Navigating Bakery/Deli Uncertainties

Over the past four years, bakery/deli/prepared foods departments continually outpaced center store and saw impressive growth. Then COVID-19 hit.

“Bakery was no longer a necessity. It was a forgotten department,” said Jody Barrick, UNFI’s vice president of merchandising and sales, bakery/deli and prepared foods. Overnight, everyone became a home baker and in-person celebrations were a thing of the past, leading to cookies, cakes, and other bakery items trending down. Prepared foods were also hit hard as retailers were forced to close hot and cold bars, resulting in negative sales growth for the first time in years.

Beginning Fourth of July 2020, sales started to come back as COVID lockdown restrictions lifted. Deli/prepared foods sales began increasing as people started holding small outdoor gatherings. The salad and chicken categories began beating pre-COVID 2019 sales. Bakery saw an increase in brownies, cupcakes and cakes in smaller portion sizes that accommodated smaller celebrations.

As spring 2021 rolled around, bakery/deli departments and manufacturers faced a set of new challenges that are expected to last at least through the end of the year. Labor shortages and rising freight costs combined with high demand in convenience foods (due to the return to normalcy) are major issues.

The labor shortages are particularly tough. Bakery/deli/prepared foods departments lack the staff needed to make product, so they’re turning to more retail-ready, freshly prepared, or bulk frozen items to fill their shelves. But manufacturers are feeling the same pinch with too few workers to meet the spike in demand.

Adding to the strain is inflation, with commodity cost increases at all-time highs: according to IRI, shortening and oils are up 66%, butter is up 44%, and eggs are up 39%. A packaging shortage, which has resulted in an 8% price increase for manufacturers, is yet another challenge.

These issues have created an environment poised for more allocations and less product availability throughout 2021. “This summer will make COVID look like a cake walk. We’re going to see out-of-stocks and shorts from suppliers at higher rates than we saw during 2020 COVID,” said Barrick.

Nimbleness and creativity will be retailers’ key to growth

Barrick stresses the importance of focusing on the staples and making sure you’re taking care of what your customers want. Look closely at what you have on hand and get creative by using products that can yield multiple offerings. Planning is a critical way to improve success, enabling UNFI to stay in stock on key products, ensuring you have the product you need to meet demands.

UNFI is here to help with regional and category trends data. We partner closely with Nielsen to analyze retail sales drivers and opportunities/voids in stores versus the industry. If you have questions, would like to explore additional selling opportunities, or review where your bakery/deli is trending versus ROM (rest of market), ask your account manager to schedule a meeting with one of our experts.