Deli Drives On

More fresh meals and value-positioned offerings are keeping in-store delis flush with opportunities to secure higher sales and shopper loyalty.

RESEARCH BY DEBRA CHANIL ▪ ANALYSIS BY MEG MAJOR

Propelled by a continuing current of value-seeking at-home eaters, coupled with more sophisticated retail meal solutions programs and better planning, merchandising and assortment that appeal to the needs of diverse consumers, the supermarket deli department posted another strong year, according to the results of Progressive Grocer' s 2011 Deli Operations Review.

Over three-quarters (70.3 percent) of retail deli executives participating in our annual “state of the deli department” survey reported higher sales in the 12-month period ended March 31, 2011, vs. last year's 52 percent tab, good for an impressive 4.7 percent change. Those reporting decreases among our survey participants this year tallied 13.5 percent, down favorably from the year-ago deli study, when 18 percent of retailers experienced declines. Meanwhile, the remaining 16 percent of panelists, vs. last year's 30 percent, reported status quo deli sales in the past year, with no major variances one way or the other.

Fielded mid-range in the first quarter of 2011, PG's annual Deli Operations Review 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, including same-store sales performance, leading departmental challenges and opportunities, retail meal solutions programs, and fastest-selling items.

As the key providers of quick and easy main-meal components and right-on-time adjacency products, the deli department has been among the hottest tickets in supermarkets these days, as further confirmed by the 67.6 percent of survey panelists who projected an even rosier outlook on same-sales performance when looking ahead to the balance of the year. Indeed, many retail deli departments are benefiting greatly from enhanced capital resources, better-defined programs, acquired know-how and operational proficiencies to go toe-to-toe with their foodservice competitors. Be that as it may, 8.1 percent of this year's survey panelist forecast decreased same-store sales for the balance of the year, two points higher than last year's average, while nearly one-quarter (24.3 percent) anticipated that sales will remain on par.

Our analysis of this year's Deli Operations Review survey data unfolds on the following pages, as illustrated on the corresponding charts that feature general synopses of the most influential category trends reported by retail survey panelists for each.

Profits took a slight hit — not surprisingly — for the average supermarket deli department, with 22.2 percent of survey participants reporting a decline, nearly 10 percent higher than last year's 13.2 percent tab. Another 25 percent of panelists said deli profits remained unchanged vs. last year's 34.2 percent estimate. About half of respondents (51.9 percent) posted an increase in profits, on par with last year's result.

Deli gross margins, meanwhile, tracked similar to last year, at 43.6 percent vs. 43.2 percent respectively, reflective of higher commodity prices that by now are likely considerably higher than when our survey was fielded in the first quarter of 2011.

The remainder of the findings in the deli performance lineup didn't depict major comparable variances and are thus self-explanatory.

With an estimated 29,678 in-store deli departments nationally, total department sales rang up an estimated $18.12 billion in 2010, indicative of a nearly five-point gain vs. last year. Accounting for an average 3.3 percent of total store sales vs. other supermarket departments — which is likely much higher in concept and large-footprint/high-volume food stores — the deli category's average weekly sales-per-store tally equates to an estimated $12,158, which on an annualized per-store basis, amounts to approximately $632,208, a 3.2 percent gain vs. the $612,650 reported in last year's study — 1.5 percent growth of which came about as a result of increased store count.

While consumers have modestly eased their penny-pinching ways since the height of the recession, the economy figures this year as the chief source of heartburn for most retailers polled in PG's deli survey this year. Labor costs held steady as the second most vexing issue, but value is still king, making price and perceptions of price the prominent drivers of purchases when seeking ways to attract more shoppers to the department, which ranked third on the worry list. Speaking of worrisome issues, skyrocketing commodity prices are to blame for ingredient/product costs leapfrogging from the 10th rung last year to fourth place this year, while employee recruitment took a backseat accordingly, as a result of other considerations, the balance of which shifted slightly as well.

Retail Deli Buyers' Wish List

Retail deli officials responding to PG's Annual Deli Operations Reviews sounded off about the various ways departmental sales and performance can be improved with the help of their vendor partners. The following comments are direct responses to the question: “What is the single biggest concern you wish to see addressed by suppliers?”

“Bring complete programs, not just product to sell.”

“Have fresher product.”

“Ideas to develop sales.”

“More retail support material and advertising.”

“Personal visits with POP and product information.”

“Timely responses to our questions.”

“When offering new products and programs, have everything our delis need to roll it out, such as ingredient labels in the box, POP material and packaging. Charge me more for the product to cover the costs, rather than leaving it up to us to try to find the right-size package and compatible labels.”