ARLINGTON, VA. — Bakery generated the highest sales growth last year among supermarket perimeter departments, according to FMI-The Food Industry Association’s The Food Retailing Industry Speaks 2024 study.

Total sales in supermarket perimeter departments — fresh produce, meat, bakery, deli and seafood — came in at $271.3 billion, with year-over-year growth averaging 2.1% across the five areas, based on Circana US multi-outlet sales data for the 52 weeks ended Dec. 31, 2023, cited in the FMI report. Bakery sales rose 6.7% to $44.8 billion, compared with gains of 4% to $47.8 billion for deli and 2.2% to $81.3 billion for produce, flat results for meat at $90.7 billion and a 2.4% decrease for seafood to $6.7 billion.

Overall edibles sales for food retailers climbed 3.7% to $807.2 billion in 2023, the FMI study said. Forty-two percent of total food retailer sales last year came from fresh departments, including meat (11%), produce (11%), dairy (8%), deli (4%), fresh-prepared foods (3%), in-store bakery (3%) and seafood (2%). Total perishables sales, including frozen (5%), accounted for 47% of sales, compared with 38% for dry grocery.

Fresh departments’ importance to grocery stores’ top and bottom lines is reflected in retailer plans to allocate more space to these areas, FMI found in surveying over 90 food retailers and wholesalers.

Over the next two years, 25% of retailers polled aim to expand space for in-store bakeries versus 6% of respondents expecting to decrease fresh bakery space. Planned bakery space additions top those for fresh meat (22% increasing space, 9% decreasing space), fresh seafood (14% increasing, 9% decreasing) and in-store dining (13% increasing, 15% decreasing) but trailed expected expansions for fresh produce (44% increasing, 0% decreasing).

Fresh-made meal items stand to get the biggest store space expansions. Seventy-nine percent of retailers surveyed plan to boost space for fresh grab-and-go offerings, while just 1% expect to shrink that space. Likewise, 29% aim to add space for fresh prepared made-to-order stations (6% to decrease), and 26% are looking to grow space for fresh prepared self-serve bars/buffets (12% to decrease).

For 2023, grocery retailers also reported strong success leveraging fresh departments to differentiate themselves from competitors, FMI’s research showed. Last year, for example, 84% of retailers used in-store bakeries to gain a competitive edge, and 58% deemed those efforts as successful (i.e. rated at 8, 9 or 10 on a 10-point scale). Also, 88% bolstered positioning of their fresh prepared/foodservice programs to stand out from competitors (with 55% successful), and 77% looked to their seafood department to get a competitive edge (with 62% successful).

Eighty-eight percent of retailers last year highlighted fresh produce departments for differentiation, such as by offering a “produce butcher” to custom-cut fruit and vegetables or expanding selections of organic and/or specialty produce, with 67% finding success in those strategies, according to the FMI report. Service, too, was a competitive component in fresh meat/poultry, with 77% of retailers spotlighting that department — and 65% finding success — with initiatives like service counters and custom cuts.

Amid consumer concerns about freshness, and shopper predilections for wanting to choose fresh foods themselves, online purchases represented only a small share of supermarket fresh departments, FMI reported. Dairy led the way with a 6% online sales share, followed by fresh produce and meat at 5% apiece, deli at 5%, seafood at 4%, fresh prepared foods at 2% and in-store bakery at 2%. Still, 41% of food retailers’ overall online sales came from fresh categories, including 12% from dairy, 11% from produce, 10% from meat, 4% from deli, 2% from seafood, 1% from in-store bakery and 1% from fresh-made foods.

Food retailers posted an average same-store sales gain of 2.1% in 2023, with 85% of stores seeing an increase, said the FMI study, released June 27 and prepared in conjunction with David Orgel Consulting Inc. The uptick reflected relaxing food price inflation and post-pandemic shopper behavior shifts, after a 3.3% comparable-store sales increase in 2019 jumped to 15.8% in 2020 and then tailed off to 5.2% in 2021 and 4.9% in 2022. Over that time frame, grocery retail profit margins also swelled and then narrowed, coming in at 1.6% in 2023 after percentages of 2.3% in 2022, 2.9% in 2021, 3% in 2020, 1% in 2019 and 1.2% in 2018.