April/May 2019 – The Wall Street Journal recently ran an article that was titled ‘No Baloney: Consumers Shift To Fresh Deli Over Packaged.’ The gist of the article was that, due to consumer interest in high quality, health, freshness, etc., producers were focusing on the service deli as opposed to pre-packaged items.:
Meat companies are using the deli counter to showcase new and higher-priced products, as customers eschew prepackaged cold cuts in favor of healthier and more natural foods.
Hormel Foods Corp., Kraft Heinz Co., Tyson Inc. and other companies are buying smaller deli meat brands and reformulating their ham and smoked turkey recipes to meet rising demand for fresher cuts.
“There’s a feeling of being a little bit special when I go to the deli, as opposed to when I go and shop off the refrigerated meat wall,” said Jeff Baker, a vice president at Hormel, which bought deli-meat maker Columbus Craft Meats in 2017 for $850 million.
Sales of freshly cut deli meat rose 2 percent over the past four years through February to $5.9 billion, according to market-research firm IRI, while sales of prepackaged lunch meat fell 8 percent to $3.6 billion.
Perhaps, but color this columnist skeptical. There are customers moving upscale, organic, healthy, local, etc., but the bottom line is that Walmart is the largest food retailer in America, and the fastest growing sizeable food retailer is Aldi, so this supposed quest for an upscale experience is rather limited.
The Wall Street Journal piece points out that many manufacturers are focused on fresh:
Companies like Boar’s Head Provisions Co., known for its cuts of cured or smoked meat, have said their products appeal to consumers who perceive the deli section as a place to find better food.
Butterball LLC, a turkey producer based in Garner, NC, is focusing more on the deli counter as sales of pre-sliced cuts have fallen, said Kyle Lock, senior director of retail marketing. Last year, the company introduced a line of cuts designed to be sliced up at deli counters in new flavors like Cajun and deep-fried turkey breast. “The packaged department is really not a strategic focus for us,” Lock said.
Yet we wonder if the relative decline of packaged versus fresh is actually based on accurate data. With more product sold online and in drug stores and convenience stores, maybe the statistics are missing a lot of pre-packaged sales.
Perhaps the switch is real but reflects new technology — pre-ordering deli products on an app for pickup in the store means a consumer who wants a half-pound of roast turkey no longer has to wait in line, grab a number, etc. The consumers can get the convenience of pre-packaged product but buy the fresh-sliced product instead.
The Wall Street Journal piece did say some companies saw opportunities in self-service, though it could be a tough battle:
Some companies have said they are succeeding in improving their prepackaged cold cuts, too.
Hormel said it has grown sales of its Natural Choice and Applegate brands that emphasize natural ingredients and, at Applegate, humane treatment of animals. Hormel’s U.S. deli sales rose 19 percent to $251.3 million in its fiscal first quarter, outpacing a 1 percent overall gain in revenue.
Tyson’s Hillshire Farm brand this summer will introduce a line of prepackaged cold cuts meant to draw in consumers looking for deli-style meats at a lower price point.
No company has more to lose from the consumer drift away from pre-packaged cold cuts than Kraft Heinz, whose Oscar Mayer brand dominates that category. Kraft Heinz in February lowered the value of brands, including Oscar Mayer, by $15.4 billion, in part to reflect diminishing profit-margin expectations.
To make its sliced meats more appealing, Kraft Heinz has removed preservatives and hormones from some Oscar Mayer products and labelled them “DeliFresh.” Ingredient lists for those meats now include a handful of more familiar ingredients, like sea salt and honey. A Kraft Heinz spokeswoman said retail sales of lunchmeat have risen 1 percent over the past year.
“I don’t think consumers are giving it full credit for those changes,” Robert Moskow, a Credit Suisse analyst, said of Oscar Mayer. “Maybe it’s just hard to change pre-existing perceptions.”
Pre-packaged product may well wind up the winner… after all, who knows if Walmart will maintain its service deli, and the online and convenience options practically demand pre-packaged items.
Perhaps companies such as Oscar Mayer are kidding themselves that the juggling of ingredients will get consumers excited about legacy products.
Maybe the answer is for the fresh and service deli to create a brand halo for pre-packaged lines.
After all, fresh is always desirable — the key is to convince shoppers that your packaged items are fresh, as well. db