Innovate for more growth in deli, FMI speakers say

While supermarket deli departments are driving growth and the total store performance, retailers need to innovate to head off competition for sales from restaurants, presenters at FMI Connect said Tuesday.

Industrywide, delis are driving dollar growth by 7% and volume growth by 5%, making it the fastest growing fresh department in the supermarket, said Sarah Schmansky, director of account services for Nielsen Perishables Group, citing proprietary research. This reflects a transformation of fresh products from commodity driven items to those sparked by innovation, she said, as disruptive, cross-channel competition, demographic changes and trends toward health and wellness forced retailers to adapt, she said.

“We don’t buy products anymore. We hire products to perform a job for us,” Schmansky maintained. “And it really has made retailers and suppliers think about category management and department management a little bit differently. Instead of focusing on the different categories, we’re focusing on the consumer, and what they need these products to do for them.”

Deli is particularly important in the store because it drives incremental trips and larger baskets, with 80% of consumers shopping across its categories of meat, cheeses and prepared foods. Stores with higher fresh food velocity tend also to have higher overall store velocity, she added.

“The deli departments that are truly ahead of the game in making this a destination are all about making it an experience for the consumer, with more retailers adding truly unique amenities to make it all about the overall shopping experience,” Schmanksky said, citing for example in-store seating and wifi, beer and wine pairings.  ”All this is creating a more connected experience with that shopper.”

These changes are not going unnoticed by competitors in the restaurant industry. Saying online ordering for takeout food from restaurants is anticipated to triple, “we can only anticipate that the challenges are going to continue to arise and get stronger for the the retail sector,” she said. “For retailers that want to stay ahead of this, it’s all about innovation.”

Such innovations range from the ability to customize meal options, to online ordering, to making sure prepared foods travel and re-heat well.

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Restaurants for their part are doing a good job localizing their menus, pointing to the opportunity for grocery stores to go to school on them, presenter Colleen McClellan, a director at Datassential, told attendees.

“Restaurateurs are leveraging consumers' local preferences and promoting them on their menu. They are starting to tell a very localized story about the foods they offer. Why is this important? Because it draws people in,” McClellan said. “We [in] grocery need to think about how we also can adapt our offering to be very specifically localized to the preferences in our community.”

McClellan said such “hyperlocal” efforts are the current iteration in an evolution that has brought foods from the broad-reaching national focus of the 1980s to a tighter regional emphasis over the last decade. Local restaurant industry trends tend to influence deli purchases, she noted, so supermarkets need to pay attention, particularly to emerging ingredient trends such as plant-based proteins.

“What we’re seeing is an evolution of ‘no rules,’” McClellan said. “We already have breakfast all day. We have burgers at breakfast. We are thinking about the plate differently.”

Retailers shouldn’t focus on trends to the exclusion of traditional items, McClellan argued, but emphasized that opportunities for further growth await those who can integrate these emerging trends in their delis, because they have a greater opportunity than restaurants to get them in front of shoppers.

“It’s not that tofu and chickpeas and lentil is the answer 100% of the time, it’s that there needs to be balance and choice,” she said. “When you think about deli/prepared, we capture a much larger share of the eating occasions than a restaurant does so you have an opportunity to have a variety of items to rotate in and out throughout the week, creating an opportunity to get share.

“We’re not saying, get rid of the wings and the rotisserie chicken,” she added. “What we’re saying is, see how you can add variety at a localized level and create choice throughout the week.”

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