Meal solutions show the most potential for growing deli sales.
It’s a slow turn, but the evolution continues for the in-store deli as it grows beyond a meal solution provider to a competitive foodservice destination, according to exclusive research commissioned by Progressive Grocer and conducted by ICC/Decisions Services. The research provides customer profiles and data that support fresh approaches to how retailers grow their deli offerings.
Findings from a PG deli operations survey earlier this year indicate that delis account for just 3.3 percent of total store sales. That is supported by findings from the International Dairy-Deli-Bakery Association (IDDBA) that show fewer than half of shoppers purchase items from the deli area. Traditional supermarkets attract 44 percent of shoppers to the deli area, where specialty supermarkets lure 62 percent of shoppers. The gap narrows significantly for actual purchase frequency: 44.6 percent at traditional supermarkets and 49.6 percent at specialty supermarkets.
For those who make it to the deli, most are buying both prepared ingredients (cold cuts) and prepared foods. Nearly two-thirds of the 2,500 consumers polled indicate they purchase both ingredients and deli/prepared food items. PG/ICC/Decision Services data show that more than a third (35 percent) of deli customers are buying ingredients solely for at-home preparation, compared with a scant few (3 percent of respondents) who are only purchasing prepared foods.
Cold cuts (meats and cheeses) are the most likely deli purchases, but chicken, checked as a frequently purchased item by 60 percent of respondents, indicates the tremendous potential of the deli as a meal solution center. Other meal components include side dishes, hot foods and salads (See chart below).
Data from IDDBA indicate that deli/prepared foods accounted for 55 percent of total deli sales for the 52 weeks ended Dec. 29, 2012, a 2 percent increase in share contribution over the previous year. In step with PG survey findings, deli/prepared chicken, deli salads and entrées were among the top-selling categories.
Younger shoppers (ages 18–34) are more likely than the total sample to purchase ingredients for at-home preparation (44 percent versus 35 percent). This indicates that younger consumers still aren’t finding what they want or don’t think of the deli counter as a meal solution provider.
Young consumers are avid restaurant goers, and data from PG’s survey indicate they’re not as likely as other age groups to purchase lunch or dinner from the deli. Rather, these consumers are the most likely to purchase food from the deli as a snack, compared with the overall sample (26 percent of 18–34s, versus 18 percent of total sample). Retailers can use snacks as a way to showcase their quality offerings such that these young consumers will be more likely to look at the deli for other meal solutions. As the largest segment of the population, millennials represent a huge opportunity for supermarket delis, but only if they’re already customers.
Male shoppers are more likely than female shoppers to purchase prepared meals, but fewer than 20 percent of all respondents are purchasing often (two to three times a week) or more frequently. The average number of grocery trips per week is 1.7 times, according to data from the Food Marketing Institute (FMI), but given that consumers eat restaurant food an average of four to five times a week (LivingSocial/Mandala Research, 2011), it’s clear that more convenience needs to be built into the supermarket to ensure that delis are a meal destination.
Where restaurants command more of the lunch crowd, deli retailers appear to shine at night. Two-thirds of respondents indicate they make deli counter purchases for dinner, followed by nearly 60 percent who purchase for lunch. Respondents with three or more people in their household are the most likely to purchase prepared foods for in-home entertaining, compared with respondents from smaller households (19 percent versus 13 percent, respectively). IDDBA reports that sales of prepared items sold at store delis increases during the holidays, particularly winter occasions, followed by the Fourth of July and Thanksgiving.
Deli as a dinner solution provider is further supported by nearly three in 10 respondents who indicate prepared deli offerings are a “time-saving convenience.” Consumers will continue to be strapped for time, but the lack of time doesn’t diminish their desire to feel they’re making good decisions for themselves and their families. In-store signage and other marketing efforts should provide emotional support, letting customers know that the deli is a great resource for smart family meal options.
Some 42 percent of respondents find deli/prepared foods to be “an overall good value,” bundling price, quality, taste and convenience. But it doesn’t appear that consumers are going to the deli more than in previous years. More than half of respondents have kept their deli purchase levels consistent with last year. More than 20 percent are purchasing fewer prepared items from the deli, although they’re partially offset by the 15 percent who report they’re purchasing more from the deli.
Perhaps a silver lining for retailers is that among for the 387 respondents who are purchasing more deli/prepared items this year, convenience (58 percent) and improvements to prepared food options (43 percent) are drivers. Respondents also indicate that prepared foods make meal planning easier and that these items are a better value than what can be found at restaurants. Females and respondents from larger households indicate that convenience is a big driver to the deli area, which again supports time-strapped families looking for meal solutions.
Act Like a Restaurant
A nugget in the chart just above is that one-quarter of respondents who are spending more at the deli are doing so as an alternative to purchasing food from a restaurant. In its “North American Restaurant Consumer Sentiment Review,” AlixPartners, a global consultancy, reports that consumers plan on spending less to dine out in 2014, due to a desire to eat healthier, as well as to spend less per meal when dining out.
“Grocery and convenience stores present a real threat to the traditional restaurant segments, as more and more consumers are purchasing prepared meals at these stores,” Adam Werner, managing director at AlixPartners, writes in the report.
Among the findings in the AlixPartners report, 27 percent of respondents reported going to grocery stores with the sole intent to buy a meal; and 73 percent indicate they usually purchase a prepared meal at the grocery store because they’re already there.
In terms of shopper behavior, two-thirds of deli decisions are made in store, with 40 percent of respondents making decisions at the counter when they can see what’s being offered. Many new supermarkets, such as New Seasons Market in Oregon, feature an extensive prepared food area, some with exposed kitchens and in-store seating, that rival restaurant ambiance. Retailers might not be as competitive with restaurants when it comes to customization, but they shine in showcasing their offerings; customers can see exactly what they’re getting and can order the amount they desire.
Retailers with successful foodservice businesses, including Whole Foods Market, have their own chefs and signature dishes. They employ signage that sources ingredients and describes — in mouth-watering detail — the dishes being offered. Retailers can one-up foodservice competitors by offering samples, which 66 percent of respondents indicate will motivate them to try something new. More than a third of respondents are sold on visual appeal, and about three in 10 are persuaded by an introductory price or coupon.
With approximately 50 percent of shoppers bypassing the deli, the opportunity to grow is strong. In their favor, delis can mix the tried and true — think rotisserie chicken — along with something a little more interesting, such as Indian food. Delis can compete against restaurants with inherent benefits of affordability, excellent merchandising and messaging, portion preferences, and specialized fare, even with items that address specific dietary needs or health issues. The challenge, it seems, has more to do with building traffic on the path to purchase than with the deli destination.
More convenience needs to be built into the supermarket to ensure that delis are a meal destination.
Retailers might not be as competitive with restaurants when it comes to customization, but they shine in showcasing their offerings.