August 2010

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With fall right around the corner, many families are preparing to send their kids back to school. It’s the season of packed lunches.

The deli department plays a lead role in filling student lunch boxes and providing meal solutions for parents who find themselves too busy to cook. Responding to the macro consumer trends of health and value, as well as recognizing the categories that are rising and falling out of favor, will prepare any deli department for a strong performance.

Organic labels are often appealing despite their higher price points. Unhindered by the sluggish economic conditions since 2008, dollar sales for deli organic products have grown while conventional dollars have struggled. Organic pre-sliced meat more than doubled since 2006 while conventional products lost nearly 10%.

The same growth trend occurred in natural products. Prepared chicken with the natural attribute multiplied sales more than 38 fold since 2006, while conventional decreased 3%. Natural deli bulk meats increased 35% compared to an 8% decrease in conventional. In dips, spreads and toppings, natural outpaced conventional growth two to one.

While organic and natural items currently make up anywhere from 0.1% to 3% of category volume, an economic recovery could stimulate more consumer purchases of the healthy but higher-priced organic and natural labels. A strong strategy for deli growth this fall could be an organic or natural marketing campaign involving clearly partitioned shelf space and aggressive promotions aiming to attract health-conscious, cash-strapped parents. It’s important to remember that kids play a large role in what their parents purchase, and using packaging and displays that appeal to kids can have a heavy influence on a parent’s purchase decision.

Though health is a high priority, shoppers are more adamant than ever about looking for bargains across retail channels. As a result, volume sales have become more sensitive to pricing. Prices for deli cheeses, meats and prepared food all declined up to 4% in the past year, and consequently volume increased across the board. Twenty out of the latest 26 weeks showed increased dollar sales from last year for the deli department. In the 26 weeks prior, from July 2009 to the end of Dec., just five weeks posted dollar increases.

To cater to the value-seeking consumers without sacrificing dollars and gross margins, retailers should consider cross-promotions in addition to their normal pricing strategies. Offering value on lunch meat, cheese and bread would appeal to shoppers looking for convenience as well as value.

Taking a look at deli categories to watch, deli prepared foods was the only super-category to increase sales from last year, with dollars up 2%, volume up 3% and prices down 1%.

Source: Perishables Group FreshFacts^® Powered by Nielsen

Among sliced meat items, both salami (+6%) and pepperoni (+11%) grew sales from last year, with pepperoni increasing an impressive 17% since 2006. Deli bulk chicken is also claiming sales, having gained 16% in dollars since last year after just a slight price decrease. In specialty cheese, Feta climbed 6% in volume after a 2% decrease in price.

Deli products which have consistently trended downward include sliced beef, which lost nearly half of its dollar sales since 2006, and bologna, down 3% this year and down 28% from 2006.

Seeking healthy meal solutions in the in-store deli caused consumers to shift their purchases within deli prepared chicken, where fried (-5%) and barbeque (-3%) both lost dollars, while rotisserie (+5%) and lemon pepper chicken (+11%) were the largest category winners. Chicken wings are also appealing more to consumers, with a 12% increase in dollars driven by a 16% increase in volume. Similar dollar growth occurred in sushi (+6%) and dips/spreads/toppings (+10%), primarily fueled by the growth of hummus. Pizza also saw large growth of 7%.

Fall is an ideal time to use creative merchandising and well-planned promotions to capitalize on consumer priorities and build deli sales before the busy holiday season.