Onward and upward

by Bernard Shire
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The US deli-meat segment continues to thrive, in part because of the lingering recession. And with the continuing increase in the price of meat commodities, the cost of lunch meat, poultry deli meats and other deli products are expected continue their upward rise next year. As the recession continues and the price for premium deli meats surges, many consumers have turned to private-label deli products to save money. That translates into less interest in strong brand choice or identity. This could result in a more permanent loyalty to private-label deli meat and poultry products, even after the current recession ends.

Deli sees positive sales
“Sales of deli meat and poultry and other deli products continue to do well in this economy,” says Thomas Buddig, director of marketing for Carl Buddig & Co. in South Holland and Homewood, Ill. “I think because people have been cutting their budgets, and bringing more food from home to work, for example, they are consuming less fast-food. That plays into the strength of deli products.” The family-owned business, with more than 1,000 employees, goes back seven generations and traces its roots to Germany. Buddig says there is still a Buddig butcher shop in Buddlesdorf, near the German-Danish border, where the family lived before immigrating to the US.

Buddig Co.’s pre-packaged lunch meats comprise a major part of their business. They include pastrami, variety packs of honey-roasted turkey, mesquite turkey, chicken lunch meat and deli cuts including rotisserie chicken breast, smoked turkey, roast beef and baked honey ham. Many of the products include heart-healthy designations from the American Heart Association. The Old Wisconsin Sausage Co., which Buddig also owns, and is based in Sheboygan, Wis., makes deli and sausage products, including summer sausage, ring bologna, turkey meats, bratwursts and snack sticks. Both are doing well currently, thanks to the economic conditions and the appeal of healthier food.

“Our products [which also include large numbers of private-label products] are sold in 90 percent of the supermarkets in the US and Canada,” Buddig says. But he acknowledges margins are squeezed a bit because of the increasing commodity prices so far this year, particularly turkey prices during the fall, pork increases earlier in the year in February and March, and a small up-tick in beef prices.

He thinks commodity meat prices will continue to increase into 2011, due to short supply. “Freezers are empty, so there is not a six-month or year or two-year supply of turkey, chicken or beef in freezers, according to my prime contact with suppliers,” Buddig says. “So food prices, including our deli products, continue to go up. That’s also why we do a lot of private-label.”

Concurring with the idea that price outweighs brand when it comes to deli products is Alan Hiebert, education information specialist with the International Dairy-Deli-Bakery Association, Madison, Wis. “Our latest research shows price is more important than brand for most deli shoppers,” he says. “Since 94 percent of respondents to our survey shop the full-service deli, 89 percent the self-service deli where items are packaged by the deli department, and 86 percent shop the prepackaged selfservice deli, it’s difficult to tell where customer loyalty lies.”

But Hiebert says the just-released “What’s in Store 2011” study indicates private-label accounts for 28 percent of deli sales, which puts it third behind dairy (40 percent) and fresh meat (about 30 percent). IDDBA research also shows the main reason for shopping at a self-service deli is probably convenience rather than food safety. Most respondents thought supermarket deli food is fresher than packaged food.

Hiebert says in 2010, sales of some higher-priced products went down, but overall sales rose from $17.31 billion to $17.92 billion, a 3.5 percent increase. The deli department accounted for 3.2 percent of supermarket sales so far this year, the same figure as last year.

In a down economy, supermarkets are doing well as shoppers cut restaurant spending and buy more ingredients to eat at home. “But a little less money doesn’t necessarily mean more time,” he points out. “Many shoppers are still looking for the convenience that the deli offers. Parents are still busy with their kids’ after-school activities, which often interfere with dinner preparation and family meal time. And some shoppers are working more hours for the same pay in hopes of increasing job security,” he notes.

Hiebert thinks consumer education is also keeping sales of premium deli meats up, where the economy should have slowed sales down. “If [supermarket] associates can learn about their delis’ premium offerings by tasting them, and if they educate consumers by offering samples, they may be able to help shoppers understand why premium meats and cheeses cost more,” he says. Turkey, ham and roast beef have been the top three deli meats for years, with sales of turkey and ham three times what roast beef is. Each of the three is growing slowly or nearly flat. For the year ending June 30, Freshlook Marketing Data reported in “What’s in Store 2011,” the only deli meat showing a double-digit increase in sales was chicken, growing 17 percent in sales dollars.

