Supermarket deli sales have been on the rise for the last decade. The International Dairy Deli Bakery Association (IDDBA), Madison, Wis., reports delis accounted for $13 billion in 2000, an amount 6.1% up from 1999, and well over $8.56 billion reported for 1992. These increases only hint of the market's potential, as a recent Technomics Inc., Chicago, report predicted supermarket foodservice sales will reach $18.4 billion by 2005.

Found in roughly 81% of the nation's supermarkets, over 25,000 delis contribute about 47.4% to gross margin, according to Carol Christonson, executive director of the IDDBA. While most of these would say they offer “prepared meals,” the definitions vary. To some, a prepared meal is a complete meal, while others believe salads and side dishes meet the “prepared” criteria.

Not in question, however, is consumer spending in the supermarket deli. According to Steve Schwalb, vice president of sales and marketing for supermarket deli at Perdue Farms, Salisbury, Md., the typical deli prepared meals shopper spends $15 to $16—roughly 20%—more than the non-deli shopper, per visit.

Option Adoption

These shoppers are finding a more varied assortment of items to purchase in the supermarket deli. Core, high-volume products, such as macaroni & cheese, lasagna and Salisbury steak, continue to be standard deli offerings. However, a number of supermarkets are broadening their selections to feature items that add variety to their menus, especially products that may not be available from area restaurants.

Supermarket retailers are borrowing ideas from foodservice. Many, in fact, are incorporating more restaurant elements to position themselves strategically in the battle for market share. An increasing number of stores are streamlining their existing fresh-meals programs to highlight only proven sales winners, such as rotisserie chicken.

The traditional supermarket deli, while still around, has taken on new features, offerings and agendas.
“(Supermarkets) that understand they are competing for the same consumers as quick-service restaurants (QSRs) and full-service restaurants (FSRs)—and that apply the resources and creativity necessary to find new ways to make their operation more accessible and efficient—are the ones that will be well-positioned for future success,” says Tom Schafer, Nestle Foodservice Marketing, Glendale, Ill. “The (manufacturers') role is to provide products the deli manager can trust to deliver quality and consistency in the back of the house, so that he can free up labor to deliver the service and merchandising necessary to succeed.”

Labored Situations

A consideration of tight labor conditions highlights one of the major issues supermarkets face in their deli foodservice operations. A number of supermarkets, unable to locate quality help, have opted to use outsourced product, allowing a focus on food sales, instead of food prep. This bodes well for food manufacturers who have streamlined the preparation of their products.

Supermarkets are expanding their prepared options through Mediterranean bars and wing bars.
“Manufacturers are going to have to work hard to help delis utilize their labor,” says Schwalb. “That labor is an expensive work force that is not always easy for supermarkets to find. Manufacturers have to supply products almost ready for the display case (or for the grab-and-go section), or that take the minimal amount of preparation.”

Perdue Farms has found that supermarket delis delight in their rotisserie chicken offerings. While cooking instructions are included in a “Care and Handling” guide provided to rotisserie customers, Perdue Farms takes the concept a step further and offers a one-day training class for deli managers.

“Perdue Farms has a very involved training class on rotisserie chicken,” Schwalb says. “Normally, our regional salespeople, along with some of our technical staff, will help train deli operators throughout the chain. We have a whole Serve-Safe program. Using a combination of videotapes and a classroom presentation, we explain how to handle rotisserie chicken and how to cook it, and then how to make sure it is merchandised safely for the consumer.”

How Convenient

Supermarkets are well aware of the need for convenience and face some of their fiercest competition from c-stores (convenience stores), which also are moving into the foodservice arena. Quick-stop stores are adding hot food stations, seating and other meal-friendly elements to their layouts. In Houston, Shell/Texaco debuted Select outlets with fountain stations and grab-and-go cases, while Crown Central Petroleum has opened a drive-through convenience store in Atlanta boasting some 4,000 products—including deli, fresh bakery items and produce—all accessible by window service.

Further demonstrating the convenience/time-saving trend, a number of retailers (including Stop & Shop and Wawa c-stores) boast deli kiosks in select stores. These kiosks allow consumers to use a touch screen to place their deli order and pick it up when they leave. “Many consumers prefer it to picking a ticket and standing around waiting for service,” says Schwalb. “It allows the deli to better utilize their help.”

While convenience is key in a deli, other conditions play a role in attracting the consumer, not the least of which are variety and quality. “Today's consumers are looking for restaurant-quality products,” states Alan Hoover, senior vice president of sales and marketing with Kahiki Foods, Columbus, Ohio. “They are more sophisticated in their tastes because they have traveled more; they are dining out more, and they want that same quality in their home.”

Branded for Life

Companies have found brand awareness is important to convey a sense of quality to the deli customer. Schwalb says the power of Perdue Farms' meat case brand carries over into the supermarket deli, and he attributes that transition to consumer awareness of the company and its ideals.

“Being a branded company,” Schwalb notes, “Perdue Farms really tries to get the (supermarket's) program to be branded. We have seen a tremendous advantage in terms of sales and growth—particularly in a Perdue-marketed area, a place where we are selling raw chicken, tray-pack chicken and, in the meat section, our prepared products. Where there is TV advertising and print advertising, this carries forward into the deli. Our research and sales data show that our growth in a branded program is typically higher than in a non-branded program.”

Schaefer agrees, to a degree. “The strength of a brand in this segment continues to be primarily at the operator purchasing level; however, this is changing as delis look for new ways to promote their products and communicate the quality of their offering to the consumer. Brands deliver a strong message and point of differentiation in a segment where the product offering is, often, quite similar from the consumer's perspective.”

Bring Forth an Offering

The deli's options likely will continue to expand as an increased variety of consumers frequent the foodservice area of the supermarket. The number of entrees available will grow, with more upscale offerings, though perhaps not to the degree of gourmet.

Schwalb foresees the supermarket as a source of meal-planning assistance. “When a consumer walks in after work, they are just beginning to think, 'What am I going to do for dinner?' (Food manufacturers) can develop plans that say, 'It's Wednesday. Wednesday is for rotisserie chicken and these side dishes. Grab this bread, this salad kit and this bottle of wine,' and there is no thought involved for the consumer. Those are the types of things consumers are seeking. If a deli, a chain or a certain group does that, customers are going to say, 'That's about as convenient as I can get. That takes the thought out of it, and it is a well-planned, well-balanced meal.' Perdue Farms is looking into menu planning for each day of the week.”

The possibility also exists to make the foodservice area more of a destination point, relates Hoover. “In any city in the U.S., there is a Mexican restaurant, a Chinese restaurant, an Italian restaurant. Consumers go to the restaurant of their choice. In many instances, a lot of things get mixed together at the deli. Egg rolls might be right next to cheese or a pizza, and it is not readily identified as 'Here is the Asian segment, the Mexican segment, the Italian segment.' I really think people tend to think along those lines.”