CHICAGO -- The full potential of the supermarket deli has yet to be realized due to persisting myths and "unrealistic expectations," industry consultants told retailers during a seminar at the FMI Show.
Gaurav Kapoor, managing associate of The New England Consulting Group, Westport, Conn., called the deli "the final frontier," citing statistics showing the department's continued -- but inconsistent -- growth over the years in terms of both sales and contribution to total store.
"It's still evolving. Very few categories in the supermarket are still evolving in how they work," Kapoor said. "Deli is one of them, and there's a role to play for both retailers and manufacturers."
Total supermarket deli sales grew from $16.5 billion in 1992 to $28.8 billion in 2001, a 6.1% increase. However, the department contributed 16% to total-store profits in 2001, making deli "disproportionately profitable," Kapoor said.
The deli is especially poised to capture those dollars in danger of being spent on away-from-home meals. Kapoor noted that it's only in the deli that a store can sell consumers the ingredients to make a sandwich, or the sandwich itself. Similarly, the deli offers both convenience -- in the form of self-service -- and service by associates behind the display case.
A survey by the firm found a wide range of profitability in supermarket delis. A majority (38%) contributed more than 6% to total sales, though 32% stated the ante as being between 4% and 4.9%. Likewise, a slight majority of retailers stated deli's gross margin as a percentage of sales was 45% to 49%; 26% said it was greater than 50%; and 23% each reported the contribution as both 30% to 39% and 40% to 49%.
The disparity that runs through the numbers shows the degree to which operators have developed their deli operations. Among the long-held beliefs blocking more retailers from achieving greater sales and profits are the idea that the deli is a maturing category; that it cannibalizes other categories in the store; and the labor will always suppress profits. "The manufacturers want everything; the retailers want everything. We want to provide restaurant-quality food, but without labor. We want fresh-looking food, but with a long shelf life," said Kapoor. "Who's going to take on the burden and the lower margin?"
Better collaboration between vendors and retailers can debunk the deli myths blocking progress, he continued. Kapoor said that the higher-margin operators are showing the rest of the industry that the deli is just taking off; that it is a destination capable of driving revenue for other categories; and that the labor/service challenge can increase profit in the long term.
"Make some choices and focus on them," Kapoor told attendees. "Learn from others, especially outside the deli, in the broader retail landscape, to determine what can be applied to your deli."
