The Economy and the Future of Deli

This morning my 19 year old son had his wisdom teeth out. I am sitting by his his bed and taking advantage of the time to catch up on some of my reading--in this case some reports from the folks over at Kantar Retail.

I was reviewing the Q1 figures for same store growth for supermarkets. First look says that same store growth was 2.6%. That doesn't sound too bad in a rough economy. Here's the bad news, however: inflation accounted for 2.5% of that growth. As I read further, I saw the forecasts for the supermarket channel for Q4 and Q1, and growth is projected to be lower yet. And the latest consumer confidence numbers are atrocious, and according to the folks at Kantar, there is a close relationship between consumer confidence and Consumer Intentions (TM by Kantar Retail).

So what's a deli retailer to do? I wish I were smart enough to say for sure, but here are a few reasons to be optimistic:

First, while lower income shoppers are expected to have the greatest pull back in discretionary spending (which may have an impact on fried chicken sales), rotisserie chicken sales skew to older and somewhat more affluent shoppers, who are expected to be more resilient in discretionary spending. It may be that smart retailers in Q4 and Q1 will spend more time driving awareness of rotisserie chicken and fine-tuning their operations to ensure in-stock position and high product quality.

Some deli prepared food items--most notably rotisserie chicken--are seen by the consumer as a tremendous value. Make that a part of your messaging and product positioning in these key quarters. You don't need to deep discount, but communicate value (potentially vs foodservice) and product quality. But everything indicates that the battle for rotisserie dominance is in awareness and in-store execution. Get that right and you needn't sacrifice your retail price or your margins.

Third, don't be fooled by consumer surveys that say the consumer is going to cook at home more as a way of coping with a struggling economy. You can grow your tomatoes in that. Consumers are NOT going to cook more. They did not cook more when everyone talked about cocooning in the early 2000's and they did not cook more in 2008-2009. Sorry, but it's true. In the last downturn, consumers ate out exactly one time fewer per quarter. While the aggregate effect of that on the foodservice industry is considerable, from an individual consumer perspective, it's hardly a sea change. Consumers will still seek the convenience of NOT cooking, and deli prepared foods is an economical way to NOT cook. Forget about what people SAY they are going to do--look at what they did.

Times will be difficult in coming quarters--make no mistake about it. But fortune favors the brave. The right product targeted to the right consumer still presents wonderful upside potential. And here's the best reason not to worry: in all of the analysis I've done looking at retailers and how well they are developed in various deli prepared foods product categories, I have yet to see any retailer who doesn't clearly have growth opportunities in their marketplace. The key is to drive incidence (The % of your total shoppers who purchase deli prepared foods) and frequency (how often your deli shoppers buy). Even in a tough economy, gains can be made in these two areas.

In the immortal words of Alfred E. Neuman: What, me worry?