Today, supermarket shoppers choose where to shop based on “perimeter departments” like the deli. Hiebert says 30,000 supermarkets have sales of about $18 billion and there is little difference between grocery departments. “Research shows perishable food departments are the major reason shoppers choose their primary stores. Shoppers look for clean departments where the products are fresh,” he says. “They are willing to buy larger quantities if they are confident the products will stay fresh when they get them home.”

Changes over the years
Has the deli changed over the years? “Yes, the biggest change is probably in the prepared foods areas,” Hiebert says. Years ago, supermarkets offered a very limited selection. A few years ago, chains started hiring trained chefs to develop prepared foods menus.

“Today, we see much more variety,” he says. “We see made-to-order meals for breakfast, lunch and dinner. Shoppers can get Chinese food, sushi or Italian food, with large comfortable seating areas,” Hiebert notes.

He says on the meat side, delis seem to be offering more brands. Average department size is creeping back up as new stores and remodels install larger departments, more meat and cheese cases and one brand in one or two cases.

IDDBA’s report relays more delis were profitable this year than during the previous year. Only 13.2 percent of deli operators reported a drop in profits, compared to 45.5 percent last year. Fiftytwo percent of operators reported an increase in profits, compared to 22 percent the previous year. Service deli gross margin declined from 43.6 percent last year to 46.2 percent this year. Kraft Foods Oscar Mayer Brand, a big deli-meats producer, says prepackaged deli meat sales are up more than 2 percent over last year, as consumers continue to look for ways to cut costs during these tough economic times. “Brown-bagging for lunch has made a big comeback,” says Tom Lopez, senior director of marketing for Oscar Mayer. Lopez says the Oscar Mayer “Brown Bag Barometer” – a poll of more than 1,000 Americans who brown bag their lunches regularly – reveals nearly 70 percent of those who carry a lunch from home do so at least three times a week, with half of those brown-baggers packing lunches four to five times a week.

Oscar Mayer deli meats are processed at seven different plants. Labels used for sliced and packaged deli meats include Deli Fresh, a current lineup of deli-meat products and Carving Board, a new product line. Deli item species include turkey, ham and beef.

Because there is more brown bagging and more sandwiches are being made, consumers want deli meats having a juicy flavor and carved offthe-roast taste, Lopez says. To that end, the company is introducing Oscar Mayer Carving Board Meats, made from high-quality cuts of meat that are slow roasted. After roasting, the meats are sliced into thick pieces, packed and sealed. Four varieties are being featured: oven-roasted turkey breast, slow-cooked ham, slow-roasted roast beef and rotisserie-seasoned chicken breast. Each contains one gram of fat and 60 calories. The goal of the new products is to save consumers time and money.

Looking to 2011
Lopez says Oscar Mayer continues to listen to what consumers want and will meet the demand for highquality deli meats. Lopez says the company’s “Brown Bag Barometer” found two-thirds of brown-baggers cite affordability and convenience as the most important factors in choosing deli meats for their lunches. The most popular brown-bag contents are sandwiches, particularly deli items, followed by leftovers, frozen “heat-and-eat” items and gourmet creations.

Lopez says Oscar Mayer currently features 18 deli-inspired meat and poultry varieties, including new turkey pastrami, honey ham and oven-roasted turkey breast, available in familysize packs. He says Oscar Mayer Deli Fresh meats continue to be popular and are the primary growth drivers of the pre-packaged deli meat category. The deli-fresh shaved family-size packs include meats with nine servings per package.

Bill Patterson, senior marketing analyst with Mintel, says he is seeing a struggle between deli products and pre-packaged meats this year and into 2011.

“As we went into the recession, we saw growth in deli sales and packaged meats. The packaged deli-meat market, in particular, did well during the recession. But in my view, it wasn’t going to be sustained. Growth only goes so far, before setting back into a normal pattern, especially as we’re getting to the end of 2010,” Patterson said.

