With schedules zooming around like crazy, families continue to take advantage of premade meals sold at grocery stores. The trend is not losing any gas, and grocery stores are capitalizing.
According to the 2023 Supermarket News Fresh Food Trends Survey, 65% of respondents said they will increase their assortment of prepared foods over the next 12 months. Additionally, when asked how much space they plan to devote to each perimeter department in the coming year, 46% said they plan to commit more space to prepared foods.
“The demand for fast meal solutions is very high,” said Jennifer Bartashus, senior analyst, Retail Staples and Packaged Food, for Bloomberg Intelligence. “So we see sustained demand for prepared foods going forward because they help meet that need for convenience, but also help satisfy the feeling like you are actually preparing something.
The past 12 months were tougher for food retailers than the previous year, with nearly one in five reporting a decrease in sales for perimeter categories (compared with only 4% reporting a decrease in the prior year). However, operators are just as optimistic going into next year as they were during last year’s survey (65% expecting increases over the next 12 months, compared with 66% in the prior year’s survey).
Fresh sales continue to be a driver for most supermarkets, with 60% of survey respondents saying perimeter sales increased over the last 12 months (just 22% said they remained the same vs. 2022.)
However, that figure is down overall from last year’s survey, where some 70% of respondents reported higher sales from the perimeter in 2022. While last year’s survey indicated that flat sales were the common outcome for retailers unable to grow revenues, this year’s responses showed more risk for the downside case.
Notably, 18% of respondents who indicated there was a decrease in perimeter sales in the past year represented a significant rise from the 4% of people who said the same thing in the prior year’s survey.
Respondents were also about as likely to say in 2023 as they were in 2022 that perimeter-category sales were holding steady: 22% said so in the most recent survey, compared with 26% a year earlier.
Among the respondents who grew perimeter-category sales in the past year, nearly three-in-10 people said those increases fell in a range between 7% and 9%. Another four-in-10 respondents reported sales increases in neighboring ranges of either 4% to 6% or, on the upside, 10% to 12%. Collectively, that means approximately two-thirds of reported sales increases ranged from mid-single-digit to low-double-digit percentages.
When asked what respondents saw as the biggest factor behind the change in sales this year, the feedback varied:
“Guests feel safer shopping for ready meals and lunch items out of our deli, market, produce, bakery and butcher block, rather than spending high prices at fast-food locations and restaurants. I feel guests have learned to shop at grocery stores more than eating out, and since the pandemic have learned to cook at home and eat together as a family.”
“Products that provided [the] most increases were enhanced, with more items being offered in those products. Special sales, BOGO, specific days of week slower-moving products were offered as ’limited specials’ for those days, such as Sunday, Monday and Tuesday.”
“Additional government assistance during the pandemic has been reduced. When budget watching wasn’t an issue, customers spent more with less concern about cost. Then as prices increased and additional funding decreased, so did sales trends. Now customers are back to watching their budget and are more fearful of not getting by, therefore spending less because they have less to spend.”
“Many of our urban-based customers have had their allowable benefits lessened, and inflation has impacted the quantity of items purchased.”
Most respondents who expect sales increases along their perimeters in the coming year are projecting mid-single-digit to low-double-digit percentage gains, similar to performance in the past 12 months. Among the few respondents who think perimeter sales would likely fall this year, most foresee only small decreases of 1% to 3%.
Respondents had this to say about what they thought would be the biggest factor behind a change in sales in the year ahead:
- “Continued shift of consumer taste towards fresh, less-processed food items.”
- “Focusing in on smarter purchasing and adjusting retails to be more competitive.”
- “Customers will begin to spend more as they become more comfortable, or used to, current market trends.”
Bloomberg Intelligence’s Jennifer Bartashus also sees strength in the next year when it comes to perimeter sales, and one of the reasons is because those sales remain key to a grocer’s overall strategy.
“We’ve seen retailers like Kroger and Albertsons and others emphasize their strategies around the fresh parts of the store … that it is a genuine traffic driver to bring customers in more consistently.
“There’s been a shift in consumer behavior where people are tending to favor those fresh categories, so the demand in perimeter is going to remain strong,” she added.
“The fresh perimeter continues to be a growth area for independent grocers,” said Laura Strange, SVP of communications and external affairs for the National Grocers Association. “Demand for healthier, fresh and less processed foods is driving sales of produce and fresh proteins, which independent retailers often procure through their relationships with local suppliers.”
In addition to the 65% of respondents who said they plan to grow their prepared foods assortment, respondents said they also plan on increasing the assortment of produce (50%), deli (45%), bakery (40%), meat/seafood (37%), cheese (33%) and floral (29%) in 2023.
Dairy (69%) is not expected to experience any change in terms of how it is assorted around the perimeter, and grocers also are not making meat/seafood a priority. In fact, 12% said the category will experience a decline when it comes to assortment.
In terms of perimeter space, 48% of respondents said they increased the amount devoted to prepared foods in 2022, and that number was down slightly (46%) in 2023. Grocers also expanded space for their produce sections (34% plan to increase), as well as bakery (23%) and deli (23%) this year. When it comes to meat/seafood, 78% of respondents say they plan to keep their offerings the same, with similar projections for cheese (79%) and dairy (79%). Floral is the one department where respondents plan to decrease space (12%) over the next year.
Deli/prepared foods (30%), produce (30%) and meat (24%) were considered by survey responders as their “signature departments.”
