Dairy Sales Still Up, But Service Bakery, Deli Struggle

The week ending May 24 was Memorial Day week, the traditional start of summer grilling season, typically delivering a significant sales boost for baked goods. But celebrations included less travel and smaller gatherings, all while the elevated everyday demand remained, affecting sales in the bakery, dairy and deli departments.

Ever since the second week of March, dairy department sales have soared, and the week of May 24 was no different. Results for bakery remained mixed with relative strength for packaged baked goods, but in-store bakery (non-UPC) continued to struggle. The performance within the deli department continued to be mixed as well, with deli cheese tracking far ahead of last year, deli meat being up slightly but deli prepared severely off due to in large part to the closure or limited offerings of self-service areas. 210 Analytics analyzed the IRI weekly sales findings, made possible by the International Dairy Deli Bakery Association (IDDBA).

Total store sales, including the fresh perimeter, saw its lowest gain since April 19 (prior year’s Easter), at 13.7%. Total edibles excluding fresh were up 20.4% over the week of May 24 vs. a year ago, which was mostly in line with the prior two weeks. Center store food and beverage continued to significantly outperform the overall fresh perimeter performance as meat, hindered by severe tightness in supply, did not boost fresh department sales as much as it had in recent weeks. Pulled down by sales declines in the deli and fresh bakery (random weight) departments, the total perimeter averaged to 12.8% vs. the same week last year. Dairy had another strong week, with sales up 21%.

Dollar Sales Growth vs. Comparable Week

>Source: IRI, total U.S., multioutlet, one-week percent growth vs. year ago

“Looking at the total store trends, there is a little bit of erosion in the sales numbers starting with the end of April,” said Jeremy Johnson, VP of education for IDDBA. “But in all, food retailers are still benefiting from very strong everyday and holiday demand. Dairy has emerged as one of the strongest departments across the store amid the pandemic. While still down, deli department sales are starting to show some signs of recovery having cut the losses between mid-April to Memorial Day week by more than 13 percentage points.”

Dairy a Sales Powerhouse

Dairy sales gains have been double digits over the comparable week in 2019 for 11 weeks in a row. Gains for the week ending May 24 were 21%. “Dairy sales gains continued to sit more than 20% above the 2019 levels,” said Abrielle Backhaus, research coordinator for IDDBA. “Importantly, all areas within dairy contributed to the department’s success, including yogurt which had its highest gain since late April. Strong growth continued to come from butter, eggs and cheese. As ingredients to meal occasions from breakfast to dinner, these types of gains indicate that America continues to cook and bake and that is an exciting prospect for the weeks and months to come for food retail.”

Natural cheese had the highest increase in absolute dollars, with year-over-year sales up $71 million, followed by milk, which sold an additional $34 million, and eggs, with an additional $34 million.

A look at dollar vs. volume sales is highly insightful as well. “A big gap between volume gains and dollar gains is typically indicative of rising prices,” said Jonna Parker, team lead of fresh for IRI. “Take butter, for instance. For the week ending May 24 vs. a year ago, there is a 11.2 percentage point gap between dollars and volume. While in some cases out-of-stocks may have driven more premium butter purchases that command higher prices, the conventional butter market generates the vast majority of dollars. So this means inflation, and a lack of price promotion, is driving up dollars much faster than volume.” Whether looking at the one-week or four-week view, dollar/volume gaps were significant for eggs, milk, natural and processed cheese and milk.

On the Retail Feedback Group’s Constant Customer Feedback (CCF) program, shoppers wrote in about dairy supply in stores as well as the upward pressure on pricing in some areas. One wrote in, “The price for milk at your store is so high. Had it not been for the fact that I was there and needed milk, I would have gone elsewhere.”

Another consumer commented on the improved in-stock levels, “I was surprised how well-stocked everything was, the aisles, dairy, eggs, etc.” But comments about limited availability of favorite butter and cheese brands remained. “I have not been able to find the grass-fed butter I like since March,” said one shopper.

IRI’s measure reflecting assortment variety indeed shows some declines across subcategories during the week of May 24 vs. the same week last year. Given that consumer demand is up, the smaller assortment is likely directly due to supply chain issues and SKU rationalization decisions to optimize productivity. The average number of dairy items per store selling was off 2.1% or 28 items, but some individual areas were much harder hit.