He adds that during the course of the recession, the consumer has been turned into a “value buyer.” “That doesn’t necessarily mean a ‘cheap’ buyer,” Patterson clarifies. “If consumers understand why they’re paying more for something, or are educated about it, then they will make the jump into the premium product. This is certainly true of the value buyer and the deli business,” he says.

Mintel’s Patterson believes the deli counter excels at educating consumers, probably more than any other area of the store. “How can you beat what they do?” Patterson asks with a laugh. “They offer the customers free slices. People waiting for service in front of the deli counter can taste meat, cheese. And then they ask you, ‘How thick or thin do you want it?’ Most delis have gotten this message, some sooner than others, but they all have gotten it by now – give the consumer a sample, ask how they want the products cut – that’s why you see so many people in the store standing in front of the deli counter waiting to be served.”

Times have changed. Before the recession, Patterson says, the big issue in the deli world was packaging, more than consumer sampling. “Two or three years ago, the issue was packaging. The major concern in the industry was deli vs. pre-pack. But delis had already made the move into pre-pack,” he says. “But that was then and this is now.” Patterson says two major things are happening now. “When the recession hit, grocery retailers were going along with private labeling. But with the onset of this major recession in a big way, private labeling began to grow enormously. And it will continue to grow because the consumer doesn’t see buying private-label products as necessarily a step-down. There are really good private-label products out now, especially deli products, and consumers are very satisfied with them. There are also really good branded, quality products out now, as well.”

So, Patterson asks how will these two developments interact? What will happen as recession ends? “Will consumers go back en masse to brands?” he adds. “Some will, but many will stay with private-label deli products.” That’s because he believes there is less concern about buying brandname products, especially in the deli world. “If consumers are buying packaged meats, they know pretty much what they’re getting,” he says. “But if the retailer is trying to energize the consumer, and is promoting their own [private-label] brand, they’re actually sending a stronger message. ‘This is not just a branded cheddar, but our own locally branded aged cheddar.’”

“The main point is, consider the customer is already is engaged with private-labeling, or store brands, in many types of products, including, but not limited to, food. If stores can translate that involvement with private-labeling or store brands to the deli center, they engage their customers even more.” “The second part of this, though, is there will be a pickup in interest, and in purchasing of premium products as consumer confidence returns and the recession retreats. In the supermarket and in the deli, there will be more interest in premium products, because when bad economic times end, people always want to move up. But after what we’re going through, some caution will remain. Consumption of private-label products will also continue.”

According to Symphony IRI Group, a Chicago-based market research firm, for the past year ending Oct. 3, lunch-meat sales, not including Wal-Mart, club stores or convenience stores, by vendor totaled $3,537,939,000, an increase of 0.70 percent over a year ago. Non-sliced lunch meat totaled $163,569,600, a 2.29 percent increase. For non-sliced lunch meats, during the past year up to Oct. 3, vendors rankings were led by private labels, followed by:

• Private-label
• Sara Lee Food & Beverage
• Boar’s Head
• John Morrell & Co.
• Con Agra Foods
• Kraft Foods
• Johnsonville Foods
• Jennie-O Turkey Store
• Bridgford Foods
• Neese’s Sausage Sliced lunch meat by vendors totaled $3,374,370,000, an increase of 0.63 percent over a year ago.

Rankings, for this category were:
• Kraft Foods
• Private label
• Sara Lee
• Land O’Frost
• Carl Buddig
• Bar-S Foods
• Armour Eckrich
• Hormel/ John Morrell
• Greenwood Packing

Top rankings for sliced lunch meat were:
• Oscar Mayer
• Private label
• Oscar Mayer Deli Fresh
• Hillshire Farm
• Land O’ Frost Premium
• Bar-S Foods
• Buddig
• Sara Lee
• Hormel
• Louis Rich

Bernard Shire is M&P’s Washington correspondent, contributing editor and feature writer based in Lancaster, Pa. He also works as a food safety consultant and writer for Shire & Associates LLC.

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