Deli Evolves Into a Premium Destination
By Richard Mitchell and Shonda Dudlicek
A growing consumer demand for healthier and more flavorful proteins, along with an increasingly competitive take-out market, is resulting in an expanding array of premium deli meats and cheese.
The supermarket deli is undergoing an evolution. While traditionally a destination for freshly cut turkey, roast beef, chicken, cheese, and other proteins, delis also are increasingly becoming outlets for premium foods that are healthier and more flavorful than many conventional offerings.
Retailers are expanding their selection—and enhancing the marketing—of premium items to both satisfy the growing segment of consumers that are willing to pay more for foods that contain less fat, and are more tender and appetizing, and to compete with the large segment of restaurants that provide take-out orders.
Product suppliers, meanwhile, are developing new varieties and stepping up their merchandising of premium meats and cheese to help delis meet the increasing demand for higher-end offerings.
“The deli’s growth is in the premium-tier products,” says Harry Tillman, vice president and general manager of the Smithfield, VA-based Smithfield Deli Group. “Consumers understand quality, and we’re starting to see a change in their buying behavior as they seek more premium brands. That is partly due to products being promoted more heavily within stores and through the media.”
Smithfield, he adds, also is giving greater marketing priority to its higher-end—and higher-margin—branded products. “Commodity items do not generate a lot of revenue for either us or the retailer,” Tillman adds.
Among Smithfield’s offerings are its Smithfield Premium Lean Generation hams, and the Kretschmar-branded line of premium deli products, which include ham, turkey, salami, roast beef, and pastrami.
Taking on the take-out leaders
As delis expand their selection of premium products, and the brands are more heavily advertised, supermarkets also are better positioned to attract more convenience-minded take-out consumers who are increasingly seeking freshly prepared foods for both lunch and dinner. The take-out sector is dominated by both sandwiches shops—such as Subway, Quiznos, and Panera Bread—and sit-down restaurants.
“The deli operator’s biggest challenge for sales growth is to successfully stem the loss of business to foodservice, including quick-service restaurants, casual dining establishments, and even white table cloth restaurants,” says Karen Stewart, vice president of prepared foods for Wichita, KS-based Cargill Meat Solutions. “Even fast-food hamburger joints are starting to offer lines of sandwiches that are marketed as being lower in fat, healthier, and fresher.”
Stewart notes that as the demand for convenient, quality, take-out foods gets stronger, delis that enhance their premium lines are better positioned to expand with the market.
The Washington, DC-based National Restaurant Association reports that the food take-out and delivery sector accounts for about 58 percent of all restaurant traffic.
“Consumers are no longer willing to just accept whatever take-out food is available,” Stewart says. “They are looking for products with higher nutritional value.”
The ability of supermarket delis to also offer prepackaged items at the counter gives them another potential advantage over take-out outlets where customers must wait for orders to be prepared, analysts say.
David Allen, marketing director of Kansas City, MO-based Farmland Foods, says delis that deliver pre-packaged items in resealable tubs, and packages that feature zippers and slide-seal closures, are making their meats even more attractive to non-traditional customers. “Time-starved consumers do not want to wait in service deli lines,” he notes.
Farmland Foods’ range of deli offerings include garlic and thick-sliced bologna, chopped ham, cooked ham, cooked salami, Genoa salami, hard salami, ham and cheese loaf, olive loaf, oven-roasted turkey breast, pepperoni, pickle loaf, and spice luncheon loaf.
“Ethnic flavor profiles are expanding in popularity,” Allen notes. “Italian and Hispanic influences offer the consumer a departure from the [traditional] flavors. Consumers crave new experiences to alleviate the boredom of the same old sandwich.”
Butterball Turkey Co., Downers Grove, IL, also is sprucing up its premium deli line with such items as Southwestern Salsa turkey breast, which is seasoned with jalapeno peppers, tomatoes, bell peppers, and spices to create a Tex-Mex taste; Italian-style turkey breast that is rubbed with Italian seasonings along with black and red bell pepper; and Cajun-style turkey that features a combination of seasonings and a surface rub of black and red pepper.
“Consumers are increasingly looking to higher-end, premium deli turkey,” says Tom Perlstein, Butterball vice president of marketing. “They want more varieties and flavors that stand up to their sandwich.”
A large, hungry market
And the potential customer base for premium deli products is large. The Madison, WI-based International Dairy*Deli*Bakery Association (IDDBA) reports that the majority of deli shoppers are Baby Boomers that visit a location at least three times a week, often because it is convenient. Sandwiches are the most popular deli item, followed by lunch meats and cheese.
The IDDBA notes that lunchtime sales account for about 70 percent of all sandwich purchases. Dinnertime sales, which account for about 20 percent of deli sandwich orders, have increased 33 percent over the last two years.
Alan Hiebert, an IDDBA education researcher, projects that customers will continue to search for stronger flavored meat and cheese. He says deli turkey and chicken breast containing Cajun, salsa, peppercorn, and other powerful seasonings, along with aged cheese, will remain popular.
“There a perception that deli cheese is higher quality and fresher than packaged cheese,” adds Ed Mackowiak, vice president of sales and marketing for FreshLook Marketing, a Hoffman Estates, IL-based perishable products research firm.
Creating brand identity
Distinctive packaging, along with greater marketing of premium products, are helping to create a greater brand identity, and is leading retailers and suppliers to further increase their merchandising of both premium national brands and private-label offerings, Mackowiak notes.
Mackowiak, meanwhile, calls the prepared deli “the next battleground” for takeout, and says that with the public’s demand for nutritional meals and added flavors, there has been “an explosion of new, different, and unique items.”
“The prepared deli items, [including] rotisserie chicken, salads and take-home meals, are higher-margin products and offer retailers a perfect opportunity to maintain or grow profits and differentiate themselves from other stores and channels,” he says.
Also gaining prominence are ethnic meats, and cheeses that are a staple in the protein-rich diets of many Hispanic and Mediterranean households, Hiebert notes. “The myriad Hispanic cheeses are gaining popularity and will become mainstream,” he says.
Farmland Foods’ Allen adds that deli products that are lower in fat, carbohydrates, and sodium, also will become mainstays. “Consumers are more focused on healthy lifestyles, and retailers are adapting their offerings accordingly,” he says.
The expanding variety of premium deli meats is part of the movement by supermarkets to upgrade their entire selection of prepared foods, Cargill’s Stewart says. It is important, she notes, for delis to carry more than the standard offerings of fried and rotisserie chicken, and pizza, in order to match the diverse menu selections of many take-out restaurants.
“There is more of a focus by delis to offer hot sandwiches that use very premium meats, such as prime rib, and upscale ingredients like sautéed onions and fancy sauces, which normally are only found in more formal dining establishments,” she says. “Delis over the past few years have done some things very well, but they hadn’t followed the lead of restaurants by offering items from many different product categories. And as a result, foodservice has lapped them. The goal now is for retailers to incorporate more offerings so they can win customers back.”
Smithfield’s Tillman says most delis already are moving to enhance their premium sandwich programs, and Smithfield also is working with its retail partners to develop signature high-end products.
“The flavors will continue to expand over the next several years, but the deli also will still be selling a lot of the traditional turkey, roast beef, and ham,” he notes. NP
Richard Mitchell is editor of sister publication Meat & Deli Retailer. Shonda Dudlicek is a freelance writer based in the Chicagoland area.