Some examples are:

Continued Mixed Results for Deli

Much like the results in the dairy department, deli numbers held very steady against the prior two weeks. Deli cheese continued to have double-digit increases vs. the same week in 2019, whereas deli meat increases have mostly been trending in the single digits. While still down, deli-prepared (random weight, and some limited private label UPC) is surely recovering a point or two each week and now about 13% down from last year’s levels. In addition to changed traffic patterns, it is important to note deli-prepared offerings remained limited or closed down for many retailers.

Deli Meat

For the week ending May 24, random-weight deli meat gains were virtually unchanged from the week prior. Mild price inflation is driving higher dollar than volume gains. Patterns relative to grab-and-go vs. slice-to-order counter sales remained the same as seen in prior weeks. While service counter sales made up 68% of deli meat sales this week, sales were off -9.4%. Sales for service counter deli meat that has been previously sliced for grab-and-go, but still sold non-UPC, was up 61.5%. But not everyone is a fan of this solution, as seen on CCF. “I know this is pandemic time but I do not like that all the deli is now pre-packaged. I like my meat sliced thinly and I cannot get that now.” Another shopper expressed delight upon the deli reopening. “It was GREAT to see the deli counter and meats/cheeses back on display. ... It ALL looked so good!!”

Meanwhile, pre-packaged, UPC-ed refrigerated lunch meats continued to outperform random-weight deli meat, with dollars up 10.1%, which was the lowest gain since the first panic buying week in mid March. Volume sales also flattened out somewhat, at 2.8%. The dollar/volume gap grew a bit larger as well.

Deli Cheese

Random-weight deli cheese dollar gains eroded a few points vs. the prior week but continued to track well ahead of deli meat. Cheese has had a better performance throughout the pandemic, and dollar sales were up 13.4% during the week of May 24 vs. the same week last year. Volume gains stayed in the high single digits. Just like deli meat, retailers who prepared grab-and-go options for the deli cheese offering did well. Whereas service counter sales were up down 7.0%, cheese packaged for grab-and-go, but still non-UPC, was up 47.8%. Grab-and-go reflects about 32% of total random-weight deli cheese.

“Both deli and UPC-coded cheese has tracked very well during the pandemic,” said Angela Bozo, education director for IDDBA. “The numbers continue to show that having deli-sliced cheese to go is a win, but variety is key. It is important to consider some variety in the thickness of slices as well as offering different size packages. Shoppers cite budget, household size and variety as reasons for wanting to see more than just 1-pound packages. Additionally, many shoppers are in experimentation mindset right now as they are exploring different recipes and dishes. Recommendations on new types of cheeses, new dish types or usage occasions can be a great way to expand consumers’ horizons and gain longer-term sales benefits.”

Packaged (UPC) cheese saw much higher gains yet again, but the gains have eroded a bit from April onward by 1 to 2 percentage points each week. For the week ending May 24, dollars increased 27.1% and volume rose 18.3%. These gains are especially meaningful given that packaged cheese sales are about seven times larger than deli cheese sales.

Deli-Prepared

Since the onset of coronavirus, sales for deli-prepared have been down as retailers across the country closed or had limited operations and shoppers started to cut back on store trips following the two panic buying weeks. There has also been less commuting and out-of-the-home activities, changing the demand for convenient, ready to eat meals.  In response, retailers dialed back assortment. According to the IRI measure reflecting assortment, the average number of items per store selling, the assortment narrowed by as much as 22 items from mid March but recently started to make a comeback. While still down nearly 22% from normal levels, the average number of items for the week of May 24 averaged 81, down 22 items from the same week last year.

Some of the hardest-hit areas included the following:

Deli-prepared food sales were down 27.4%—an improvement since April and gaining back 1 to 2 percentage points each week. At the same time, sales continued to be off for all offerings and meal occasions, whether breakfast items, combo meals, trays or deli pizza. “More and more states are allowing restaurants to reopen dine-in facilities, which will change the already disrupted demand landscape for deli-prepared offerings yet again,” said Eric Richard, industry relations coordinator for IDDBA. “How the dinner dollar is spent and will be spent in the next few months continues to be in flux as frozen foods have seen enormous strength, restaurants are coming back online and deli prepared is seeking new solutions within consumers’ comfort zone.”

