Digital Orders May Have Impact On Deli/Foodservice Differentiation

December/January 2019 – For a long time now, the fresh foods departments have been the key points of differentiation for modern supermarkets. From bottles of Coca-Cola to boxes of Tide to canned foods of all brands and sizes, supermarkets could only compete on these items with price. Yet departments such as frozen foods have been important sources of profitability for retailers, so just cutting prices was not a desirable option. The strategy became to attract customers to the store with fantastic fresh produce, wonderful bakeries, fine meat and cheese counters, beautiful floral, fresh seafood counters and, especially, deli.

But this was not your father’s deli operation… As consumer interest in home cooking has waned, the deli grew into a retail/foodservice hybrid and so became the supermarket’s primary tool to attract consumers who don’t want to do a lot of cooking.

This one-two punch of deli as a key differentiator and way to keep customers in supermarkets who otherwise would go heavily toward take-out or delivery laid out the future of the department. Add wing bars, antipasto bars, wok stations, sushi, multiple types of rotisserie chicken, pizza programs, sandwich shops, prepared foods, soup bars—on and on. Because each offering differentiated the store and appealed to a consumer segment that otherwise might have not been attracted to the store, it was obviously the direction to go.

Now, the view is becoming foggy. Yes, with delivery services being established at basically every grocer in America, quite suddenly there is a whole new clientele for supermarket delis. A worker getting pangs of hunger at his or her desk can order a sub sandwich or any of hundreds of other deli favorites from the local grocer.

Yet, merely making a product available on a website or app is not enough to succeed. How quickly can it be made and collected at the store? How fast can it be delivered to the customer? How perfectly can the item listed on the website or app be delivered with consistency?

Restaurants tend to have limited menus, so they are rarely out of stock. They are used to preparing food to order, so they are quick. And, of course, those who offer their own delivery—traditionally concepts such as pizza, Chinese and sandwich shops—are experts at getting the orders delivered quickly. No restaurant offers delivery windows like 3 p.m. tomorrow on a website.

Of course, restaurants are starting to experience problems, too. It used to be that the cashier at a restaurant limited the number of orders. So, if the scale in the back of the house was keyed to order taking in the front of the house, the production function could never be excessively stressed.

Now, if a Starbucks takes orders online or through an app, nothing stops orders of 10 times the production capacity from suddenly appearing.

Another problem for deli/foodservice operations is that, as their importance in the supermarket grows, their flexibility shrinks. A department that is focused on differentiating the overall store will probably not have the same need to produce dollar profits if the store has a deli/foodservice department where the job is replacing the profits being lost as grocery purchases switch to online delivery from those willing and able to sell that Coca-Cola, Tide and canned vegetables at the cheapest price in the world.

In other words, deli begins a transition from differentiating the store to being the heart, soul and profit center of the store. And when you have to make money, you have to do things differently.

When Tesco came to the United States as Fresh & Easy, it tried to import its successful prepared foods offering from the UK. When Wal-Mart opened its Marketplace small-store concept in Arizona soon after, it also tried to offer a substantial prepared foods offerings.

It was a nice idea and a beautiful offering but, in these two cases, and in many other cases, we have seen the same problem. To be that great a differentiator and attract people who may have done take-out, the store needs to offer a broad assortment. Yet, that same assortment requires very high velocity to be profitable, so stores that began with 50 prepared food items start dropping the lowest volume movers and, before you know it, they actually just sell lasagna.

So, this then is the circle that needs to be squared—how to offer the variety of fresh foods that will attract consumers, while achieving a price point and sales velocity that will allow the deli/foodservice department to do the heavy lifting on store profitability required for the growth in digital and omni-channel.   db