Stacked with Possibilities

Powered by progressively more sophisticated prepared food programs and intensifying consumer expectations for higher-quality products, retail deli departments are on a roll, with the best yet to come, suggest results of Progressive Grocer?s 2014 Retail Deli Annual Review.

To be sure, in the grand scheme of store departments that best position grocers to stand apart from their competitors and command loyal repeat shoppers, the deli is decidedly the deal, as affirmed by a comparable overall 5.8 percent sales increase tracked in the past year, which represents a healthy two-point gain from last year?s 3.8 percent tally (year-ago figure not shown).

During a period that saw more consumers migrating out of the post-recession doldrums in search of quick meal alternatives in the name of necessity or a convenient assist for kitchen-ready fare, retailers? investments in supermarket deli operations are generating promising returns, to greater and lesser degrees, as a traffic driver, image builder and profit center.

Yet while the higher bar being set by supermarket delis is not only making strong impressions on shoppers but elevating the entire industry?s profile as well, capturing consistently higher margins remains challenging, as shown by more than half of retail deli executive panelists reporting profit increases at a lower percentage than a year ago. For the current year, profits increased among 51 percent of annual deli survey panelists, down 6.5 points from last year, while 20.1 percent reported decreased profits ? nearly 10 points more than last year ? and 29 percent said their margins remained unchanged.

At the same time, deli department shrink is also on the rise, likely attributable to the evolving trial-and-error configurations of menus, pricing, packaging, promotions and, of course, labor. As a percent of sales, shrink increased from 6.2 percent in the current study from 5.3 percent a year ago (chart data for shrink not depicted). Further, on the list of most serious problems (see related chart on page 137), shrink rose from No. 14 to No. 3.

On the bright side, further confirmation of the deli department?s banner year is evident in the breakout of the deli performance sales pie, which finds nearly three-quarters (69.2 percent) of annual ?state of the deli department? survey participants reporting higher sales in 2013 than in the previous year. Deli?s positive profile in the past year is further revealed in the negligible 7.7 percent who reported sales decreases in the past year, with the remaining 23.1 percent of panelists posting parity sales in the past year.

Findings for PG?s exclusive 2014 Retail Deli Annual Review are based on responses generated from a proprietary survey distributed to a cross-section of national, regional and independent retail deli executives, who were asked to provide benchmark estimates for their average deli department operations, including same-store sales performance, leading departmental challenges and opportunities, retail meal solution programs, and fastest-selling items.