PEGGED FOR GROWTH

LAURA KLEPACKI

Healthier varieties of prepackaged processed lunch meats are proving the bright spot in an otherwise lackluster category.

While still a formidable and profitable department for supermarkets, sales of peg-rack deli meats slipped 2.5% to $2.7 billion last year, according to Information Resources Inc., Chicago.

As sales of some traditional items slow, new varieties of low-fat, low-salt and even some fat-free items are bringing some new customers to the section, according to retailers polled by SN.

"There has been an increase in sales of lower-fat items and there are even some new fat-free items that are just beginning

to hit the market that in my opinion are going to do very well," said R.J. Harvey, meat buyer at Ingles Markets, Black Mountain, N.C.

The newer varieties tend to carry a higher price point and the traditional meats still outsell the newer items by a hefty margin. But with the Food and Drug Administration's new nutritional labels now in effect, there could be even more growth in the lower-fat items as consumers pay more attention to fat content, say those polled.

"In this category we have seen a switch from one brand, which had traditional products and a big share of sales, to another, which is a more 'healthy' brand," said Lee Du Bois, meat specialist at Keith Uddenberg Inc., Gig Harbor, Wash. "However, the traditional items still get more space. They still have better movement. But in the future, we will be taking on more low-fat items, which have shown the real growth for us."

Here's what retailers had to say about activity in their peg-rack meat sections and what merchandising strategies are being used to make the most out of the category.

R.J. Harvey meat buyer

Ingles Markets Black Mountain, N.C.

There has been an increase in sales of lower-fat items. And now there are even some new fat-free items that are just beginning to hit the market that I think are going to do very well. I think the lower-fat items have been able to get people back to the lunch meat section.

I do think the new nutrition labels will make people aware of the fat grams that are actually in the products they are eating.

We merchandise the low-fat items along with the regular items -- they don't get a separate section. And they are still outsold by traditional products by about 4-to-1. The prices for the lower-fat items are somewhat higher. That is true not only in meats, but in all fat-free type items because the production costs are higher.

Lee Du Bois specialist, meat

Keith Uddenberg Inc. Gig Harbor, Wash.

Sales of some of the healthier items are growing. The manufacturers seem to be coming out with so many different ones that it's difficult to see which ones are really doing better.

We merchandise the healthier items together in a blocked strip, although it is in the same area as the other peg-rack meats.

However, the traditional products still get more space. They still have better movement. There hasn't been that much of a switch.

It's pretty slow growth overall in the category. Still, people are looking for price, pretty much.

But in the future, we will be taking on more low-fat items. What has shown real growth for us is the Healthy Choice label.

Because of the all the new items, the category sales for us has remained the same. Without the growth from the variety of new items, we probably would have considerable loss. Instead, our sales are up now about 3%.

Greg Brinkman director, meat, seafood

Niemann Foods Quincy, Ill.

I think our sales of the healthy varieties are growing every week. Anything that's low-fat or says 96% or 97% lean is doing well.

We have given more room to lower-fat items. We lead off our peg-rack section with turkey items and lower-fat items now. We used to have the bologna but that is farther down in the shopping pattern in our peg section. Instead, we lead off with the low-salt and low-fat.

The prices of the traditional items are lower, but that is only true from time to time. But it hasn't appeared to have stopped the sales. If that's what people want and it is healthy for them, despite the higher retail, that is what they will buy.

However, with the new nutritional labels coming out, I don't think the category overall will be negatively affected. I think there will be a lot of confusion involved. It all depends on how people understand what they are reading. Some people are going to see it as welcome information. They are going to check calories and sodium and many will want to know just how nutritional this product is.

Mark Nissen meat market manager

Dahl's Food Markets Des Moines, Iowa

The low-fat, low-salt items are doing better. It just makes common sense that anything that's low-fat is doing better than the rest.

We have reallocated space somewhat to accommodate more low-fat items. But they haven't really been promoted.

And despite turkey's healthy image, it really hasn't made any big advancement over the traditional items. Ham or bologna still sell better.

Paul Marmet director, meat operations

Falley's Topeka, Kan.

We haven't been doing anything differently to merchandise the low-fat items. We do promote and advertise the low-fat meats, along with low-fat wieners and bacon.

We have seen some new products come out and we have taken a few of them on and put them in stock. I don't want to have to predict at this point, so we will stock some of the products and give people an opportunity to look at them and buy them.

The size of the section has remained the same, because in a lot of cases you are limited by the size of the display area.

Jonah Shore meat buyer

Farm Fresh Baltimore

In my stores there is no growth in the low-fat, low-salt varieties.

There are new products, but a majority of my stores are in the inner city, and even though they probably should be eating that stuff, they don't eat it because of financial means. They just eat the lower-cost lunch meats.

We do promote them. But we allocated more space to the traditional lunch meat items.

Lou Scaduto Jr. meat buyer

Food Circus Supermarkets Middletown, N.J.

The whole peg category, which we run out of dairy, has really slowed over the last few years because people are perceiving other presliced and packaged deli meats out of our deli as fresher and the packages are more attractive.

We used to have eight bars and now we only have six bars.

There are some new fat-free items coming out, but we haven't signed them yet, although we expect to.

I think you will see some sales generated in the section due to the new fat-free items, but as a whole the category is down considerably.