Out to Lunch

MATTHEW ENIS

Last month, Montvale, N.J.-based A&P sent an interesting graph to the press, noting that sales of bologna were up almost 125% at their stores in June, compared with a baseline established in March 2007. President and Chief Executive Officer Eric Claus attributed the spike to pressured consumers changing their shopping habits in response to the ongoing recession.

Sales of the lunchmeat were up 5% over baseline in February 2008, and peaked last year at 67% over baseline as the extent of the banking crisis became evident in September and October. If bologna sales are truly a reliable indicator, then shoppers have been even more conscious about pinching pennies since then.

And packaged and full-service deli products seem like a logical area for growth right now. Shoppers looking to save money are cutting back on restaurant and takeout food and eating at home more often. So, surely many of those shoppers are also making their own lunches for home or at the office. It should be a great time for sandwiches.

“Research is showing consumers are brown-bagging it more often, however the overarching data is proving contrary” for the deli meats category, said Sherry Frey, vice president of account services for West Dundee, Ill.-based Perishables Group, citing data from Perishables Group FreshFacts powered by Nielsen, for the latest 52 weeks ending April 25, 2009.

Total deli meat sales, including pre-sliced and service case meats — which still make up 88% of total deli meat sales — are down 3.6%, Frey said.

“We are seeing declines in some of the more expensive [price per pound] deli meats like beef — service case deli beef is down 8.3% in volume — but continued growth in proteins like chicken that are bringing on more flavors/items. Bologna and turkey lunchmeats are up in dollars, slightly. But bologna, lunchmeat loaves and turkey lunchmeat are all down in volume.”

By contrast, dollar sales of all proteins are up in meat departments, but in the lunchmeat category, only beef lunchmeats are up in volume, which may be driven by a transition of deli beef consumers to the meat department due to differences in price point.

“Bologna and lunchmeat combo packs had the largest declines in the meat department, likely indicating two things: Consumers didn't automatically trade down to the least expensive protein for their sandwiches, but they may also have been less inclined to pay for the convenience of the pre-made lunchmeat packages,” Frey said.

When any category simultaneously experiences rising dollar sales and declining volume sales, the obvious explanation is price inflation or price volatility — a fact of life in every fresh-food department. But it's tougher to reconcile surveys and data that indicate that consumers are brown-bagging their lunch more often, and other data that indicate declining volumes in several lunchmeat categories.

Frey added that two big questions raised by these seemingly conflicting trends are whether shoppers may be brown-bagging more non-protein lunches — such as salads or peanut butter and jelly sandwiches — or whether they might be buying more pre-made deli sandwiches, since both sandwich programs and retail sandwich sales have continued to grow.

“It's likely certain consumer segments are paying attention to the price and trading down to less expensive proteins, but it doesn't appear to be a trend across the country,” she said.

Separate data from the Jennie-O Turkey Store's 2009 Counter Intelligence Deli Consumer Study did indicate broad brush trading down behavior, but one of the company's analysts offered a similar caveat.

Purchases of premium-tier deli meats have declined almost 7% in the past two years, from 51% in 2007 to 44.1% in 2009, while mid-tier purchases have risen about 4%, to reach 34.2%, and value-tier purchases have risen almost 3%, to reach 21.7%, according to the Counter Intelligence study.

And in rating a series of 13 different turkey quality factors on a scale of one to five, only “price” ranked higher as a consumer concern in 2009 than 2008. Although variations in responses were generally very slight vs. last year, it is notable that all other factors, including appearance, whole breast meat, texture, fat content, brand, sodium content, “additives & preservatives” and others, demonstrated a decline in importance compared with price.

“Retailers should be aware that consumers are looking to this category for value offerings, and opportunities to show and reflect a value are important to those consumers,” said Jeff Peter, deli sales and marketing analyst for Jennie-O.

However, when asked specifically about the spike in bologna sales noted by A&P, Peter said that he is observing different trends among different types of shoppers.

“Value-priced items like bologna will certainly gain importance with consumers as the recession lingers. When it comes to what shoppers are doing within the full-service category, we find that the most loyal of deli shoppers tend to purchase in the same patterns, purchasing the same volume at a higher price, while more value-orientated shoppers look to trade down in tiers or even exit the category.”

The good news is the survey also indicates that consumers are at least claiming to shop in deli departments more frequently, whether it's for full-service or self-service/prepackaged items. In 2007, 18.3% of shoppers said they did not usually purchase full-service deli items or prepackaged, pre-sliced sandwich meats. That percentage is down to 10.9% in 2009.

More than 42% of shoppers now say they purchase products from the full-service deli department, up from 37.2% in 2007, and 26.5% say they purchase self-service/prepackaged items, up from 23.4% in 2007. Only meat departments experienced a minor decline in traffic looking for sandwich meats, from 21.1% in 2007 to 20.3% in 2009.

Peter also cited data that seem to concur with Frey's speculation about growing sandwich sales.

“Brown-bagging is certainly becoming a larger part of consumer's behavior. When it comes to the top importance factors that influence what deli a consumer will shop at, the trend is in sandwiches, both made-to-order sandwiches and pre-made sandwiches,” he said.

“The importance of pre-made sandwich availability has grown 17% in the last 5 years. [It is] the largest growth of all deli importance factors measured in the annual Counter Intelligence Survey. The importance of made-to-order sandwich availability has grown 15% in the last 5 years, and it is the second-largest growth of all deli importance factors measured in the annual Counter Intelligence Survey.”

Also, both analysts said that health and wellness concerns — which have offered an important area of innovation for many deli suppliers and profits for many deli retailers — have not really gone away. Shoppers are still concerned about things like sodium content, fat content, and additives and preservatives — factors that many producers focused on when developing new premium lines during the past several years.

“Health and wellness are always going to be important factors when deciding on products to purchase,” Peter said. “The 2009 Counter Intelligence Survey does indicate that these factors have decreased in importance, but I would attribute this to the fact that the recession has changed how consumers are shopping, and not what they consider to be less important.”

Alan Hiebert, education information specialist for the Madison, Wis.-based International Dairy-Deli-Bakery Association agreed, noting that “it doesn't really matter what their budget is, customers are always going to be concerned about their health. I think there's still room for better-for-you products out there, and they'll probably show some growth, just not nearly as fast as we might have expected before the recession.”

Retailers might mitigate some of the recession's impact on trade-down behavior by making sure their deli staff is trained, and understands the difference between various meats at various price points, Hiebert suggested.

“Knowing what makes one product more expensive than another, that's going to go a long way,” Hiebert said.

And to seize whatever opportunities are being presented by the brown-bagging trend, he said that IDDBA continues to suggest cross-merchandising items from other departments in the deli, in a way that would suggest ideas for a whole meal.

“Those are the kind of things that have been our line for years, and I think they hold true in this economy as well as any other economy,” he said.