According to new research from Roy Morgan, the delicatessen market is heating up.
Aussies are buying more at delis than ever before. In the year up to the end of March, average national weekly spending at delis was $91 million, up from $73 million four years ago. That’s a 25% jump. But in the same time, the number of Aussies shopping at delis each week only went from 6.4 million to 6.7 million. That’s not quite a 5% bump. So people are spending more, but the market isn’t growing.
Coles [ASX:WES] and Woolworths [ASX:WOW] are fighting for market share. Between them, they’ve got most of the market. Woolworths has slightly more, at 43%. But Coles is catching up, with 36.7%. They’re followed by IGA (12.5%) and independent delis, such as gourmet stores, at 8.1%.
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This could reflect the emphasis that the big two supermarkets have put on revamping their delis. Lots of Woolies and Coles stores have focused on the delicatessen area when renovating stores or building new stores. This gorgeous counter isn’t in an expensive gourmet store, but rather in Coles Southland, in Victoria.
Source: Landini Associates
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And Woolworths Double Bay, which opened in June last year, has its own cheese room.
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Personally, I can certainly imagine spending at least 20% extra at my local deli if the cheese were displayed like that, and not stacked in pre-wrapped blocks. But I digress.
Why does it matter?
First, it matters because delis are mostly the domain of Coles and Woolies. Some nicer IGAs have delis, but not all of them. Aldi — and soon, maybe Lidl — don’t have deli counters. This means discount supermarkets aren’t a threat to the big two, the way they are in other categories such as dry goods. Andrew Price, GM of consumer products at Roy Morgan, said that ‘The deli is also a vital battleground for Coles and Woolworths as it’s an arena where no-frills discount players like Aldi (and soon Lidl)—with minimal staff and no deli counter—don’t compete in the same way.’
So for Aussie investors, deli sales are a bigger deal than competition in any other category.
Second, there’s the fact that deli items are some of the highest margin items a store can offer. The same holds true even when you factor in the extra cost, such as dedicated deli staff and wastage.
There are several factors throughout the supply chain that make deli products more profitable. For example, bulk deli products may require less processing, or at least fewer individual processes. It takes a lot fewer resources to get a kilo of ham on the bone to a store, compared to a kilo worth of pre-sliced 100g packets of ham. Deli food can also be packed in bulk at the supplier’s end. This reduces packaging costs. Because there’s less packaging per total weight, shipping is more efficient.
And because delis are considered a premium service, compared to just picking a packet off the shelf, many consumers are willing to pay more. Many delis also offer value-added services, such as catering platter preparation, which can add to the margins they make.
So improving deli market share by increasing competitiveness can have a great impact on a supermarket’s bottom line.
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Contributor, Money Morning