May, 1999

From the Editor

The Triumph Of Deli

It was a small item in the Chicago Tribune, but it was pregnant with meaning: “Dominick’s to Scale Back Cafes” read the headline. The first paragraph was specific: “Providing the Home-Meal-Replacement business isn’t as fruitful as some food-industry experts believe, Dominick’s said…that it plans to combine many of its Fresh Store cafes with its delis over the next few months.”

Items such as this, combined with the Food Marketing Institute’s announcement that its much-ballyhooed Meal Solutions trade show was being downsized into a conference, points to trouble in paradise. The dream world in which Home Meal Replacement was perceived as a kind of talisman that could be used to ward off the entreaties of the foodservice sector, and save share-of-stomach for retailers, has turned into a money losing nightmare for chains.

Back in 1996 when I wrote that Boston Market was basically a Wall Street promotion without a valid business model, I questioned the mania for trying to duplicate that unproven concept. And indeed the same Chicago Tribune article tells the tale: “Smaller cafes will continue to serve pizza, rotisserie chicken and sandwiches, but side dishes and stir fry will be out.”

In all businesses there is an enormous temptation to think that one can succeed by doing an additional business. So if one is the best hot dog restaurant in the world, one is tempted to add pizza and thus capture additional business.

The problem is that it rarely works out this way. Often, the best-case scenario is that the new product is neglected. When it fails to produce expected profits it is discontinued and chalked up as an expensive experiment, but, at least one that preserved the core business.

All too often, attention paid to the second product distracts from the core mission and leads to mediocrity on both products.

The failure of most store HMR efforts could be predicted from the press releases. All these releases are filled with what additional things the store is going to do. I’ve yet to see one that mentions what the store is going to stop doing.

Eatzi’s and similar concepts, at least, have a shot because they are sharply defined. Most of the ambitious supermarket HMR offerings have simply been announcements of additional things the store will do. So now, in addition to selling everything it sold before a store will also have a café or a restaurant a sushi bar.

It is not that we can’t sell a lot of food this way; it is that simply selling food may not be the measure of success.

The logistics of handling another meat, another bun, paper goods, etc., is substantial, and there needs to be a substantial payoff or it is not worth the effort – not to mention a careful analysis of the impact on service of the addition of an item to the menu. What is more, there is always the danger of a diffusion of management effort.

It is fine for supermarkets to look out at the world and say that things have changed. Perhaps consumers do want ready-to-eat meals. But if this is the growing market, if the decision is made to focus on this, then the decision probably should also be made to abandon declining markets.

Partly this is a practical matter. It is simply impossible to be experts in everything. The staff capable of running one type of enterprise very well simply is unlikely to run two enterprises as well. Each venture requires different expertise, different attitudes.

Psychologically, employees act differently when they know that their future depends on the success of something. One of the problems supermarkets that open restaurants and cafes often have is that not enough top employees feel they will be fired if the enterprise fails. The store managers just assume the cafes will close and be replaced by something else, the buyers assume they’ll be buying for whatever takes the place of the defunct cafes, the CEO figures that he will be judged on overall success, not the success of the one tiny division.

It is a funny thing, but it is very possible that the same stores that have failing café and restaurant operations might have succeeded had the whole store been turned into a café/restaurant simply because the motivational dynamic would have been different.

Adapting to new trends by trying to do two things usually fails in business. There are only two paths that are likely to work: First if a company has the managerial and financial resources, it can succeed by owning another company.

So, too, supermarket chains that believe that the future is HMR may wind up owning Eatzi’s or a similar concept. Institutionally, it is a way of hedging one’s bets on the future. Woolworth stores are all shuttered but the corporation goes on because it invested in specialty retail as a hedge against the decline of the five and dime.

For most businesses, however, the path to success is more modest. It is determining what one really does or knows how to do that has continuing appeal. Sure, alterations can be made. If veggie cuisine is catching on, McDonalds can sell a veggie burger. Equally, what more stores are coming to realize is that deli has been the HMR venue for a ling time. The deli was where consumers turned when they wanted ready-to-eat foods from the supermarket. For most stores, the smartest policy is to find the way to fine tune what delis are doing in order to meet consumer needs.

In this sense, setting up new HMR departments, cafes, etc. is positively dangerous. It turns into a license for delis to keep doing the same old thing, when business is always about doing the same old thing in an appealing new way.  DB