Special Topic: Sushi

The week of March 1 is a good indicator of typical sushi performance during regular times. Sales of refrigerated UPC-coded sushi were gaining about 7% against year ago whereas deli-prepared sushi was declining some. Refrigerated UPC-coded sushi made up 88% of sales that week. Very quickly into the coronavirus-related shopping patterns, sushi sales started on their downward slope, much like total deli prepared. Sales losses bottomed out in mid-April, down about 39% from their prior year level. Ever since, it is refrigerated, packaged sushi that is showing consistent week-over-week recovery and nearly back to 2019 levels during the last week on record, the week of May 17. Overall sushi sales were pulled down some due to the decline in deli-prepared sushi.

“There are important learnings in these findings for other deli items that are able to convert to pre-packaged offerings,” said Richard. “While off as much as 36% vs. year ago, packaged sushi has nearly completed its comeback to the old baseline. This means demand is there for sushi, and its pre-packaged form is giving consumers peace of mind that it is safe and a great option for an easy, healthy snack, lunch or dinner.”

More Mixed Results for Bakery

Bakery results are similar to the deli department as they are very mixed. In-store bakery, with a much greater reliance on holidays and celebrations, continued to see down sales year over year, but packaged baked goods, cookies and crackers came in well above prior year levels. Much like seen in other areas of the store, sales gains for packaged baked goods, cookies and crackers may be highly elevated, but do see some erosion each week starting with the first week of May.

Packaged Baked Goods Aisle

Much like UPC luncheon meat and packaged cheese easily outperforming bulk, packaged baked goods have seen above-average performance as well. All areas within the packaged baked goods aisle saw sales gains during the week of May 24. The strongest gains were achieved by bagels and English muffins, as breakfasts at home remains a top growth story cross the store, but both are smaller segments. In terms of absolute dollars, bread and rolls had a strong week and added $33 million over last year.

Cookies and Crackers

Results for aisle cookies and crackers in UPC/fixed-weight packages were very similar to the past few weeks, though both dropped into the high single digits. Keeping in mind that America’s baking craze is continuing to drive highly elevated levels for the baking ingredients aisle, up 44.9% over the week of May 24. Packaged cookies are holding their own, at 8.9%. Cracker sales gains slightly accelerated vs. the same week a year ago.

In-Store Bakery

Much like deli meat, cheese and prepared offerings, in-store bakery sales continued to be affected by closed or reduced operations. Sales for the in-store bakery (non-UPC, random-weight items, no UPC items) were off by more than 15% vs. the same week last year. The only two items tracking in positive territory are bread and croissants.

As COVID-19-related shopping patterns developed, retailers dialed back on assortment in the in-store bakery. The average number of items per store selling declined narrowed by as much as 21 items from mid-March. While still down nearly 14.2% from normal levels, the average number of items for the week of May 24 averaged 93, down 15 items from the same week last year.

Some of the hardest-hit areas included the following:

What’s Next?

Sales for the deli, dairy and bakery departments have been mixed since the onset of coronavirus in early March. The next sales report, covering week 12 of coronavirus’ affected shopping patterns, is the final week of May. For some states, that coincided with the start of summer vacation. Since mid-March, the closing of schools and colleges brought many more meal occasions to at-home. Now, the altered COVID-19 consumption patterns will go up against summer vacation eating patterns of prior years. Meanwhile, the relaxation of the stay-at-home executive orders looks different from state to state. The economic recovery along with the foodservice engagement in those states will be very telling for the likely level of demand at food retailing for the foreseeable future. Given the limited seating, economic pressure and perhaps some latent social anxiety, it is likely that grocery demand will continue to sit well above the 2019 baseline.

Anne-Marie Roerink is principal of 210 Analytics, which specializes in research for the food retailing industry and authors studies in meat, produce, bakery, deli, frozen, confectionery, snacks and retail operations. She can be reached at [email protected].