Retailers are revamping their deli departments to offer healthy, authentic, ethnic and flavorful prepared foods for time-stressed shoppers.

It seems that even Whole Foods has to out do itself sometimes. The latest 60,000-square-foot offering from the Austin, Texas-based retailer in Northbrook, Ill., boasts an expanded hot and cold salad bar, prepared foods, seafood bar, hot soup station, sushi bar (including saki), pizza selection, in-store meat smoker and carving station, Taste of Vino wine dispenser, and gelateria. For those wanting to learn how to make Whole Foods-type entrees at home, there is a Culinary Corner with a fully-equipped demonstration kitchen for cooking classes, entertaining ideas and food and wine pairing suggestions.

Increasingly, other retailers are going beyond pre-packaged staples like marinated chicken to completely retool their deli service departments to appeal to weekend foodies and hurried shoppers picking up dinner on the way home from work. According to Wade Hanson, project manager for Chicago-based Technomic, a food industry consulting group, prepared foods now account for half of the $4 billion in full-service deli sales.

It’s not uncommon anymore for delis to offer pre-made salads with proteins such as chicken and turkey, sandwiches with roasted meats and vegetables, salad bars with up to 20 to 60 items, hot bars, barbecue stations, grill-to-order meals, stir fry selections, cheese bars and pizza. However, retailers need to know their customers and neighborhoods to offer the right product mix of healthy, authentic, ethnic and flavorful options — at the right price points.

Indeed, when Eastern regional powerhouse Wegmans, based in Rochester, N.Y., moved into Harrisburg, Pa., recently, its consistently strong deli, coffee bar and other food offerings were viewed as enough of a threat to nearby established businesses, including a Starbucks and Panera Bread, that it warranted local media attention.

Analyst Bob Gorland, of Matthew P. Casey & Associates, told The Patriot-News, that about 20 percent of sales from a new Wegmans could be from the neighboring pizzerias, fast-food restaurants and sit-down establishments.

In Pittsford, N.Y., the Wegmans supermarket has even reached out to the health and wellness — and Starbucks and Borders — crowd with a new tea bar. Shoppers have their choice of Asian teas, such as jasmine green tea from China, bancha tea from Japan and Ceylon breakfast tea from Sri Lanka, as well as herbal infusions. They can also purchase tea by the pound.

Central Market, based in Austin, Texas, has long been known for its fresh, innovative product selections. Its Café on the Run section features Grab and Go pre-packaged fresh entrees and sides, Dinner for Two entrees and side dishes, Bulk Bar with sauces, dips, salsa and olives, Chef’s Case of fresh meals, and a Central Market Café for dining in or takeout orders in Austin. The grocery store also offers cooking classes and recipes online.

So why are grocery stores acting like, well, restaurants? Quite simply, they are trying to recapture business that was lost to restaurants over the past 10 years, notes Hanson. Quick-casual restaurants such as Applebee’s and Chili’s rightly noted the consumer need for quick, convenient meals and largely changed their business formats to offer more take out orders and curbside service for busy consumers, particularly working women. And now consumers view them, not the nearby supermarket deli, as an easy place to pick up dinner. Consumers’ hectic lifestyles aren’t going to slow down, so supermarkets are trying to provide quick but healthy meal options.

“As the American family changes from year-to-year, the deli changes with it,” says Heather Sheffield, brand manager for Butterball, based in Mt. Olive, N.C. “Today there are many more two-person households and smaller families than there were 25 years ago.”

Boomers, in particular, prefer to eat out for convenience. And their children and Generation Xers have even less interest in — or knowledge of — cooking meals from scratch, says Marcia Schurer, Ph.D, president and owner of Culinary Connections, a Chicago-based and international retail consulting firm. Yet they are more aware of how their food purchases affect their health and the environment.

“Many consumers believe that the best way to eat a healthful diet is by preparing as much food from scratch as possible, but they are also realists,” says Alan Hiebert, education information specialist with the International Dairy Deli Bakery Association (IDDBA), based in Madison, Wis. “Fewer people feel they have the time or energy to cook at home more than a couple of times per week. An increasing number of consumers are looking for products with a minimum of additives and preservatives, with no added salt, or for smaller portion sizes.”

According to Hanson, retailers can still appeal to consumers’ desire for freshness and convenience.

“Grocery holds an advantage over the foodservice channel with freshness,” he says. Hanson notes that a grocery chain that recently revamped its service deli announced a 10 percent growth in the last quarter.

