November 1, 2006
By Martin Schultz
Always a location full of options, the very roster of deli fare has evolved as consumer palates have grown.
Every year for the past several years, the deli industry has gone through convulsions trying to cope with both internal and external change. The internal changes included learning how to become increasingly responsive to customer needs by, for example, delivering product to exact specification, improving the packaging of pre-sliced meats and cheeses to heighten their marketing appeal, to increase their merchandising efficiency and to minimize their food-safety risks.
The external changes came as a result of a series of product, taste, and health shocks that pounded away at an industry that had grown slightly passive over the years. The resulting changes were sometimes earthshaking and sometimes subtle. Yet, in hindsight, some of the transformations of the last few years were beneficial, creating new opportunities for growth, sales and profit.
Go back five years and the arrival of the Atkins/low-carb diet heralded an attack on the evils of eating bread — foreshadowing, to some, the end of the baking industry. Not only did Atkins rock the sandwich category, but it did doom some breadmakers.
Then came news of the health-endangering risks of consuming fats — the shock that trans fatty acids are extremely bad, while Omega oils were found to be health-promoting, followed by the contrary revelation that poly- and monounsaturated fats are actually not as bad as previously believed. The good, the bad and the ugly impact of all this news rocked retail and foodservice deli categories, as well quick-serve restaurants.
Yet every cloud has a silver lining. The focus on healthful food has led to demands for healthier, fresher deli products with more nutritious breads, which led to the rise of more value-added products commanding premium prices and profits.
Before long, this led to coping with a host of other difficult issues, from portion control, pre-sliced, pre-packaged and frozen, to the growing demand for more varied taste experiences, including using unusual ingredient combinations or unexpected ethnic fillings, spices along with flatbreads, tortillas, whole-grain and multigrain breads.
Processors, retailers, and foodservice operators worried about issues of availability, freshness and cost, but as the industry’s experience of managing these and other related issues (such as food safety and food allergens) has grown, the results have often proved beneficial.
Today, the $15.4 billion deli industry is in another period of transformation. Although Americans are doing more snacking, they’re also demanding more varied convenience products. They’re also willing to spend more for exotic sandwiches filled with healthier and fresher ingredients. They want foodservice that mirrors the excitement of today’s fast-casual dining, and they’re forcing quick-serve restaurants to upgrade to attract a more upscale consumer.
One of the more dramatic revelations that the sliced deli meat category has yet to fully confront is the news that consumers tend to snack with the same frequency as they dine. Nine out of 10 Americans eat snacks in roughly the same proportions as those who consume lunch, dinner and breakfast. This should induce processors, foodservice and retail to find ways to cater to this demand instead of standing by and watching the dollars not spent on deli going to other food channels.
Yet, satisfying demanding consumers is no piece of cake. Many of those same consumers (including senior citizens who often have plenty of disposable income) want all the health trimmings that go with more nutritious offerings and less of the ingredients that drove them away from hamburgers in the first place. Seventy-five percent of deli customers surveyed are concerned about the nutritional content of foods they buy from supermarket delis (this includes 36 percent who are very concerned). Those concerned about nutritional content most frequently mention fat content (48 percent) and salt content (22 percent) as their top concerns, demanding, for example, gluten-free, low-fat, low-sodium, even low-glycemic, each of which has its own consumer following. At the grocery deli counter consumers now expect to see informative signage that identifies trans-fat levels, cholesterol and sodium levels, and whether there’s a natural or organic alternative. Delis willing to cope with this level of demand will prosper mightily.
Meanwhile, in an effort to please its toughest consumers, the deli industry has reacted aggressively to provide more healthful products. For example, both Panera and SouperSalad (the largest soup-and-salad chain in the Southwest) have decreed they are henceforth dispensing with trans-fat in their cooking.
Proof by numbers
Consumers by and large like the grocery deli counter and have shown their loyalty in the last couple of years by increasing their deli product spending. Last year, dollar sales increased by 3.8 percent total over the previous 12 months, according to figures supplied by the International Deli-Dairy-Bakery Association (IDDBA). Deli industry executives contend 2006 will indicate a 4.4 percent improvement over 2005.
While deli operations increased overall, sales per deli counter employee rose even more dramatically to 25 percent. Male consumers ages 30-39, living in northeastern cities, have led the charge to increase consumption, visiting the deli counter on average more than one time per week.
Looking at the 12 months ending last April, IDDBA numbers suggest the meat category grew slightly to $4.4 billion, up 1.3 percent. Packaged meat sales climbed 2 percent, and while unit sales showed a decline of 3.5 percent, sliced deli-pouch-packaged lunchmeat was up a hefty 18 percent.
Turkey and ham led the pack with the highest dollar sales, together accounting for 66 percent of total deli meat dollar sales. In order of sales, chicken remained strong, followed by beef, salami, bologna and pork. And while bulk meats once again captured the lion’s share of the volume sales, pre-sliced did show a surge in the sale of gourmet deli meats. Here, growing numbers of consumers are willing to pay a premium for such upscale meats as Serrano ham, dried salamis, prosciutto and various European-type sliced sausages. In turn, this has led to a growing interest in American artisan meats and cheeses, as well as locally butchered meats.
Taking a cue from European manufacturers, U.S. companies are actively marketing new types of packaged deli meats, such as Hormel’s shelf-stable, pre-sliced natural deli meats. These are showing strong sell-through among consumers who like the convenience of a packaged meat that does not need to be refrigerated until it is opened.
It also hits on another trend catching the attention of the consumer: the surging demand for natural and organic meats. Free-range, antibiotic-free — sales of natural and organic meats have shown huge gains in the most recent sales surveys, averaging as much as 25 percent year on year.
