Jim Prevor
With Aldi the fastest-growing food retailer in America, and Lidl about to burst across the American scene, the deep discounters will be attracting the lion’s share of attention for some time. Walmart is already responding with numerous efforts to regain its once-certain status as the low-price leader and, in general, one can expect three certain things:
- There will be enormous pressure on manufacturers to cut margins, cut costs and reduce prices, as retail concepts of all sorts look to compete with the deep discounters and try to do it at the expense of vendors rather than at their own expense.
- The service deli will be under enormous pressure, with retailers seeking to compete with deep discounters — including Walmart. Labor costs are escalating with demands for higher minimum wages, and labor markets are tightening, as unskilled immigrants feel more hesitant to enter the country.
- In contrast, the service deli will become the most emphasized aspect of those retailers looking to differentiate themselves from the deep discounters. The drivers of low cost are clear; it’s all about less labor and less assortment. As retail stores become more like restaurants with more service and more assortment, especially more cooking, they attract a different clientele.
Since the launch of the Walmart supercenter, there has been an internal debate in Bentonville as to whether offering a service deli makes sense for the company’s supercenter concept. Operating service delis in each supercenter has always been a problematic proposition for Walmart, because its push was to drive expenses out of the system, and service delis added costs and complexity to the operation.
Yet, for the past three decades, Walmart executives have decided to keep the service deli. The internal argument has been that there are precious few opportunities for customers to interact with staff. The service deli thus serves a larger purpose — humanizing the operation and creating the opportunity for regular interaction and even relationship-building between staff and clientele.
We will see if this value is viewed as sufficient to sustain Walmart service model. It would not be surprising if the need to drive costs out in order to be competitive with Aldi and Lidl was so great that even long-settled expenses — such as the utility of maintaining a service deli — was to be abandoned.
And not just at Walmart. Many deli operations that primarily sell sliced meats and cheeses will also see the service component as more expense than benefit, and after service delis grew across the country, one can expect many stores focused on price to abandon the proposition that service is a necessary offer.
In truth, the quality of the available self-service offer has improved so substantially that the vast majority of customers can be satisfied with the food quality.
American retailing will diverge, with one-half focused on price and another focusing on experience. One industry, divided forever, in twain.
Not everyone, of course. Some foods — say a rare roast beef — just aren’t available from manufacturers in a pre-sliced package. And sometimes it is cultural. This author, from a Jewish family, growing up in New York, spent his formative years on shopper visits with Mom declaring the thickness of the slice of meat or cheese. The memories of buying deli mustard and scallion cream cheese and a baker’s dozen bagels with the New York newspapers on Sunday — well they will always mean something special. But most of the country has not known this kind of nostalgia.
Yet all is not lost… Those stores looking to position themselves as a step up from the mainstream will invest heavily in service. They will offer more ethnic foods, focus on regional cuisines, and bring in more chefs to cook on site as a form of “eatertainment.”
They will chop and dice and feature lots of “islands” with different cuisines. They will integrate more with great breads from the bakery and help the meat and seafood department to prepare a lot more items.
So American retailing will diverge, with one-half focused on price and another focusing on experience. One industry, divided forever, in twain.
Deli industry icon Jim Prevor, who founded Deli Business magazine in 1996, died Nov. 7, 2022. To honor his legacy as a maverick thought-leader, this space spotlights the best of Jim’s column, which garnered more than 200 awards in business journalism.
