Pack Size and Distribution Matter
The trends and opportunity is obvious: walk into any grocery store, regardless of natural or mass retail, and you’re overwhelmed by fresh smells permeating from the hot deli bar sections. What once upon a time was simply a destination for pints of macaroni salad or the occasional hot sandwich, the hot deli department has emerged into a significant revenue stream for grocery banners, making the consumer experience less about filling their carts and more about filling their stomachs. I find myself having lunch at Whole Foods on a regular basis, and my wife and I find a local specialty grocery a mainstay for the nights we don’t want to cook (and in this case, our options are not limited to a rotisserie chicken).
The trend isn’t just anecdotal: in Technomic’s “2015 Retailer Meal Solutions Consumer Trend Report” (information can be found here), consumers, in particular millennials, purchased “retailer meal” solutions with greater frequency in 2015 than they did in 2012 (a major jump, actually). Innovation and a stronger in-store experience are contributing to this, as are culinary options that align with restaurant-quality trends.
So how does the entrepreneurial CPG take advantage of this hot opportunity (with apologies on the pun)? Is your item packed into a 10-ounce box and placed on a retail shelf something that every hot deli should include either as an ingredient or perhaps as a center of the plate item? It’s very possible, but given application and usage, there are significant differences in the way your item would find itself from a retail shelf or freezer to the hot bar. Moreover, it’s a different sales process, sometimes requiring a different broker strategy (if a broker is needed at all) and an entirely different buying group. Nonetheless, the volume can be incredible (albeit erratic at times) with margins that are equally enticing.
Steps to Pursue the Hot Deli Category
Below are considerations for attacking this opportunity. As is the theme throughout my posts, having a strong plan (marketing, operational and sales), business rationale and the ability to appropriately support your sales efforts should always be at the forefront – your sales initiatives should not be half-baked! If these criteria are in place, read on!
- Application: how and why would a chef use your item? It’s likely best to review this through the lens of using your item as an ingredient (or component) in a dish – or conversely, how somebody coming into the store for a meal would enjoy (consume) your product. On a related point, what’s the fit for the category? Are you selling a specialty sauce that can be used as a marinade, or rather a snack item that would need to be pre-portioned and packaged (all of this has considerations for pack size – more below).
- Pack Size and Format: this channel begins bumping up against foodservice in terms of packaging (and distribution – again, more below). Generally speaking, most food items that find their way to an industrial or restaurant-type environment are bulk-packed (with my old company, all foodservice items, many of which were available in retail formats, were packed into ten pound bulk cases). This makes usage in the kitchen more efficient, while reducing packaging (and cost). Do you (or your co-packer) have the ability to bulk-pack?
- Portion Cost: application and pack-size are two dependencies for cost (both yours and what you plan to sell your item for – which translates to the kitchen’s “food cost”). This is a profitable category for many retailers and food cost becomes an important variable when the retailer prices their meals (pricing can be everything from per pound for hot/cold deli or per piece when thinking about a sandwich, for example). Work through how many portions you think a chef would yield from each case of your product, and what the associated cost to them would be – is this cost realistic?
- Speaking of cost, note that your current retail item will carry a different cost if packed into a bulk case (likely different packaging costs). Moreover, in most cases a bulk case is easier for you or your manufacturer to pack, so you should realize a lower cost (per pound or unit) for manufacturing.
- Sales Plan: once you have identified the retail banners you’re going to target, how will you get your item in front of their deli decision makers? Does your current retail broker call on this category, or is a foodservice broker required? Alternatively, do you have a strong enough relationship with your current (retail) buyer that they could connect you with the deli department directly? Of note: there are still a handful of chains that outsource much of this decision making and food preparation to independent third parties. In some cases under this scenario, any relationships or goodwill that you’ve garnered on the retail side might not translate.
- Sales and Marketing: once you’ve established how you’re going to get in front of the appropriate decision maker, you’ll need to give thought as to how you’re going to get their attention. Like with all sales pitches, you’ve got to have a “hook” or rationale as to why they should include your item in a recipe or utilize it as an ingredient. Put your best chef’s hat on and think about this from their culinary perspective:
- Are you offering something that’s on-trend from a culinary perspective, either through retail performance or on restaurant menus ?
- Are you of better quality than the competition (think about organic or non GMO as well)?
- Pricing considerations – do you provide a cost advantage relative to other available alternatives?
- Are you solving a problem for the chef – for example, “rather than spending hours chopping or dicing a particular vegetable, use our pre-diced instead.”