Success in the prepared-foods category isn’t guaranteed, however, as anyone who remembers the days of “home meal replacement” can attest. IDDBA data showed that while prepared-food sales increased overall, entrée sales in the supermarket deli/foodservice department decreased between July 2006 and 2007.  

In addition, the number of deli departments dropped slightly from 27,000 in 2005 to 26,975 in 2006, reported IDDBA’s “What’s in Store 2008.” And the average deli department was down to 1,574 square feet in 2006, instead of 1,610 square feet in 2005.

As the trend for smaller store formats take hold, retailers may have to rely on commissaries for more of their deli options.

“Consumers want to shop quickly,” notes Schurer. “They are not looking for 50,000 [stock-keeping units]; they just want the right product mix.”

Management, either at the chain level or at store level, will need to decide how many options it can justify based on department margins, says Hiebert. After all, each chain, and often each store within a chain, is different.

“More takeout options may be attractive to a store’s clientele, but more options means more shrink in the prepared-foods department,” he says.

In IDDBA’s research, variety and convenience were two of the most important factors for consumers searching for meals. In fact, more chains are letting consumers phone in takeout orders, pick up orders at a separate entrance or providing curbside service. Price Chopper, for example, is even offering home delivery now, says Hanson.

New products are often variations on existing products, but a new flavor of an existing product can give a customer variety, says Hiebert. In fact, the two biggest gainers in the prepared foods category last year were breakfast and appetizers, while the soup and dips/sauces categories decreased the most.

“New packaging designs help to make products more convenient,” he says. “A big challenge, as consumers become more aware of their own environmental footprints, is developing products that simultaneously deliver convenience and environmental responsibility.”

After gauging the success of Whole Foods’ and other leading retailers’ food stations, other retailers have begun offering in-store stations — sometimes up to seven or eight — featuring sushi, smokehouses, meat carvings, crepes and coffee.

Last year, Kraft Foods’ Oscar Mayer also went outside the meat case to launch its Oscar Mayer Deli Creations in the full service deli area. Noting consumers’ time-pressed lives and need for convenience, Oscar Mayer created Deli Shaved meats and sandwiches that can be heated in 60 seconds with a microwave.

“In the past few years, the deli category has been flat and sluggish,” says Tim Cofer, senior vice president and general manager, Oscar Mayer, based in Madison, Wis. “We listened to consumers and combined the benefits of the deli — freshness, quality and slice thickness — with convenience, value and the trusted Oscar Mayer name.”

As a result, the Deli Shaved line has quickly achieved more than $300 million in retail sales. Cofer notes that processors must continue to innovate to meet the needs of consumers — and retailers — at the deli case.

“To compete, companies must continue to innovate to meet consumer needs,” he says. “Know your customer. At Oscar Mayer, we see several trends: premium, convenience, snacking and health and wellness.”

He notes that sales of Oscar Mayer Deli Creations have been 65 percent incremental to the meat case.

Due to growing consumer interest in health and wellness and also artisan foods, most new prepared foods are generally healthier options with less sodium, saturated fats, nitrates and processing, and more healthy fats and oils, says Schurer. Retailers are clearly not searching for another breaded appetizer to add to their deli case.

“Rotisserie and fried chicken are successful, but there isn’t a third staple for the deli,” says Hanson. “It’s a challenge, but the opportunity exists for processors to supply another healthy staple that will pull in significant and ongoing sales.”

The shift at the deli toward premium, healthy products is benefiting natural and organic products. Consumers who make the shift from conventional products to organic and natural takeout versions are looking for humane and sustainable versions of the classics, says Gina Asoudegan, company spokesperson, Applegate Farms, based in Bridgewater, N.J.

“The growth is largely due to the fact that consumers have raised their standards regarding the prepared food they purchase when away from their homes,” she says. “The organic consumer is looking for meat that has been raised humanely and sustainably. This customer is making purchases based on a belief about food, not just a preference.”

Therefore, organic and natural consumers are less likely to compromise their standards when purchasing food at a takeout venue or foodservice concession, she says, hence the growth of organic food in these areas.

In addition to a growing emphasis on prepared foods and natural products, the typical service deli is also undergoing consolidation and simplification of brand offerings within price and quality tiers, notes Charlie Cruce, product manager for Hormel Deli, based in Austin, Minn.

