Sales momentum in perimeter fresh categories has slowed as inflation and other economic concerns have been putting pressure on consumer spending, according to the 2024 Supermarket News Fresh Foods Survey.
Although nearly half (48%) of retailers and wholesalers said their sales in perimeter categories increased in the past 12 months, that represents a decline from the 60% who reported gains in last year’s survey.
“The customer is watching what they spend,” said one survey respondent.
Respondents said food-price inflation was a significant factor driving negative sales trends, leading consumers to rethink their purchasing habits throughout the store. Many also cited economic conditions in general as contributing to a slowdown in perimeter sales.
Despite the reported slowdown in sales growth, retailers and wholesalers remained mostly optimistic about the outlook for their fresh departments, as 56% forecasted sales gains in their perimeter categories in the year ahead. That compares with 65% who predicted sales gains in last year’s survey.
About a third of this year’s retail/wholesale respondents — 32% — said they expect sales to remain flat, and 12% said they expected sales to decline.
Of those retailers and wholesalers expecting sales to increase, 91% said they expected sales growth of less than 10%, with the rest expecting sales to increase between 10% and 12%. The median sales growth projected by those expecting sales to increase was 5%.
Although the survey appears to indicate a slowdown in sales momentum in the perimeter of the store, many retailers said their fresh departments performed well during the past 12 months, buoyed by prepared foods and high-quality produce assortments.
“Simply put, there is a greater demand for perimeter store products,” one respondent said. “People want fresh food they can cook or prepare at home.”
Many of those operators reported double-digit sales gains. Thirty-seven percent of the retailers and wholesalers who reported fresh-department gains said their sales rose by at least 10%. The median increase in perimeter sales among those reporting an increase was 5%.
Among the retailers and wholesalers who said perimeter sales declined in the last 12 months, only one reported a decline of 10% or greater.
Growth of prepared foods
Prepared foods remain the most important perimeter category for retailer and wholesaler respondents. Asked to describe their “biggest wins” of the past year, many of the retailers cited various prepared foods initiatives.
One retailer, for example, cited the addition of a third-party sushi vendor.
“They own the inventory, and we take 30%,” the retailer said.
Another retailer said expanding their assortment of ready-to-eat meals, achieved through close collaboration with key suppliers, was the most successful initiative of the past 12 months.
Two-thirds of retailers and wholesalers (66%) said they plan to increase their assortments of prepared foods in the year ahead, more than any other perimeter department. Several other fresh departments are also getting considerable attention, however. Fifty-eight percent of retailer/wholesaler respondents said they plan to increase their produce assortments, followed by 56% who plan to do the same for their deli, 53% who are adding products to their perimeter bakery offerings, and 50% who plans to boost their meat and seafood product selections.
Likewise, 38% of retailers/wholesaler said they plan to expand the space for their prepared foods, which was the most for any of the fresh departments. The deli was not far behind, with 26% saying they would devote more room to that department, followed by dairy, at 20%.
A few retailers also mentioned having success in their floral departments, and one said they even added staff in that area of the store to help handle volume and provide better service.
Expanding at the expense of center store
The planned expansion of fresh departments will come at the expense of space devoted to center store categories for 42% of retailers, according to the survey, while the remaining 58% said they do not expect their expansion plans to detract space from center store areas.
Salad bars, which many observers speculated might vanish forever after they were widely discontinued during the pandemic, appear to be making a rebound, according to the survey. Ten percent of retailers said they plan to add self-service salad bars or cold bars in the year ahead, and 37% said they currently have them in their stores.
One retailer said the most successful initiative they launched in the past year was a salad bar that offers “themed” days, such as a baked potato day, a taco salad day, and others.
In addition to the 10% of retailers who are planning to add salad bars or cold bars, another 10% said they are eyeing self-service hot bars/soup stations, and another 10% plan to add grab-and-go cold cases. Close behind were full-service coffee shops and full-service cafes, each of which were cited by 8% of retail respondents as a feature they planned to add in the coming year.
The plans to expand prepared foods and other fresh departments can be explained by the increasing sales and profitability of these areas of the store. The survey found that 44% of retailers and wholesalers reported margin improvements in prepared foods, while 38% said margins were up in meat/seafood, and the vast majority said margins either improved or stayed the same across all fresh departments.
Competition from fast casual, quick-service restaurants
As retailers have become increasingly sophisticated with their prepared foods offerings, they find themselves competing with some of the leaders in the traditional restaurant space, such as Panera Bread, Chipotle, and others. In fact, 54% of retailers said fast-casual restaurants such as those were their No. 1 competitor for prepared foods sales, and 39% said traditional fast-food restaurants such as McDonald’s and Chick-fil-A were their top competitors.
Respondents also cited club stores such as Costco and Sam’s Club as significant competitors in the prepared-foods category.
Other competitors that retailers cited include home cooking — which retailers themselves support throughout the store — along with big-box retailers such as Walmart and Target, convenience stores, and natural and organic food retailers. Online retailers and direct-to-consumer meal kits by were identified as top prepared-foods competitors by 17% and 15% of retail respondents, respectively.