- Distribution and Minimums: you’ll need to understand how the product will get to the people making the food. In some cases, this could involve an alternative distributor or direct shipment to a centralized warehouse or commissary. Do not be surprised if your path to the retailer is different than selling your retail item for shelf placement. As with all shipping related issues, understand the minimum purchases involved and by extension, the minimum your co-packer will hold you to (if any) for the change in pack size (in the event they need to adjust how they pack-out the product and if equipment or personnel changes are required). Like with every sales opportunity, pursuing this channel is just a matter of mapping out the steps involved and having a plan of attack. The buying process can also be a little different: be prepared for a chef to play with your item for quality, performance and flavor. And be forewarned, chefs can be a very “interesting” group to sell to, with high opinions that they are not afraid to put forward.
Other Best Practices
There are a few other best practices to consider in this pursuit:
- Don’t be afraid to pursue retailers where you don’t have an existing retail relationship: if your item is performing well in one banner’s deli, or there are retailers with delis that you think might be a fit, go ahead and pursue. In my experience, the buying groups are distinct and having retail placement hasn’t been a requirement for authorization in the deli department. If anything, it could be a way to work the retail opportunity in a reverse manner, allowing you to contact the retail buyer on the back of any success on the deli side.
- If this is your first foray into a bulk/foodservice pack, I would recommend working closely with your co-packer in designing the best pack configuration to align with their production processes and material sourcing. For example, if they have a standard foodservice box that they use for other items/brands, start with that, thus avoiding one more box for you to source and inventory (thus subjecting yourself to more minimums and cash outlay). If the item performs well and it looks as though the opportunity will be one that remains, you can always adjust down the road.
- When presenting to the buyer, consider presenting your item already incorporated into a recipe (if appropriate) with a live sample, showcasing it the way their chef or cooks would prepare for their consumers. Don’t get too complicated or cute, but have something that tastes good, is on trend, and highlights your item. Plus, you’re doing the work for them of creating new recipes and concepts.
If you’re a grab and go item such as a snack (like chips, for example), your process is likely more simple, provided your portion size is ideal for individual consumption. In this case, you’re likely going to spend time ensuring the case-pack works for foodservice application, and your pricing works for the retailer. Issues related to sales and distribution noted above would still likely apply, with particular focus on your sales pitch and rationale for inclusion required – this will likely be a more competitive process than selling as an ingredient, given the attention to brand and consumer placement.
As I touched on above, should this endeavor be successful for you and your company (and success can be defined as simply achieving a single placement – a very solid start), it could set forth an entry point into foodservice for your company. I’ll elaborate more on foodservice trends, rules of the road, etc. in subsequent posts, but the nice thing about this channel is you’re continuing to sell through a channel that has familiarity to you and your brand, but begins changing your pack-size and related operational needs to start chasing other foodservice opportunities (i.e. schools, hospitals, commissaries, etc.). More to follow!
A Brief Anecdote
Two brief anecdotes – actually. Several years ago I met with one of the chefs from a region of Whole Foods at Expo West. I didn’t think much of the conversation as it was brief, but I did the standard sales pitch with the frozen item we were featuring. She sampled the item and moved on. Randomly three months later, I received a follow-up phone call from her asking if we had a foodservice (bulk) option on the item she sampled – we did. Less than two months later, consumers were enjoying our item in the hot deli section. The business was solid (both size and profit) but sporadic, – but importantly, it validated an opportunity that we had up to that point not known existed.
I wish I had more stories like that – most of our other successes in the hot deli section came in a slower, methodical manner. My second anecdote involves flying to Charlotte (banner unnamed), meeting with their third party commissary (group that makes all of their hot deli items which are delivered daily to the stores) and being told that consumers in his market would never buy our item (event though we sold very well on the retail shelf). Unfortunately, chefs can be highly opinionated! We tried several times and continually struck out.
If after reading the above you are enticed to pursue, I would recommend these simple steps to evaluate if your current retail items are a fit for the hot deli section. The below questions set forth an initial “stage gate” (criteria) from which to move to the next step in evaluating the sales path.
- Think through application: is your item an ingredient, a grab-and-go item, other?
- Do some quick math: what would your portion cost look to the grocery chain? Keep in mind your distributor margins are likely lower and the upcharge on the banner lower as well. Don’t forget that your costs will change as well.
- Is an operational structure in place for you to pursue this channel without significantly disrupting your current retail initiatives? Can your co-packer (or you) make a bulk packed (foodservice) alternative?
If you’re interested in learning more about this channel, there’s an industry group worth checking out: the International Dairy Deli Bakery Association. Information can be found here, and they feature an annual tradeshow. I only attended once, and while the experience was positive (we picked up business), it wasn’t cheap.