Hormel Deli is addressing these trends by offering premium natural deli products with the Hormel Natural Choice deli meat and Hormel Authentic deli lines, including San Remo Genoa Salami, Homeland Hard Salami and smoked and cured deli hams. Indeed, Hormel Natural Choice Deli Sandwich Meats were one of Hormel Foods’ best-selling products of 2006, and the product line was extended to include products for breakfast, lunch and dinner.

“To truly be a valuable partner to a retailer’s service deli, a supplier needs to deliver on-trend and cutting-edge ideas that will help the retailer provide solutions to consumers that are unique to those of the competition,” says Cruce. “As always, however, product flavor and performance remain absolutely critical.”

As consumers become more educated about food and its source, they are not only more interested in natural products but ethnic flavors, says Asoudegan.

“This is largely due to entities like the Food Network that have ignited an interest in all aspects of food,” she says. “Our country is also becoming more diverse, and this diversity has had an impact on the food that we eat.”

Asoudegan notes that the growing Hispanic population has introduced consumers to authentic and regional flavors, such as chipotle, which have replaced their Americanized counterparts. This trend is seen with deli meats as they deliver more authentic flavor profiles from fresh herbs and spices. 

“Using dry rubs and marinating meats is now done to impart a more complex flavor profile,” she says.

Hispanic and Asian shoppers are playing a larger role at retail. In particular, Hispanic shoppers tend to purchase products at the service deli about 1.5 times a week, said IDDBA’s The Hispanic Consumer report. Also, about 63 percent said they buy most of their deli items from large supermarket service delis. The majority of Hispanic shoppers (84 percent) will reward strong brand performance with loyalty at the deli, “often” or “sometimes” buying the same brands.

“Ethnic products today have to be authentic, or all consumers will know if they are mediocre,” says Schurer.

Butterball, for example, is introducing new spicier flavors for its sandwich meats, such as Southwestern Salsa and Fried Turkey Breast, and adding deli chicken to its lineup.

“Because chicken products are the deli growth leader, Butterball wanted to capture this market and again give consumers more choices in the deli,” says Sheffield. “Also as prepared-food options continue to grow in popularity, Butterball introduced a marinated fried turkey tenderloin, which is prepared at the store and sold in the grab-and-go section.”

She notes that manufacturers should be ready to work closely with retailers to expand deli offerings. Butterball’s Category Analysis for Strategic Execution (C.A.S.E.) program provides brand, product and category support for retailers by utilizing market, account, brand, consumer and product insights. Clearly, more growth and room is still available for value-added products and prepared foods in delis, says Schurer.

“If retailers aren’t doing it now, they need to get behind it,” she says. “Or they will lose their share of consumer dollars to retail competitors or foodservice operators.”

Due to growing consumer interest and confusion over natural products, the United States Department of Agriculture’s Food Safety and Inspection Service (FSIS) department is working on narrowing its definition of all natural meat and poultry products, says an FSIS spokesperson.

Indeed, lunchmeat is purchased by 85 percent of U.S. households, with 95 percent of all grocery shoppers interested in natural products to improve their families’ health, notes Ryan Vossler, product manager for Hormel Natural Choice products, Austin, Minn.

Currently, natural meat and poultry products are defined as containing no artificial ingredients or added color, and are only minimally processed. Their labels must also explain the use of the term natural. Many natural meat and poultry processors want a stricter definition for natural products, so they have more guidance and a clearer marketing advantage over other products.

Many consumers and processors define “natural” as antibiotic-free, grass-fed or vegetarian grain-fed, using humane standards for raising and slaughtering livestock, nitrite- and nitrate-free, free of phosphates or fillers, and containing non-irradiated ingredients, notes Gina Asoudegan, company spokesperson, based in Bridgewater, N.J. Also, interested shoppers and processors want all product ingredients noted on product labels — creating “clean” labels — instead of the current standard which allows manufacturers to just put “natural flavors” or flavorings on their label without further elaboration.

According to Vossler, natural products are also currently allowed to contain saline solutions and other preservatives such as sodium lactate, a salt-based preservative. This detail misleads “consumers who believe they are buying a product free of chemical preservatives, when they are not,” he says. “The original natural policy for meat and poultry was consistent with consumers’ expectations because it excluded chemical preservatives.”

It looks like the industry will have to wait for a clearer definition for naturals. Due to the high amount of consumer and industry feedback regarding the definition of natural meat and poultry products, there is a huge volume of information to sort through and no estimated timeframe for a new definition yet, notes the FSIS spokesperson.