With more American 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, labour 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 lastacquired 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-toyear 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 numbering29,250 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 labour 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 labour 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 labour-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 valueproposition 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 withwhole-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-perpound 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.”
