Today’s store perimeter is emerging as one of the most important areas where shoppers find what they value most: freshness, convenience and differentiation. Dairy, deli, and bakery departments are becoming outsized trip drivers, traffic builders and some of the clearest expressions of a grocer’s brand identity.
Consumers are increasingly judging stores not by the newest cereal launch or seasonal packaged flavor, but by the strength of their prepared foods, protein-heavy dairy case, fresh breads, and meal options.
The categories that once quietly lined the outer walls of the supermarket are now central to a customer’s experience. And it’s likely to remain among the strongest drivers of grocery growth in the years ahead. Which is why we’re taking a deeper dive into how these departments are transforming for the future.
Dairy: Traditional No Longer
Regular milk is about as mature a segment as they come. But shoppers are getting back to basics in a big way. Growth is now in the Greek yogurts, skyr, cottage cheeses, and high-protein milks. Consumers are driving increases in healthy snacking, dips, and a host of cheese options. The reasoning behind this surge ranges from diet-based impacts of GLP1s – with satiety and protein being priorities – to performance, recovery, and gut health.
Last year a whopping 70 percent of consumers reported that they wanted to increase protein intake. Dairy was positioned well as it already provides nearly 20 percent of the protein for U.S. diets. It’s hard not to see the “protein-ization” of the dairy case. Protein everything, from yogurt to milk, ice cream, to the milk alternatives. The protein trend is strong and shows no signs of letting up.
The real question is whether consumers will become more demanding of the source of their proteins and whether “x grams of protein inside” becomes the minimum bar for entry to certain products.
Consumers are demanding functional foods – a topic we covered last month – which provide benefits beyond simple nutrition. Right now digestive gut-health and mood/ cognitive health trends are leading the trend.
Deli: Biggest Store Shift
Grocery deli sections in many stores are unrecognizable from the humble deli counter of a generation ago. The biggest shift we’re seeing is deli sections becoming in-store grocery restaurants with grab-and-go sections, ready-made food, and even sit-down areas for shoppers to eat in-store.
As the cost of fast-food and restaurant dining climbed to unaffordable levels last year, consumers from all walks of life began to try dining alternatives. Carry-out, grab-n-go, and prepared foods have skyrocketed in use and popularity.
In today’s overscheduled and overworked environment, consumers are exhausted. Prepared meals, sides, rotisserie, sandwiches, sushi, soups, charcuterie kits, and heat-and-eat meals solve that problem in a big way. Deli has become a foodservice war zone.
FMI reported late last year that more than 60 percent of shoppers want to see prepared food menus online, and would like to order in advance. Consumers want the ability to pay right when they pick up their food. In addition to wanting drive-thrus – just like a fast food restaurant – more than half of consumers say they want grocery delivery of prepared foods.
Northeast grocers like Wegmans, Stew Leonard’s and ShopRite’s Fresh To Table store-withing-a-store concept have had extensive grab-and-go options for years. Whole Foods’ salad bars and prepared foods helped the retailer differentiate itself from typical supermarkets from the beginning. Sitting areas, drink stations, and food made on the spot made many of these stores destinations versus their peers.
Now everyone wants in. We’re seeing this trend grow in ‘mushy-middle’ grocery stores, as they compete by expanding their own grab and go prepared foods.
Some of the best are going beyond mere salad-bars and hot food stations by creating uniquely branded mini-restaurant stores-within-stores. FMI reports that 38 percent of consumers surveyed found grocery-prepared deli foods offer the same value as restaurants. An amazing compliment, but an opportunity for even more growth.
Bakery: Two Different Mixes
There might not be a better example for the K-shaped economic bifurcation of consumer spending than the bakery. Split between consumers who are focused on everyday value and basics, and premium options with protein, diet, or allergen benefits – bakery is becoming a tale of two very different product mixes.
On the value and staples side we have sandwich breads, buns, rolls, and even tortillas. While on the premium end of the spectrum we are seeing artisan sourdoughs, desserts, celebration cakes, gluten-free, whole grain, and protein breads. Croissants are one of the biggest drivers of both unit and dollar growth in bakeries.
It’s also important to note that the value consumer and the premium consumer can be the same individual depending upon their situational needs. The shopper who needs cheap hot-dog buns or sandwich bread for their kids can be the same person who buys pricey artisan sourdough to try the latest Tik-Tok recipe.
During the Covid pandemic, consumers realized they liked homemade breads, but without the time to make them they are looking for easy alternatives. The pandemic home sourdough trend has created the market opportunity for artisanal breads and premium bakery products to expand with projections seeing growth in the space until 2030.
In addition to in-house production, external bakery partners are increasingly being looked at as a cost-effective way to innovate and ensure the “artisanal” is authentic. We’ve toured one of our vendor’s bakeries and let me tell you, a 30-year-old mother yeast for a sourdough – stored in multiple secure locations – is something that a typical grocery bakery will be hard-pressed to compete with.
Sell Solutions, Not Products
One of the things we’re hearing from our partners is that consumers are going into a store to solve a specific meal problem. Be it a simple evening dinner for kids, a party, sports watching event or formal dinner party, consumers are single event shopping. The “problem” isn’t a week’s worth of food anymore; it’s tonight’s or tomorrow’s event.
That means that cross-merchandising ecosystems and the solutions they deliver need to be high on your radar. The oldest example I’m aware of is the pizza display with pizza sauce, parmesan cheese, and pepperonis merchandised together. A one-stop shop for an easy yet inexpensive dinner for the kids – one shelf and done.
Digital shopping has trained consumers to buy for occasions in this way, and retailers are leaning into how powerful this cross marketing can be. Olives, cheese, sliced prosciutto, and crackers create an easy party pairing, like chocolate sauces, sprinkles, and cones are next to ice cream, or even granola and preserves next to the yogurt section. Possibilities abound.
As we mentioned, consumers are looking for that combination of fresh, convenient, and different. New cultural influences, new dinner ideas, and meals bought and produced easier. One of our experts has been unpacking World Cup party basket options for this exact reason.
The new IDDBA tagline is “Thinking Outside the Aisle,” and this couldn’t be more perfect for the situation that Dairy, Deli and Bakery finds itself in today. Selling the solution and solving the problem is going to be an exciting and ever growing opportunity. It opens up some really interesting cross-merchandising with partnerships through CPG vendors and in-store teams alike.
Elevating the consumer experience, transforming your perimeter departments into destinations and trip drivers is where your brand and customer connection will have the most positive impact. But it’s not all rainbows and sunshine for grocery in Dairy, Deli and Bakery.
The Problem: Volatility Is Crushing Planning
I’ve covered industry shifts, uncertainty, and volatility through equities for years. What strikes me about what we’ve seen in my short tenure here, is the variety and severity of macro-impacts on the grocery industry: inflation, tariffs, SNAP benefits, nutrition and food safety guidelines, egg costs, the federal government, energy price spikes, war, weather impacts…
The list is long – and ugly.
It seems that not a month goes by without a new black swan coming by.
The result is that planning departments are at their wits end. The constant volatility is crushing planning in a number of places – in an industry that lives or dies based on how well they plan. It’s a legitimate existential crisis for many.