When asked what their customers likely valued most when they shopped along the perimeter, 38% of respondents said quality and freshness, significantly ahead of the runner-up choices, cost (22%) and convenience (15%).
To meet customers’ needs for convenience, nearly two-thirds of all respondents offered some sort of digital-ordering solution. Nearly half (48%) said their operation offers online ordering and curbside pickup. Among those offering grocery delivery, 37% fulfilled their orders with third parties like DoorDash or Shipt, while 23% managed their own online ordering and delivery services.
With inflation kicking into high gear in 2022, sales margins took a heavy hit. Across all eight perimeter categories in this study (prepared foods, produce, deli, floral, bakery, cheese, meat/seafood, dairy), fewer respondents reported sales margin expansion than they did in last year’s survey.
One in three survey respondents (34%) said that margins shrank for meat and seafood, followed closely by 30% who said the same for dairy. Margins had performed much better in 2022’s survey, when between 40% and 50% of respondents had indicated sales margin growth for each category.
In 2023’s study, only prepared foods came close to that level, with 38% of respondents noting an increase in margins and another 40% saying margins had held steady. By comparison, nearly half (49%) of respondents had expanded their profit margins for prepared foods in the prior-year survey. That 11% drop was the smallest year-over-year decrease, followed by an 18% year-over-year decrease for bakery (44% of operators noting an increase in 2022’s study versus 26% this year) and a 19% decline for cheese (43% in 2022 versus 24% this year.)
Retailers had more control over prepared food margins. There, 78% of respondents said the margins either increased (38%) or remained the same (40%) with only 22% noting a decrease in margins. The year prior was just a tad better in prepared foods, with 49% marking an increase in margins. Bakery (44% increase in 2021 vs. 26% in 2022) and cheese (43% vs. 24%) were the next two in line in terms of moderate loss in margins between 2021 and 2022.
Food cost inflation was another challenge for retailers (14%), while others saw challenges via competition from other retailers (11%), retaining employees (10%) and labor cost inflation (10%).
What’s the other guy doing?
Supermarket leaders saw larger brick and mortar grocers as their biggest source of competition in this year’s survey. Big-box retailers like Walmart and Target were worrisome for 47% of respondents, followed by club stores (42%).
Over one in five (22%) of respondents listed online retailers as a competitive threat for perimeter sales, just ahead of the 16% who said they saw convenience stores and natural/organic stores as a threat, followed by 15% who were concerned about dollar stores moving in on grocery.
Some 71% of respondents said they saw “price” as the advantage their competitors have, a 20% increase compared to last year. Convenience (37%) and location (23%) also were noted as competitive edges.
Turning to competition specifically for prepared food and prepared beverages, fast-casual restaurants (cited by 41% of respondents), quick-service restaurants (35%), club stores (31%), and more cooking at home (31%) were the biggest threats. Respondents also indicated price (46%) was the top advantage the comp set had over supermarkets, along with convenience (45%). Location came in next with 22% of respondents choosing it.
Sixty-one percent of respondents said they offer grab-and-go cases for prepared food and prepared beverage offerings — a 16% drop from a year ago. Slightly more than half (52%) of operators offer a deli, which is a 25% drop from 2022. A self-service hot bar/soup station (31%) and self-service cold bar/salad bar (30%) were other top prepared offerings. In addition, 24% said they have a full-service coffee shop and another 19% said their store comes with a self-service coffee bar/beverage dispensers.
When asked which prepared food and beverage offerings or stations they might add in the coming year, nearly half (46%) of respondents said they would not add any in the coming months. This was actually an improvement from the 57% of respondents who chose “none of the above” to the same question a year earlier. Grab-and-go cold cases (identified by 26% of respondents) and a deli counter (18%) were the top two potential additions among people who took this year’s survey.
So what have grocers been doing to put their best foot forward against rivals? Promotions and specials (cited by 50% of respondents) and grab-and-go offerings (46%) are two of the most powerful in the arsenal. Loyalty or frequent-buyer promotions (36%), more space for prepared food and beverages (28%), cleaner ingredient lists (26%), specialty selections like gluten-free and organic (21%), globally inspired recipes (21%), home delivery (21%), and click-and-collect, order ahead capabilities (20%) rounded out the options.
“I think supermarkets … they have a great pulse on what consumers are buying across the rest of the store,” remarked Bartashus. “Big-box retailers are great, but I think supermarkets have a good sense of, ’are people trending towards certain flavor profiles or certain types of cuisine that they can detect through their POS data?’”
Laboring over labor
If supermarkets are going to be more in tune with customers, it will not be because more workers are canvassing the floor. Labor continues to be a challenge. When managers were asked which service-focused employees they employ, all eight categories were down compared to 2022. Fresh deli staff (51%) and meat butchers (44%) are still out there serving the customer, but the presence is light for seafood expert/fishmonger (27%), produce butcher (26%), trained chef (25%), scratch baker (23%), floral (22%), and cheesemonger (20%).
Attracting and retaining qualified employees continues to be the top challenge of the perimeter, noted by 32%—the same percent as last year.
Overall, the fresh perimeter area for grocers continues to produce solid sales, and managers are capitalizing on the trend of grab-and-go meals. Labor, however, continues to be a troubling point and respondents said they have reduced the number of dedicated employees in certain areas of the perimeter.
Respondents perceive their competition coming from big-box stores, with those surveyed saying they’re trying a number of tactics to compete and grab more shoppers. Price is still a sticking point, as is convenience.