Prepared Foods Driving Deli Boom

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Prepared Foods Driving Deli Boom

By Jim Dudlicek, EnsembleIQ - 07/03/2017

The deli department is booming, and along with it, sales of prepared foods.

That’s according to the results of Progressive Grocer’s most recent exclusive annual survey of grocery retail executives, store managers and deli department leaders, who say that the biggest investment they’re continuing to make in their deli and prepared food operations is in their people.

Nearly 70 percent of survey respondents told PG that their overall deli department sales, including prepared food offerings, grew last year. Just under 9 percent reported a decrease in sales for the period, while just over one-fifth said that their deli sales stayed the same. Of those reporting an increase, the average boost in deli sales was 4.7 percent.

Food retailers appear to be even more bullish on deli in 2017. A whopping 87 percent of survey respondents said that they expect deli department sales to continue to grow this year, by up to 4 percent. None foresee a decrease, with the remainder projecting no change.

A majority of respondents (nearly 58 percent) reported that their deli department profits were up over the prior year. Those reporting a decrease were predominantly operators of five or more stores, while unchanged profits dominated among smaller retailers.

Driving this continued success is the convenience being offered by deli operators; the many fresh selections being displayed and, in many cases, actively sampled to shoppers; and a growing demand for high-quality, cost-effective meal solutions sought by time-pressed consumers.

Among the factors most important to deli success in the coming year will be “giving the customer what they want, and keeping it simple and easy for them to grab and go,” says Tami Ehnis, general manager of Belgrade, Mont.-based grocer Town & Country Foods.

Effective ways to deliver solutions range from offering meal deals from the hot case to creating innovative cross-merchandising matchups with other store departments.

For example, Ehnis notes “big family salads using our produce, and also we use our meat from our meat department for our meatloaf.” And Jonnie Rybicki, bakery/deli manager at Food World, in Statesboro, Ga., notes, “When a good ad comes along, we often put drinks or fresh fruit and vegetables near my hot food case for cross-merchandising.”

Other cross-merchandising success stories noted by survey respondents: fresh-baked brownies to complete meal deals; sandwich-chips-and-drink combos; chips, crackers and bakery bread with cheese (called out as a “growing category” by one respondent); and feta cheese and hummus from the deli with bagged salads and baby carrots in produce.“High-end salami pairs very well with craft beers, and also baked goods such as French bread,” remarked one unidentified survey respondent, while others noted great success with pre-packed salads and grab-and-go items.

Service a Priority

Prepared foods are definitely growing in importance for retail deli departments. More than three-quarters of survey respondents reported increases in both dollar sales and unit volume in their prepared food programs. To accommodate this growing demand, half of respondents said that they significantly (27.8 percent) or modestly (22.2 percent) added to the selling space devoted to prepared foods, with the rest maintaining their existing footprints.

But despite the rise of the “grocerant” — broadly defined as any restaurant-quality prepared foods at a grocery store, with many pushing the concept into on-site dining — more than three-quarters of respondents said that their deli and fresh prepared foods share a common selling area.

The same number tell PG that they don’t have a dedicated dining area for consumers to enjoy prepared foods on site.

In any case, service is a top priority in grocery prepared foods, with nearly 60 percent of survey respondents planning more staff training this year. Other leading areas of concentration: rotisserie programs, sandwiches, hot and cold bars, meal deals, and daily specials.

“Consumers are very price-conscious. They watch sales and competitors’ ads,” Rybicki says. “Consumers want more ‘home-cooked’ hot foods for a good value.”

Consumers also have a greater desire for free-from foods and product transparency. “In the past year, we have moved into more no-antibiotic-ever foods and have heard more requests for products with cleaner labels,” says Charles Gullo, director of deli operations for Highland Park, Ill.-based Sunset Foods, which operates five stores in Chicago’s northwest suburbs. “We are now offering more organic products, such as organic grass-fed roast beef, and are also working some organic roast chicken into our deli set. We have been offering more reduced-carb options, such as our wildly successful rice-less stir-fry with shrimp that utilizes cauliflower rice.”

Gullo further notes that Sunset’s deli offerings are becoming cleaner through the introduction of ingredients that don’t change the integrity or flavor of the products. “We recently switched to an organic non-GMO rice bran oil for frying, without any change in quality or flavor,” he says.

For 2017, retailers of different sizes had varying priorities as well. For example, respondents with five or more stores said that they planned to invest more in private label prepared foods and sushi programs, while smaller operators reported more interest in lunch programs and soup stations.

Among operational issues in prepared foods, half of respondents named labor as the most challenging, although significantly more so for larger operators (63.6 percent) than smaller ones (28.6 percent), while smaller operators saw inventory management as a bigger challenge than their larger brethren. Shrink, pricing and product quality rounded out the top five challenges noted by respondents.

Top Deli Challenges

Overall, labor, training and shrink were named as the top three challenges for service deli operations.

“Engaged associates” was the top factor most respondents (76.5 percent) named as most influential to securing strong everyday deli department sales. Or, as Rybicki put it, “Hands-on and face-to-face, sincere conversation with customers, instead of just shuffling along. Consistency, real customer service, and sincerity when speaking to or helping customers.” Meanwhile, effective shopper engagement at Ehnis’ store includes “sampling and just being friendly and listening to their needs.”

Gullo says having the manager on the floor during demos is the most effective way to get customer feedback. “In-store events such as a gluten-free fair or a ‘backpack through Europe’ day also are great ways to have customers and staff connect,” he observes.

Other key factors reported in our survey: signature items, sampling events, in-store specials (more significant for smaller operators), premium brands, merchandising/experience, advertising, and cross-promotions.

To be sure, the deli offers a great opportunity for retailers to build an in-store destination for shoppers, because fresh categories like meat and prepared foods haven’t yet reached a tipping point for online sales, as noted by Sue Toy, senior director of shopper and total store solutions for Springdale, Ark.-based Tyson Foods, in her presentation at the Category Management Association’s recent annual Category Management and Supplier Insights Conference, in Las Vegas.

A best-in-class deli destination can be a differentiator and mitigate online sales leakage, she asserted, so retailers must “maximize the convenience and elevate the experience” of their deli departments.

Deli/prepared foods is the fastest-growing category in the store (up 6 percent, according to Nielsen data cited by Tyson), so grocers can drive quick trips by building their delis into destinations for mealtime solutions, Toy said. “We’ve got to make the deli ‘prepared foods on steroids,’” she quipped, “whatever we can do to help our retail partners.”