Upgrading the concept
What does the industry look like into the future? Several diverse trends are underway in the deli industry, the effects of which are impacting all channels in 2006. There’s what might be called the new “casual” trend, the “upgrading” trend, and then there’s the “differentiation” trend.
Take first the casual trend, which interconnects with snacking developments. For example, there’s the growing impact on sandwich chains of the regional impact. According to Technomic Information Services, “Although many chains have a national presence, many consumers remain fiercely loyal to regional favorites,” says Eric Giandelone, editorial manager for Technomic. “Operators can benefit from knowing how the consumer decision-making process is influenced by not only the menu but also the regional influences.”
Contrary to conventional thinking it may be breakfast, not dinner, that is showing the greatest new growth in meal trends. The fact is that the breakfast sandwich is becoming evermore popular. Because this segment of the meal schedule is immensely profitable, this trend offers a new opportunity for breakfast-servers to augment menu offerings in a lucrative portion of the 24-hour period.
While some chains provide a breakfast menu, the offerings within the sandwich category tend to be relatively restricted. In reality, consumers are demanding premium-quality breakfast sandwiches. In response, many restaurants are raising the quality of their breakfast menus and heavily promoting the menus.
Breakfast provision is one of the ways quick-casual is differentiating itself from quick-serve. And the financial result is not hard to discern. According to Technomic Information Services, the quick-casual market is estimated at $10 billion to $11 billion in sales per year, and growing quickly. Future growth opportunities remain strong, with growth rates for quick-casual restaurants surpassing that of traditional quick-service restaurants. The largest segments, Mexican, bakery café and chicken, all show significant growth at 18, 21, and 20 percent, respectively.
The name of the game
When we talk about upgrading, “Change is the name of the game,” says Ed Garrett, president of West Liberty Foods. It is, surprisingly the buyers who are pushing the changes. “We see a transformation of the ‘convenience’ movement,” Garrett speculates. “Packaging will be more of a driving force,” he says, contending that pre-sliced meat and cheese packaging will pop out at the consumer. “It’ll be reusable and will contain different and new kinds of product.”
He offers the example of turkey, which will look and feel very different from what is now offered. “We’ll see over here more of the European approach to tray packs on pegs, reclosable packaging for single-use consumption.”
This emphasis on new kinds of deli packaging reflects an upsurge of entertainment-dollar spending. Some analysts contend that Americans today spend more on entertaining than they do on paying bills. Consequently, consumers are doing more at-home entertaining, but instead of sit-down meals, they are engaging in more casual entertaining and want to provide more upscale take-out foods for their guests. Thus we’ll see a surge in demand for party kits and lunchmeat or seafood trays.
“We see a time when supermarket delis, following in the footsteps of, say, Wendy’s with their [Frescata] sandwiches, will be offering lunchmeats in little baguettes,” Garrett suggests. “You can look for growing demand for nice sandwiches, new kinds of bread, both healthier and more exotic types, a much greater emphasis on ethnic deli ingredients and the appearance of new flavors.”
It all comes down to a need to create what Garrett argues is the “wow” factor. “Offerings in the future will have to have flair, in quality ingredients, presentation and taste.”
Unique in the deli industry is the search for differences that separate chains, grocery deli counters, sandwiches, ingredients, party trays, even packaged products. Partly, it is recognition that new items attract new demand. It also is the drive to create “flair” in new offerings that result in premium returns on investment. Additionally, it is a search for ingredients that offer new health and nutrition combinations. And, finally, it is the drive to compete.
Bruegger’s, for example, has responded to Panera’s Panini and Wendy’s sandwich innovations by introducing its own ciabatta line, in particular a Chicken Pesto Sandwich featuring a grilled chicken breast with tomatoes, red onions, balsamic dressing and basil pesto mayonnaise on a bed of lettuce. The Roast Beef Caesar contains a savory roast beef with roasted red peppers, red onions, and combination balsamic and Caesar dressing. The new ciabatta contains nine grams of protein as well as two grams of fiber and zero saturated or trans fat grams.
Enter the new sandwich
If you’re not planning to eat at lunchtime at any of the new sandwich chains springing up, step aside. Because around noon, herds come stomping in to savor combinations of soup and a wide selection of artisan breads, copious fillings and succulent toppings. This was one change the deli industry failed to predict — the category having directly and powerfully tapped into consumer cravings, dining requirements and lifestyles.
For consumers whose consumption patterns are avowedly ethnic, sandwiches offer a perfect blend of nourishment and innovation. Long since cast aside are the standard American sandwich options of cheese with everything, including ham, roast beef and turkey; sandwiches now are created on a richly varied platform of bread varieties and incorporating a wide variety of colorful imported ingredients.
For example, we see more and more differentiation in the form of localized ethnic influences or regional mainstream flavors. Thus, we might order ethnic-based ingredients included between such unexpected bread offerings as French baguettes, Central American bolillos or Cuban loaves. All of these and a host of other sandwich choices are helping to stimulate demand, not only within the sandwich-chain segment, but also in casual-dining establishments and in other areas of foodservice, where such offerings find a ready response from diners looking for an all-in-one eating experience or as a convenient but exotic take-out occasion.
From the Indian subcontinent to the Middle East to Asia and the Caribbean, unexpected culinary combinations are finding their way into mainstream deli eating experiences. Thus, Indian single-serve vegetable pies, Jamaican beef patties, Lebanese lamb pitas and Cuban shredded pork sandwiches are all becoming available in everywhere from sandwich chains to grocery deli counters. The name of the game is to find new ways to excite jaded palates. When successful, such adventures lead foodservice, grocery delis and restaurants along the path of increased sales and growing profits.