August , 1998

From the Editor

Deli Thoughts From Afar

One of the great benefits of travel is the opportunity to see one’s own business played out against different circumstances. During a recent trip to Italy, I saw a large number of supermarket delis and found many of the same forces at work in Italy that are driving the business in the U.S.: Home Meal Replacement, grab-and-go sections and expanded prepared food offerings. Just as interesting, though, were the differences.

Even at a small supermarket one could find a much larger selection of hams than one would encounter in the largest U.S. supermarket, but it was very difficult to find such top U.S. sellers as turkey and roast beef. When one does find these products, they are often not the whole muscle meats we find commonplace, but are cheaper composite products.

Another big contrast – though it may sound silly – is that one finds an overwhelming preponderance of, well, Italian food. To find a lot of Italian food in Italy is not particularly shocking, but it points out an important difference between a relatively homogeneous society, such as Italy, with a heterogeneous society, such as the U.S. Whereas urbanized Americans might think nothing of having Italian food once a week, Chinese every Sunday, Mexican frequently and Thai every now and then, such expectations are foreign to the Italian population.

This makes deli prepared food programs and, more generally, deli product offerings, simpler to design. I saw some beautiful stores, including large supercenters, selling Italian shoes under the same roof as the prosciutto. Yet, search as I might, I simply couldn’t find a deli with a wok station or a taco bar.

This highlights what an enormous challenge U.S. deli operators face, but it also points to the tremendous opportunity.

It is tough to run a top Italian food program, a great rotisserie, a fine sub shop, a winning sushi bar, or a fantastic Mexican food program. To do any one of these things well is an enormous achievement. To do them all well, plus the many other specialized programs out there, plus run a great traditional deli would be an astounding achievement.

And indeed, most everyone has failed. All across the U.S., I’ve visited store openings filled with beautiful deli operations and return, months later, to find nothing where the wok station, pizza program or Mexican food bar used to be.

In talking to deli management I usually learn that the program didn’t work. Perhaps shrink was just too high on these perishable product lines. Maybe labor hours were being cut and the labor-intensive nature of in-store food preparation just killed the programs.

Obviously nothing works in all places, and doubtless some of these programs had to be killed. But in many cases I’m finding that the programs are dying unnecessarily. Frequently, the products are not given a fair shot. To introduce a new program requires a commitment to nurturing consumer support for the products at hand. Supermarkets are pretty awful at this, as most CEO’s grew up in grocery and are used to the idea of manufacturers taking the financial hit to introduce new products. Well, turnabout is fair play, and when the supermarket itself is acting as manufacturer, it better be prepared to pony up all those free cases, demos and whatnot to get a product on its feet.

Sometimes the new deli product lines fail for managerial reasons. From the deli director on down to the deli clerk, many of these prepared food programs require special expertise and training if they are to succeed. Yet many programs are done on the cheap. The notion that one can take a deli manager, hand him a manual and expect him to be proficient at operating and promoting the new wok station borders on the bizarre. Yet it has happened, more than once.

I’m sensing a pull back on many of the HMR programs. Supermarkets have been trying things and they haven’t been making money, so they are pulling back.

Many a steak restaurant keeps a fish on the menu, which is probably not profitable. The fish is important, though, to head off the “veto factor.” If a family of six people wants to go eat, the restaurant doesn’t want to lose the patronage of five steak eaters because the sixth member of the party can’t or won’t eat meat. So the fish is there not to boost profits itself but to keep the crowds coming and thus boost the profitability of the steak.

Similarly, the great supermarket advantage over restaurant take-out is variety and convenience.

The accounting anomaly is that the profit may come from the consumer doing her weekly shopping while picking up that family dinner. In the absence of that extensive deli operation, that consumer might have gone to a smaller supermarket right near her home.

It is well known that fast food chains make their profits on accompanying items, such as beverages and fries. This doesn’t mean, however, that they would be more profitable if they cut out hamburger. It means that departmental thinking can distort one’s perceptions.

Clarifying those perceptions is another advantage of travel. I write from a Villa in the Versillia overlooking the Mediterranean coast of Italy. The broad white beach attracts few Americans and my Spanish is frequently more helpful than my English is in making myself clear.

So often we are creatures of habit, trained to look at some particular accounting measurement as important. The success of HMR programs may depend as much on our ability to perceive the true significance of these accounting measurements as on our ability to produce a quality pizza pie.