Planning Deli Success

Overheard at the Natural Products Expo in Baltimore:

Q. How do you make a small fortune?

A. Take a large fortune and open a deli in a natural food store.

Funny, perhaps, and in some unfortunate cases very true. As one retailer said, "It only costs me $1.50 to take in $1.00 in my deli." For many retail operations, labor and product costs can leave little or nothing to pay for store overhead, much less contribution to profit.

This article is designed to help you address some of the major concerns in a food service department. Many of these guidelines will be useful if you are considering starting such a department. Keep in mind that it is a "Department" like your other store departments; apply to your food service department the same skills and techniques that have led to your current successes.

To deli or not to deli

There are several barometers you can use to measure what kind of food service operation your store can support. The amount of space you have to dedicate to food service is crucial. Stores under 2500 sq. ft. rarely have the room needed to operate a full service kitchen. Such a store might be able to support a "grab and go" section of prepared foods. You might be able to find a local supplier of natural foods prepared daily. Try to negotiate a guaranteed sale contract, whereby the supplier will not charge you for the products that are not sold. If you cannot find a supplier, you might consider working out a deal with a local restaurant. Your store could provide them with materials, and they would provide you with a finished product.

Stores that are over 2500 sq. ft. are better equipped to handle some type of food service section. When planning these areas, estimate 2 sq. ft. of preparation space for every 1 of selling space. One of the most common mistakes that I encounter is the retailer who builds a beautiful deli but does not allot enough space for preparation and refrigeration.

Another key measure to consider is your daily customer count. A store with an average of 200 customers a day can easily support the kind of prepared food case I described earlier. However, a salad bar may not be prudent. Salad bars and full line juice bars generally need at least 350-400 patrons a day to survive. With the product being so perishable, quick turnover is essential. Full service deli operations also require a solid customer base. I would consider 400 customers a day the minimum required to run a profitable deli operation.

The natural foods deli has already been invented, so don't try to re-invent the wheel. Talk to your peers in the co-op community for ideas and strategies when planning a food service operation.

The four food groups

While pondering the answer to the deli dilemma, take into consideration the most important decision maker in your store: the CUSTOMER. Most stores that I have consulted with seem to have the same four types of customers:

  1. The all natural customer: This person is looking for foods that are free of additives, preservatives and chemicals. Fat and salt are not as important as MSG and antibiotics in the poultry.
  2. The weight loss customer: These folks are looking for good foods that they can eat and still stay within the confines of their weight loss programs.
  3. The vegetarian customer: While the definition varies greatly, this is a large segment of our business.
  4. The medical customer: These people are looking for products that can fit into their diet restrictions -- wheat free, yeast free, salt free, and the dozens of other medical problems that our customers address by adjusting their diets.

If you think about these four groups, you will realize that you have hundreds of products throughout your store that cater to the needs of these people. Actually, it is why we exist. When considering the kinds offoods that you will sell in your deli, be sure to take into consideration all of these groups. Wheat free pasta salads (corn or rice pasta), salt free soups, no and low cholesterol dishes, vegetarian entrees as well as good old fashioned chicken salad should all be considered in your menu mix. Try not to make what you like, but what your customers will buy. Give your customers lots to choose from, including lunch time items, snack items, and items that they can take home and reheat for dinner. If you concentrate on lunch alone, you will struggle to make a profit.

It is very important to keep your deli cases full of food. Treat them as you would any other shelving in your store. Your customers can't spend money on what is NOT on the shelves.

Charging the right price

In a well run food service operation, your food cost should be 30 to 33% of sales. This will yield a margin of 67-70%, probably the highest in your store. Unlike areas where you can use a fixed margin, successful food service operators use variable margin pricing.

First, be sure you have accurately calculated the cost of your products. Using your recipes, add up all of the ingredient costs. Be sure to use yielded costs. If a case of broccoli weighs 20 pounds and costs, $20.00, that does not mean that the broccoli is $1.00 a pound. How much usable broccoli was in the case after discarding the stems and leaves? To determine this, you must first do a yield test. If the usable broccoli weighs 15 pounds, then the cost per pound is $1.33, not $1.00. Once you do the yield tests for your products, you can apply them to all your recipes.

