The Next Battleground?

August 1, 2005
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The Next Battleground?
By Shonda Talerico Dudlicek
Premium cheeses help deli departments compete for consumers’ tastes.
Consumers say they’re eating out more, but the truth is, they’re buying their meals out and bringing them back home, from the deli and other outlets.
According to the National Restaurant Association, the average household spends $2,276 on food away from home, or $910 per person. Takeout and delivery accounts for about 58 percent of total restaurant traffic. And the restaurant share of the food dollar today is 46.4 percent, compared with only 25 percent in 1955.
Consumers are eating prepared meals not only because they’re time starved, but they’re eager to try new flavors and intriguing combinations.
With their expanded offerings for home-replacement meals, retailers with deli departments are poised to tap into this burgeoning market to become a destination for dinner and other mealtimes. As consumers become more sophisticated in their expectations for premium deli products, cheese processors — along with deli departments — are offering products in those same flavors and varieties found at eateries.
With increased competition from all channels — including restaurants, grocers, superstores and local delis — retailers with deli departments are searching for a way to differentiate themselves, says Ed Mackowiak, vice president of sales and marketing for FreshLook Marketing, Hoffman Estates, Ill. “The prepared deli is the next battleground and that’s where you’ll sell.”
What retailers are selling through the deli is a wide selection tailored to their customers, Mackowiak says. “The deli is important for a couple of different reasons. Number one, there are more and better offerings. And there has been an explosion of new, different and unique items. Between flavors and health attributes, there’s been an explosion of possibilities,” he says. “Number two, consumers are getting smarter about what they want. They’re beginning to look for more unique or those items that have health benefits.”
Most deli product consumers visit the deli at least three times a week, according to the International Dairy-Deli-Bakery Association, Madison, Wis. They’re short on time and prefer the convenience of the deli, hail from another part of the world, are between 40 and 59, are overweight and shop for food in places other than a traditional supermarket, according to IDDBA research.
These deli shoppers are also baby boomers who prefer robust-flavored and cheeses, says Alan Hiebert, an IDDBA education researcher who helped compile “What’s In Store,” the industry group’s annual report. “For several years now, consumers have been looking for as much flavor as they can get, and I don’t see that trend slowing any time soon. As the U.S. population continues to age, it is finding its tastebuds duller than they used to be,” he says. “Flavored cheeses like pepper jack and dill havarti should continue to be popular, as should aged cheeses like cheddars aged for more than a year.”
Cheese processors have responded with a variety of premium deli products designed to satisfy consumer demands for convenience and functionality. “Consumers are demanding convenient packaging of all products, especially in light of how many meals Americans eat in their cars these days,” Hiebert says.
Sandwich fixings — cheese and lunchmeat — are among the top three most-popular items sold in the deli, according to the IDDBA. And natural cheese outsells processed cheese, a trend that describes the product mix of Tillamook County Creamery Association.
“There are now more sliced natural cheese choices in a category previously dominated by processed cheese,” says Kathy Holstad, marketing director at the Tillamook, Ore.-based processor. “We have a variety of 12-ounce sliced stack packs available at the deli case, in varieties including Medium and Sharp Cheddar, Pepper Jack and Swiss, as well as our newest items, Colby Jack and Monterey Jack. Full-flavored cheeses seem to be most popular, such as Pepper Jack and Sharp Cheddar. Colby Jack, another popular variety for Tillamook, is more mild but is still robust in flavor. Our cheddar is naturally aged and still made using the nearly 100-year-old recipe, and all the Tillamook natural cheeses have a full flavor.”
Deli cheese is appealing to consumers, Mackowiak says. “There’s a perception that the product is higher quality and fresher. So if you see it cut off the wheel of cheese, there’s this idea that it is fresher and is a higher quality,” he says.
The convenience of exact-weight cheeses that consumers can grab and go are bringing more shoppers into the deli, says Lance Chambers, category business director and general manager of Kraft Foods’ Churny brand. “Packaging has also changed with consumer-friendly deli slice features such as recloseable packages and attractive packaging graphics,” Chambers says. “Many retailers are looking to producers to provide exciting flavors and enhanced convenience.”
Kraft’s Churny Cheese relaunched its Hoffman’s exact-weight deli slices in Asiago Fresh and Vermont Cheddar with new front label graphics and full-color backer-boards featuring serving suggestions. Hoffman’s 8-ounce slice packages feature 10 slices, with an inner leaf separating each slice and an easy-open, recloseable package to maintain freshness. Kraft’s 18 Hoffman and two DiGiorno deli slice SKUs respond to “consumer demands for flavor adventures as well as their desire to take their favorite restaurant tastes home,” Chambers says.
“Consumers are constantly looking for their favorite deli tastes in a more convenient package,” Chambers says. “Consumers are looking for quality, freshness and a bit of a treasure hunt of new flavors when they shop the deli.”
Brand identification has become more important on premium deli products as consumers look for their favorite brands. “The brand identification in the deli has grown tremendously over the past 10 years, maybe more,” Mackowiak says. “Vendors are very interested in creating a brand identity for themselves and not just be another [product]. And deli retailers have recognized that American consumers are brand conscious and by offering them brands that they identify with, whatever those qualities might be, that they can satisfy their consumers.”
One way a company can break into new markets is by introducing its products through the deli case. Tillamook’s strategy for entering new markets is to offer its products through the deli. “In the East, you’ll mostly find us in the deli,” Jim McMullen, Tillamook’s president and chief executive officer, told Dairy Field in July 2003. “Our strategy is to go into the deli first. It’s more cost-effective. It helps give an introduction to our product. A lot of our strategy, too, is based on the mergers and acquisitions of the retail grocery industry.”
But, Hiebert adds, quality private label deli products are a great way for a chain to define itself, compete with premium national brands and increase customer loyalty.
“Many consumers want higher-quality deli meats and cheeses, but there always will be consumers who do not want to pay a higher price for higher quality,” he says. “Providing the right product balance can be a tricky proposition. Manufacturers can choose the quality level they wish their brands to deliver and hang their hats on that quality level. Retailers, on the other hand, often have a wide range of demographic groups shopping their stores, so they have to offer a wider range of brands to please their diverse customer bases. Of course, many chains have defined themselves as upscale/gourmet and carry only higher-quality deli products. Those chains have consciously chosen not to be attractive to certain demographic groups with an eye toward serving their chosen demographics even better.”
Mackowiak expects the deli will be the area of largest growth for the foreseeable future. “I think retailers are uniquely qualified to offer this solution to consumers and that the prepared deli items and take-home meals are a higher margin,” he says, “so it’s a perfect opportunity for the retailer to maintain or grow profits, to differentiate themselves from other stores and channels and also to provide consumers with what they really want, which is prepared or completely prepared foods.”
Ethnic offerings in both meat and cheese are expected to become a stronger presence in the deli case, Hiebert says. With cheese a staple in protein-rich diets and Hispanic and Mediterranean households, consumers are eager to sample all the varieties.
“Hispanic foods like chorizo and the myriad Hispanic cheeses that are fast gaining popularity will be mainstream before we know it,” Hiebert says. “For now, because they are novel and ethnic, they can command a place among premium products. We’ll see if they remain premium by definition as they become more widely available.”
Hiebert forecasts three trends in premium deli products as the use of private label to maintain customer loyalty: stronger flavors like aged and flavored cheeses, exotic imported items, and convenient products and packaging. “If people can eat a product in the car with one hand,” he says, “that product has passed the first test.”  
Shonda Talerico Dudlicek is a freelance journalist and a former managing editor of Dairy Field.

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