may help make your shoppers feel more confident that you’ll be in stock, but the real magic is that you force in-store execution — no one wants to be on the list for having had to redeem the most coupons because they were out of stock. It’s always the simplest strategies that work.

PG: To this end, what advice would you give grocers who are looking to reinvest in their deli and prepared foods departments?

LeBlanc: If retailers are looking to invest in their deli business, they should make a commitment to promotions. We did a study with a 1,000-plusstore retailer to look at the effects of various promotional tactics. The first scenario was a feature ad at reduced retail — that generated an 8 percent lift. The second tactic was to use in-store promotional materials from Tyson without a feature ad, with product at full retail. The lift was 11 percent. The combination of the in-store activation with a feature ad at full price, however, was 49 percent!

Secondarily, invest in making sure you have the right products. By that, I don’t mean new whiz-bang flavors — I mean, make sure they taste good.

PG: What are the top trends in the prepared foods domain that are most promising for grocers? Do you see them as long-lasting or a fleeting trend?

LeBlanc: We are seeing a lot of interest in “natural” as a point of differentiation, and I have seen a few retailers really make hay with this strategy. There’s a lot of interest in allergen reduction, and I believe that managing allergens is a trend that will continue. The fastest-growing claim in the marketplace today is “gluten-free.”

For prepared foods in deli, that’s a tough claim to make because of all of the wheat in the environment (breading for fried chicken, etc.), but it is an interesting thing to reflect on how delis can manage allergens to extend to these needs. Convenience foods for people with some allergies, especially to gluten, are very hard to come by, and the rate of repeat purchases is likely to be high.

Tyson Deli promotions capitalize on custom events that research shows offer high appeal for target consumers.