After adding all the costs for the recipe, divide the total by the total pounds of product that the recipe yielded. If your broccoli pasta salad costs $32.60 to make and the finished salad weighs 21 pounds, then the cost per pound would be $1.55. To get a food cost of 30% in this case, you would have to charge $5.16 per pound for the salad, which would work. However, if shrimp salad costs you $6.00 per pound to produce, you would probably not have too many takers at $20.00 per pound. This is where the variable margin pricing comes into play. By charging only $10.00 per pound for the shrimp salad, you will sell more than at $20.00 per pound. To balance this, you may sell hummus for $5.00 per pound that only costs $.75 per pound to produce. While your food cost on the shrimp salad is 45%, it is balanced by the food cost on the hummus, which is 15%.

Deli Arithmetic

USE YIELDED COST:
Case of broccoli = 20 lb. $20.00
after trimming, case of broccoli
=15 lb. = $1.33/lb.
RULE OF THUMB:
Food cost is 30% of sale price.
USE VARIABLE MARGIN:
Example #1: Broccoli pasta salad
21 lb. = $32.60 = $1.55/lb.
To calculate sale price, divide by 30%:
$1.55/lb. ÷ .30 = $5.16/lb.
Result: a sellable price.
Example #2: Shrimp Salad
Cost = $6.00/lb.
Sale Price: $6.00/.30 = $20.00/lb.
Result: high, reduce selling price.
$6.00 ÷ $10.99 = 45% of food cost.
Example #3: Hummus
Cost = $0.75/lb.
Sale price: $0.75 ÷ .30 = $2.50/lb.
Result: low, increase selling price.
$0.75 ÷ $5.00/lb. = 15% of food cost

When designing your menu mix, be sure you have products from both ends of the food cost scale. Most of your prices will fit into the middle range. Don't be afraid, however, to charge $9.99 a pound for the free range chicken salad. While the food cost may he high, it can be balanced with other items, and your average gross profit can stay above $5.00.

Grab and go

A prepared foods or "grab and go" case can be a great attraction to any store. Whether the section is the only food service you offer or is in addition to your deli, grab and go sections will draw people into your store. These customers generally buy things from other departments while they are there; all the more reason to entice them with good tasting prepared foods that they do not have to stand in line to get. An upright multideck case is the most effective for display; however, a coffin case can suffice.

There are two main types of products that sell well in the grab and go section. First are prepared, ready to eat foods. Sandwiches, green salads, stuffed tomatoes, and heat and eat dinners are all in great demand today. The busy shopper may be looking for something to eat at the office or while on the run. Tryto price your sandwiches at a lower price point than your made to order sandwiches. This will create a sense of "good value" as well as take some pressure away from your counter workers during the busy lunch rush.

The second type of product that sells well in grab and go are the things that you already make in your kitchen for other uses. Salad dressings for which you are famous, sauces, dips, and soups are a great addition in this section. Soup is a really great product; your customers all buy and eat soup year-round. There is also a lot of profit in soup. Be sure to pack it in a sturdy container so your patrons can stock up on their favorite kinds and possibly put some in their freezers.

A final thought with respect to bottling juices. For stores that have a service juice bar, consider bottling juices and one or two of your most popular blends. Many stores have had great success charging just a little less for this pre-made convenience. While many of your customers will wait to have their carrots juiced, many others are content to grab a bottle of pre-juiced carrots. Try to juice them two or more times a day so your customers can depend on it being fresh. Total juice sales will increase.

The right staff

Once you have built the perfect deli, the only way to ensure its success is to staff it perfectly. Unless you have a restaurant or catering service as part of your food service operation, you will probably not need a fully trained chef. You might be hetter served hiring a chef as a consultant to develop recipes for you, and then hiring cooks to prepare them. Don't forget the hundreds of cookbooks that are available, filled with thousands of great tasting, all natural recipes.

