August/September, 2005

From the Editor

Deli Solution To Gas Hikes

It is one thing to know a fact; it is another thing entirely to know what impact that fact will actually have on your business. So the Wall Street truism that high gas prices — because they squeeze the low-to-middle-income core Wal-Mart consumers — will cause poor results this year strikes me as problematic.

If the problem is high gas prices, then Wal-Mart strikes me as well positioned to benefit. After all, both its Supercenter and the warehouse club concepts are unified by the idea of being able to get almost everything in one place. If my goal is to keep my gas consumption down, I think I would shop at Supercenters and warehouse club stores more, where I can get everything I need. It would be smaller, less comprehensive concepts such as traditional grocery stores that would suffer.

The key, of course, is taking advantage of the situation. And Wal-Mart should be emphasizing the one-stop shopping convenience of its concepts and reminding people of the value it offers in this age of high-energy prices.

Supermarket delis have a lot to offer as well. But it requires thought and creativity. For example, a recent ACNielsen Homescan Study, taken before the spike in energy prices related to Hurricane Katrina, found that 31 percent of consumers report that they are eating out less often as a result of higher gas prices. Even in affluent families, a classification assigned by ACNielsen to individuals with an income over $40,000 a year or a family of five with an income over $100,000 per year, 23 percent report eating out less often due to higher gas prices. The study doesn’t distinguish if consumers are eating out less often because they don’t want to spend the money on gas to go out to eat or if the household’s rise in expenditures for energy led them to cut their dining-out budget.

One thing is highly likely though. Just because they are eating out less often doesn’t turn people into Emeril. They often can’t, or won’t, cook very much and are probably very open to meals and prepared foods from the deli.

This general trend is confirmed by a survey done by Technomic, Inc. that has 18 percent of consumers saying they have reduced their spending in quick-service restaurants and 19 percent saying they are reducing spending at full-service restaurants. Technomic confirms that they are seeing these trends reflected in restaurant same-store sales.

What an opportunity! A large group of people accustomed to restaurant quality food is not going to restaurants as much. They are already in the supermarket, so it doesn’t take any extra gas to add some nice meals from the deli.

Yet supermarket deli departments have been very slow to react to this dynamic. Marketing and merchandising to this clientele is virtually non-existent.

And it goes beyond meals. The same ACNielsen Homescan study finds that 30 percent of households are doing more things at home rather than going out. Once again, it is unclear if the motivation is to avoid the use of gas necessitated by driving to an activity or if the issue is trying to avoid spending money to compensate for the drain of higher gas prices on the family budget — most likely it is a bit of both. Once again, however, it is an enormous opportunity for the food retailer in general and the deli department in particular.

The whole notion that deli departments could effectively compete for “share of stomach” against restaurants was always a chimera. Restaurants sell a lot of things and food is not necessarily the most important element. Very often it is the experience that motivates patronage. Deli departments could offer an in-house version of Lutece at a pocket-change price, but people will still want to get out of the house, dine on the waterfront, go where friends are meeting, etc. Deli departments can compete effectively only for a certain percentage of the foodservice dollar.

If people are staying home more, that percentage just went way up. If the family is watching a new DVD at home, they are an excellent prospect for deli sandwiches, rotisserie chicken, the deli pizza program, some nice soup or any deli foodservice offering. And just because the family is staying home Friday night, it doesn’t mean that Mom wants to work in the kitchen and miss half the family time.

Don’t think just because people are cutting back on dining out that it means they will want to economize by cooking from scratch. Very often, people who give up big luxuries indulge their taste for little ones. So if the family just saved $100 by not all going bowling and eating out, there is plenty money available for anything the deli has to sell, especially since consumer unhappiness with deli department prices is almost non-existent (as indicated in the exclusive Deli Business research highlighted in our cover story this month, beginning on page 12).

If a chain plays its cards right, it just may find that many consumers will learn they actually like having game night with the kids while eating some great deli delicacies — and they just might continue doing it even if gas prices eventually turn south.  DB