Reasons for Optimism in Post-Pandemic Future

October/November 2021 – By its very nature, the modern deli department was stressed during the pandemic in a way other departments were not. In the past few years, deli departments boomed with open food bars, salad bars, sushi bars, wok stations and all kinds of prepared foods. These were pretty much the exact things that were shut down during the pandemic. Thankfully, these are now reopening, and most chains are reporting robust sales.

Although there are supply chain challenges, the biggest challenge right now is that many of the urban stores depended heavily on office workers who patronized them for breakfast, lunch and, sometimes, take-out for dinner. In many cases, these workers are not back, or not back every day, and this is still hurting many stores.

Yet many chains are showing robust deli sales, even exceeding those of the pre-pandemic 2019. It is a little unclear the degree to which these sales reflect higher prices and to what extent they actually represent higher volumes — still that things are in an upswing for the supermarket deli business is undeniable.

However, how delis can best capitalize on the post-pandemic period is still an open question. With most stores using Instacart as their grocery delivery partner, the future of delivery is unclear. Schnucks, which also uses Instacart, announced that it was going to start a program using DoorDash for certain deli and prepared food items at a small number of stores. The program echoes one program DoorDash is doing with Cardenas Markets, the large Hispanic chain, and Big Y World Class Markets, Save Mart, Lucky’s Market, Lucky California, Coborn’s, Wegmans, Hy-Vee, Gelson’s and Kowalski’s, among others.

The significance here is that these initiatives have nothing to do with general supermarket delivery but, instead, identify deli departments much as a consumer would a restaurant, and place supermarket deli operations among the options when a consumer is looking not for groceries, but for lunch or dinner.

One advantage supermarket deli operations have always had was the diversity of food offerings. A family that could pick up lunch or get take-out from a restaurant could only get the cuisine of that restaurant — say Italian. A modern supermarket deli operation might offer a much more diverse assortment of foods.

Yet, today, ghost kitchens make the same promise. Recognizing the threat and the opportunity, Walmart has an ongoing experiment with Ghost Kitchen Brands, opening in-store units that can then offer select items from up to 25 national and regional restaurants and well-known consumer packaged goods brands. These items are also available for delivery through foodservice apps such as DoorDash and Uber Eats.

The future of delivery also remains an open question, with particular impact on the supermarket deli.

The food delivery industry had been inching along for years, then suddenly, due to the pandemic, it had to grow five or 10 years of growth in a few weeks. Pre-pandemic — in 2019 — about 3.4% of groceries were sold through e-commerce. That tripled to more than 10% in 2020.

Well, when one is afraid of catching a deadly disease, buying through an app or online seems cheap, no matter the cost.

But, in fact, the cost is substantial. I have a son who is back at live college at Cornell University in Ithaca, NY. He moved out of the dorm and is in an apartment with a kitchen. He happens to enjoy cooking, and he typically orders for delivery from Wegmans, which explains on its website these added costs of buying for delivery with Instacart:

• Prices are about 15% above in-store, which includes the cost for shopping your order.

• There is also a $35 order minimum.

• In addition, Instacart charges:

• A delivery fee

• A service charge, which is preset at 7%.

• Additional fees may apply, such as a bag fee, heavy order fee and a long-distance service fee

So the cost is 15% over in-store prices from Wegmans, then 7% as a service charge to Instacart, plus an assortment of smaller fees.

We’ve instructed our son to pay a 20% gratuity. So it is often the case that his delivery costs almost 50% more than what it would cost if he went and picked up the groceries.

During the pandemic, that might be a price worth paying to avoid putting one’s health at risk. But, long term, is the market going to support a willingness to pay almost 50% more on your groceries to get them delivered? And, Instacart is not yet a public company, so we don’t know for sure, but indications are that Instacart still loses money even at this cost.

So, as we move out of the pandemic, there is reason for optimism — sales are rising, deli sales particularly are reigniting, and consumers seem open to broader trends in service, not just everything in plastic packages. But how we will make delivery pay for itself… how we will handle consumers working from home… how we will build in the post- pandemic future remains, as Churchill wrote, “a riddle, wrapped in a mystery, inside an enigma.”