Your food service labor dollars will be better spent on a full time food service director. Look for someone with a management background, who knows the ins and outs of day-day food service operations. In addition to overseeing the cooking staff, this person will also take charge of the counter staff, dishwashers, juice bartenders, and all the other support staff needed to operate a successful food service operation.

Try to hire cooks with lots of food preparation background, even if it's not in natural foods. It's much easier to teach a talented cook about vegetarian foods than it is to teach a vegetarian how to cook for over 2000 people a week.

A lot of your food prep labor is spent on slicing, dicing, chopping, and mixing. Look for entry level people for these jobs. It is quite frustrating to pay someone $9.50 to have them peel onions and carrots. Consider alternative labor sources for these workers. Many stores have had great success hiring workers from state rehabilitation programs and prison work release programs. The federal government is considering the reinstatement of the TJTC program, which could mean big tax credits for your store.

Finally, you MUST find some great employees to serve your customers -- not deli clerks but deli salespeople. These staff members will he highly trained and rewarded. They are the ones that can make or break your food service department. Be sure to develop extensive training regimens for them. Give them all the tools and knowledge your customer will demand that they have. Clerks are simply order takers. Deli salespeople put things in the customers' shopping carts, increasing your average basket dollar amount as well as your deli sales.

Labor scheduling, budgets

I recall several years ago trying to make the schedule for the following week. I sat there sifling through the scraps of paper filled with requests for the following Saturday night off. At one point I was so frustrated that I actually considered closing the deli that Saturday night and going to the Rolling Stones concert with the rest of my staff.

Actually, it was on that night that I thought of the concept of permanent schedules. They are difficult to start, but the rewards are worth it. Taking into oonsideration my employees' personal needs (bus schedules, child care, school schedules, etc.), I developed a weekly schedule. Then I posted it the same way for the following week, and for several weeks in a row without granting any special requests. I enoouraged my staff to make trades in their schedule with other qualified staff members to accommodate their needs. After a while people stopped asking. When someone left, I offered their schedule to any current employee. Duplicate requests were settled by seniority. That created a new open schedule, and I followed the same procedure.

Eventually, I was left with a schedule that was to be filled by a new employee. During the interview, they are shown the schedule and decide if they can take the job. This is of great benefit to the employee. They know if they are going to be off on a Thursday five weeks from now and can plan their life accordingly. Often I had to make minor adjustments as the school year began and ended, but that was it. Freedom from weekly schedule making gave me more time to do more important things, such as reading Cooperative Grocer.

As I mentioned earlier, your cost of food should run between 30-33% ofsales. Your labor percentage should be the same. This will be the highest in your store. This combined total will leave between 34-40% of sales to contribute towards other operating costs. This should leave plenty of room for profit. You should dedicate about 7% of your food service sales toward the salary of your management team. This is about 1/4 of your labor budget. You can spend a little more if your managers spend a good deal of time performing hourly duties. In a full-scale operation, don't plan on that happening. Managers need to be free to manage.

Let's say that you have a food service department that does $5000 a week in sales. A 33% budget would give you a $1650 weekly payroll limit. Figure your manager will receive about $400 of that total, leaving $1250 for hourly labor. If your average wage is $6.50 per hour, this would give you 192 hours to distribute between full- and part-time employees. When you lament that the budget is too small to get all the work done, try increasing the dollar amount for a fixed period of time (maybe 6 weeks) in exchange for promises of higher sales.

A closing thought

Food service is HARD work. It can be very frustrating at times. But more and more people are eating out. Fifty percent of all the money spent on food in this country is spent on prepared foods, compared to just 25 percent some 20 years ago. Good food that is quick and easy to buy can be a prime reason that customers will spend those dollars in your store instead of down the street. As with any department in your store, you will get out of it as much as you put into it.

See other articles from this issue: #062 January - February - 1996