June/July, 2008

From the Editor

Economic Woes Are Deli's Opportunities

It was 13 years ago at the International Dairy-Deli-Bakery (IDDBA) convention in Minneapolis, MN, that we unveiled the first issue of Deli Business magazine. The cover story of that issue was about the then au courant topic of “Home Meal Replacement” (HMR) and the challenge, clearly defined, was whether supermarkets could rise to the challenge of delivering restaurant-quality food.

Fast forward to present day and that capability is no longer in doubt. What was once a specialized com­petency confined to high-end stores that could afford to bring in restaurant chefs to whip up some shrimp scampi is now a supply chain competency with food manufacturers and retailers partnering to offer a broad array of quality prepared foods to consumers.

With chains such as Whole Foods Market showing great strength in this area, HMR still holds an upscale connotation, but a closer look at the demographics served by chains such as Wegmans indicates this is hardly a meal solution reserved for the elite.

In fact, while changes in the economy and competitive environment are positioning the deli/retail foodservice area at the epicenter of the supermarket’s efforts to capture market share, the competitive threat to this position may not be the restaurant down the road but the frozen food section a few aisles down.

The Food Marketing Institute (FMI) has just released a study indicating that 71 percent of consumers say they are eating at home more. Foodservice sales data is starting to reflect this. Sales in the casual dining segment—chains such as Outback and Applebee’s—dropped by 0.3 percent in the first quarter of 2008, and this at a time of food price inflation.

This is not a short-term trend. The same FMI report shows that consumers ate their main meals in restaurants 1.5 times per week in 2006, 1.3 times a week in 2007 and are currently eating their main meal at a restaurant only 1.2 times a week.

The drivers behind this switch are superficially economic, but are actually multifaceted. With the high price of gasoline and general issues related to inflation, consumers are feeling the need to restrain spending in ways they can. Many have no choice but to buy fuel to commute; using mass transit, car pooling or buying a more economical car may not be an option. Economizing on food is.

But home cooking is something of a lost art, and just because people don’t want to spend money traveling to restaurants and eating there, this hardly means they are going to become Julia Child.

This leads consumers smack into the deli/retail foodservice section of their local supermarket. Score one for our team. Yet, if all we do is offer a less-expensive alternative, we will have left a lot of opportunity sitting on the table.

Although the catalyst for this behavior change may be economic, consumers are seeing more than a little silver lining in this economic cloud. After years of publicity regarding the importance of healthy eating and massive public awareness about the obesity crisis, it turns out that most consumers have come to this conclusion: It is really hard to eat healthy while eating out.

The FMI report explains that 91 percent of consumers believe they eat healthier when they dine at home. Thirty-nine percent of consumers think eating at home is “much healthier” than eating at a restaurant. So consumers pushed into eating at home by a need to economize console themselves with the knowledge it is better for them anyway.

And not just for them, but their children as well. Comparisons between families that eat dinner together and those that do not regularly show that the children in families that eat together do better in school, are less likely to use drugs or alcohol, and are healthier. Whether it is the dinner, the togetherness or living in a family that makes togetherness a priority is really unclear. It is clear that consumers see dining together as a family as a big plus for eating at home.

So the winds are in our favor. By offering restaurant-quality food, being attentive to health and nutrition in the products we offer, and catering to families who want to eat at home — but don’t want to be stuck cooking and cleaning when they could be enjoying family time — we are set up to win. And in winning, we can draw more consumers, more frequently into the store.

There is, however, a storm cloud over the horizon. All of the sudden, frozen foods are taking off. In early May, JP Morgan published research indicating that frozen dinner sales were up an astounding 42 percent in the prior four-week period. That is a combination of product innovation—such as the new “steamer” technology—and consumer perception that frozen food waste is less than fresh.

The deli industry needs to continue to innovate to keep its quality edge over frozen, and to start looking at ways to persuade consumers that fresh food won’t be wasted. How about sending every order home with a “freezer bag” and instructions on how consumers can safely freeze leftovers?

We have spent over a decade positioning the industry for the big win that is possible today. Let’s work together to make sure we are on top of consumer concerns and the competitive situation.  DB