Preparing For the New Age of Deli

jim prevor

As we enter 2020, we face a bifurcating consumer experience regarding deli products at retail. On the one hand, we have the operators such as Wegmans or Whole Foods who see deli and the broader fresh foods and retail/foodservice space as differentiators. This is the area that, more than anything else, creates a reason to visit the store and that, more than any other area, can provide the profits that make the store viable. As more purchasing moves online, one can imagine the grocery sections of stores shrinking, replaced by pick-up lockers or delivery-sorting space—while the fresh foods and foodservice elements, often with more generous seating and more specific concepts, such as wine and cheese bars, represent the New Age retail experience. It is the vision of a high service future.

On the other hand, there is rapid growth and much innovation on the theme of minimal labor and small square-foot concepts. For years now, concepts such as Trader Joe’s and Aldi have been growing along these lines. Now Lidl, after a big acquisition in the New York metro area, is proceeding along similar lines, though with some efforts in service in the bakery. AmazonGo is, of course, designed to minimize labor, although political pressure has made them add staff to accept cash in some stores.

In all these cases at retail, there seems to be overwhelming economic pressure to reduce labor. Some of this is availability—it is hard to find people in many areas who want to work in grocery stores—but much of it is cost. Legal demands for higher minimum wages reverberate through the system and, even without legal requirements, many stores find they must raise wages to attract and retain staff. So automation is crucial, and that typically means less in-store service counters and more pre-packaged items.

The online movement adds, of course, to the percentage of deli products being sold in pre-packaged form. Although a lot of delivery is done right now through services such as Schlept and Instacart—where, almost always, the shopping is done in-store—it is obvious that as the online business scales up, efforts will be made to use cheaper non-retail real estate and automate shopping in central depots. Though old models, such as Webvan, didn’t work, they were probably just ahead of their time. So it is likely that these centralized packing and distribution points will depend on packaged fresh foods.

Delivery services and web ordering in general have been held back by the “last mile” problem—the high expensive of delivering to actual homes. Technology, however, is catching up. Drone delivery, robotic delivery vehicles and mobile apps that allow you to give delivery personnel access to drop packages off in your garage or behind your front door all promise to make delivery more convenient and cost effective.

So product development efforts will need to bifurcate, as well. One level in high demand will be for the freshest, most differentiating product. Things difficult to even put in a package are best. People will look for products that have less salt and preservatives. They will want their visit to the prepared foods section of the store to offer something that can’t be delivered in a package.

The vast majority of the market will be packaged foods that require no service at retail and can easily be slotted into mechanized delivery systems. There will be a range of prices, of course. But, at each level of quality, the competition will be intense and the demand for low margins, at every step in the supply chain, excruciating. A lot of the product, probably most of it, will be private label.

Big challenges ahead for the industry will include where the Research & Development budgets will come from to keep the industry growing with new and innovative products. Marketing will be an even bigger problem, as tight margins will not allow for promotional efforts needed to introduce new products and to build and retain demand.

Supermarkets will have to think much harder about how the triumph of private label shifts responsibility for R&D and marketing to retailers. Few retailers are prepared to step up and accept this responsibility.

The grocerant concept—crossing the traditional retail store with the restaurant—holds out a glimmer of hope. Can the industry leverage this foodservice approach, not just to sell food that day, but to create a kind of massive product sampling effort where consumers try innovative things and then look for them in packaged variants? And can we, as an industry, both create packaged variants of satisfactory quality and keep innovating in our store-offered fresh products to keep a differentiation from the packaged foods? It is a tall order. It is, also, the unavoidable future. Forewarned is forearmed.