Price and convenience were the biggest advantages that these competitors have, cited by 64% and 54% of retailers, respectively. Location (cited by 36% of retailers) and selection (cited by 31%) were also identified as competitive disadvantages for retailers’ foodservice operations.
Two-thirds of retailers (66%) said the best way to compete against these other channels was to offer promotions and specials on prepared foods, and another 39% suggested loyalty or frequent-buying promotions. Thirty-four percent cited limited-time offers.
Retailers also said competing on convenience was key to winning market share for prepared foods. About half (51%) said grab-and-go offerings were the best strategy, and 24% cited click-and-collect order-ahead capabilities.
Retailers also said ingredient quality and menu formulations that meet the demands of customers following specific diets is another way they can better compete for prepared-foods sales. Thirty-four percent said cleaner ingredient lists were key, and 27% said offering specialty diet or meal selections, such as gluten-free, vegetarian, and organic were an important strategy.
Value-added meats help drive sales
While prepared foods were the highlight of the fresh departments, partially prepared items that help consumers meet demands for solutions, such as value-added meats, have also been a part of the perimeter success story, according to the survey.
“I have seen increases in ready-to-cook prepared meat, including poultry,” said one retailer, who said their biggest sales gains were in prepared foods.
In fact, more than half of the retailer respondents — 54% — cited fresh meat as the signature department of their store, nearly double those who cited fresh produce (28%), and four times the number who cited deli/prepared foods (13%) as their signature department. Five precent identified the bakery as their signature department.
One retailer said their biggest win of the past year was “continuing to offer our customers a variety of ready to eat and ready to prep meals — listening to what they like and taking that feedback to heart.”
Several retailers also cited new equipment that was installed in the past year as their most successful initiative of the past year.
“Purchasing a new service meat case and a new prepared foods/deli case has helped with the enhancement of our cuts of meat and seafood,” said one retailer. “Plus, our selection of prepared foods has visually improved.”
Produce freshness depends on supply chain
After the supply-chain issues that snarled deliveries and contributed to out-of-stocks during the past few years, some retailers said they have noticed improvements recently.
“I think the biggest improvement is having fresh and in-stock product,” one retailer said.
Others lamented that some perishables orders, particularly produce from outside the country, was arriving too close to its expiration, giving the retailer little time to sell through the inventory. In addition, the retailer said imported fruits have been lower in quality than a year ago.
“Imported fruits and vegetables do not last or start to degrade within a week on the shelf, even if refrigerated,” the retailer aid. “This is a supply chain issue.”
“Produce shelf life is much less than in the past,” said another retailer.
Another retailer said they brought on a new produce supplier that is providing higher quality and more variety to their fresh assortment.
Yet another retailer cited the addition of value-added produce as a significant sales driver.
Competing on price
Retailers identified big-box stores such as Walmart and Target and club stores such as Costco and Sam’s Club as their biggest competitors in fresh departments overall. Fifty-six percent of retailer/wholesalers cited big-box stores and 46% cited clubs, both of which were up several percentage points from a year ago.
Another big gainer in terms of posing a competitive threat was the dollar store channel, as 27% cited dollar stores as a threat to their fresh departments in this year’s survey, vs. 15% who cited dollar stores a year ago. Online retailers were also up slightly, with 24% identifying that channel as a threat, compared with 22% a year ago.
On the other hand, retailers are also competing on the high end with natural/organic retailers, which were cited as a competitive threat by 29% of retailers/wholesalers, compared with just 16% a year ago.
Price remained the key competitive advantage that retailers identified, however, cited by 71 of retailer/wholesaler respondents. That was followed by location and convenience, at 29% each.
Efficiency is a key goal
In an environment where many consumers are acutely aware of price, taking costs out of operations is essential for retailers seeking to keep prices as low as possible. That’s especially challenging in perishable departments, where labor costs are high and shrink comes with the territory.
This is reflected in several responses to the survey. In fact, reducing food waste was cited as the top goal among retailers and wholesalers, cited by 54%, and by 58% of respondents overall. In addition, 37% of retailer and wholesalers said minimizing shrink was a goal.
About half — 49% — of retailer/wholesaler respondents cited improving labor productivity and retention as a goal for the coming 12 months.
Other goals for the year ahead include increasing the perishables assortment, cited by 37% of retailer/wholesaler respondents. This coincides with responses indicating that many retailers are seeking to expand their perimeter displays, especially in prepared foods.
None of the retailers and wholesalers in the survey said they were decreasing their assortments.
Other goals for the perimeter in the year ahead include reducing stock-outs (cited by 29% of retailers and wholesalers), supporting online ordering and fulfillments (27%), and improving freshness (17%).
Staffing concerns remain the most significant challenge that retailers face in their perimeter departments, however. Attracting and retaining qualified employees was the top concern of retailers and wholesalers, cited by 37% of these respondents. Food-cost inflation and general price inflation were the second- and third-biggest concerns, at 22% and 12%, respectively.
