April/May, 2017

From the Editor

Will Discounters Cause A Divide In Deli Offerings?

With Aldi the fastest growing food retailer in America, and Lidl about to burst across the American scene, the deep discounters will be attracting the lion’s share of attention for some time. Wal-Mart is already responding with numerous efforts to regain its once-certain status as the low price leader and, in general, one can expect three certain things:

There will be enormous pressure on manufacturers to cut margins, cut costs and reduce prices, as retail concepts of all sorts look to compete with the deep discounters and try to do it at the expense of vendors rather than at their own expense.

The service deli will be under enormous pressure, with retailers seeking to compete with deep discounters — including Wal-Mart. Labor costs are escalating with demands for higher minimum wages, and labor markets are tightening as unskilled immigrants become more hesitant to enter the country.

In contrast, the service deli will become the most emphasized aspect of those retailers looking to differentiate themselves from the deep discounters. The drivers of low cost are clear; it’s all about less labor and less assortment. As retail stores become more like restaurants with more service and more assortment, especially more cooking, they attract a different clientele.

Since the launch of the Wal-Mart supercenter, there has been an internal debate in Bentonville, AR, as to whether offering a service deli makes sense for the company’s supercenter concept. Operating service delis in each supercenter has always been problematic for Wal-Mart, because the company’s push was to drive expenses out of the system, and service delis added costs and complexity.

Yet, for the past three decades, Wal-Mart executives have decided to keep the service deli. The internal argument has been that there are precious few opportunities for customers to interact with staff. The deli thus serves a larger purpose of humanizing the operation and creating the opportunity for regular interaction and even relationship-building between staff and clientele.

We will see if this value is viewed as sufficient to sustain Wal-Mart’s service model. It would not be surprising if the need to drive costs out in order to be competitive with Aldi and Lidl is so great that even long settled expenses — such as the utility of maintaining a service deli — are to be abandoned.

And not just at Wal-Mart. Many deli operations that primarily sell sliced meats and cheeses will also see the service component as more expense than benefit. Despite the lengthy and costly process of growing service delis across North America, one could expect the price-focused stores to abandon the proposition that service is a necessary offer.

In truth, the quality of the available packaged meat and cheese offering has improved so substantially that the vast majority of customers can be satisfied with the food quality in most self-service delis.

Not every store of course. Some foods — say a rare roast beef — just aren’t available from manufacturers in a pre-sliced package. And sometimes the experience can be cultural. This author, from a Jewish family, growing up in New York, spent his formative years on shopper visits with Mom specifying the thickness of the slice of meat or cheese. The memories of buying deli mustard and scallion cream cheese and a baker’s dozen bagels with the New York newspapers on Sunday — well that will always mean something special. But most of the country has not known this kind of nostalgia.

Yet all is not lost… Those stores looking to position themselves as a step up from the mainstream will invest heavily in service. They will offer more ethnic foods, focus on regional cuisines, and bring in more chefs to cook on site as a form of “eatertainment.”

They will chop and dice and feature lots of ‘islands’ with different cuisines. They will integrate more with great breads from the bakery and help the meat and seafood department to prepare a lot more interesting items.

So American retailing will diverge, with one-half focused on price and another focusing on experience. One industry, divided forever, in twain. DB