It’s no secret that the success of the perimeter departments often determines whether a grocery store thrives or falters.

A new study by FMI – The Food Industry Association proves in detail just how true that is — and says that the perimeter is more important than ever.

“Fresh food departments are central to retail differentiation, driving significant consumer engagement and loyalty. Food retailers are catering to shopper’s needs by expanding space allocation for fresh grab-and-go options, and nearly all food retailers offer local assortments throughout their stores.”

In FMI’s annual Industry Speaks poll of US grocery retailers, operators overwhelmingly cited fresh departments when asked about their current priorities.

Fresh is a big driver in retailer differentiation strategies related to both products and services, according to the report, which was written by FMI’s Steve Markenson and David Orgel of David Orgel Consulting LLC and sponsored by Upshop.

“Many of the major issues impacting fresh are of central importance across all segments and categories in the food industry,” according to FMI. Fresh foods or perimeter departments are top of mind for enhancing store differentiation. The food industry is increasing investments in fresh and working to overcome hurdles.

Food retailers are actively looking to expand space for various fresh or perimeter departments in the next two years. Some food retailers expect to increase their labor allocation in foodservice and specialty fresh (such as in-store butchers, “produce butchers,” and cheese mongers). An average of 41% of food retail dollars in total online sales were generated in 2023 by fresh or perimeter departments. Meanwhile, meat and produce departments are the fresh leaders in sales per labor hour. The report spotlights these issues based on findings from the association’s Speaks research.

Consumer trends including convenience, health and well-being and local are influencing food retailer and supplier strategies in fresh and other parts of their businesses.

The food industry is also strongly committed to maintaining and enhancing food and product safety. A majority of food retailers rely on external food safety and certification programs to train their associates. FMI consumer research finds that shoppers continue to have a high level of trust in their grocery stores to ensure the food they purchase is safe. Retailers are also working to enhance in-store shopping with foodservice, private brands and online fulfilment slated for more space. Leaders are pursuing experimentation in store development and eyeing local sourcing opportunities.

Food retailers are actively looking to expand space for various fresh or perimeter departments in the next two years. This includes additional space for fresh prepared foods, particularly grab-and-go, and fresh produce — with those space expansion plans just slightly lower than a year ago. These findings and the retailer comments below underscore how fresh is responding to convenience as a key consumer trend. “Fresh departments are driving many of the most effective retailer product differentiation strategies,” according to the report. 

Price pressures

Price is growing in importance among consumers, influencing their decisions on where to shop for fresh. For food retailers, promotions, price comparisons, and channel-shifting are key areas of emphasis for shoppers.

Recent consumer-focused reports on fresh categories underscore how much shoppers are focused on price.

Price is surging in importance, for instance, among seafood consumers and influencing their decisions on where to shop for this category, according to FMI’s The Power of Seafood report.

Produce shoppers are also focused on price and promotions in combination with ripeness and appearance, as detailed in the association’s Power of Produce report.

And promotions, price comparisons, and channel-shifting are key areas of emphasis for meat shoppers, as The Power of Meat study revealed repeatedly.

Of course, price isn’t everything.

“While consumer decisions on where to shop are influenced by price, their choices on which items to buy are influenced by quality and appearance,” according to FMI. “Consumers are insisting on the best items — from cuts of meat to pieces of fish. The upshot is that both price and quality need to be key strategies for the fresh industry.”

Eye on technology

Companies are eyeing technology applications to enhance workforce; ecommerce; analytics; customer experience; and assortment, according to the study.

Fresh food retailers and suppliers are accelerating investments in existing solutions and experimenting with new opportunities.

Technology is helping to support a range of functions for fresh foods operations, including inventory and demand/production planning and foodservice ordering and delivery. Meanwhile, across the food industry, more than 40% of food retailers and nearly 70% of food suppliers are using artificial intelligence (AI) for applications.

Retail media networks are currently used by 87% of suppliers and about a third of retailers — a number expected to increase.

Technology is also helping to support a range of functions for fresh foods operations. Forty percent of responding retailers said their organizations used technology solutions in 2023 for fresh foods inventory and demand/production planning — compared to only 20% the year before.

 Another 15% said they are planning to use these solutions in the future. Meanwhile, 35% made use of technology solutions for foodservice ordering and delivery, and 21% are planning to do this in the future.

Across the food industry, more than 40% of food retailers and nearly 70% of food suppliers are using artificial intelligence (AI) for applications. Companies are eyeing technology applications to enhance workforce, ecommerce, analytics, customer experience, assortment, and other aspects of their businesses. Food retailers and suppliers are accelerating investments in many existing solutions and experimenting with many new opportunities.

The increased focus on technology is playing out in a wide range of applications. Since 2019, most food retailers have been experimenting with new technologies to improve customer experience, efficiency, and ecommerce. Many applications were initially embraced by only larger retailers, but increasingly they are being used by smaller operators as well, including those with 10 or fewer stores.

Labor concerns

Retailers have been significantly impacted by unfilled managerial roles in fresh departments, with seafood and dairy departments topping the list, according to the report.

“The food retail industry has many managerial roles unfilled. The percentage of retail departments operating without a manager varied among reporting companies at the end of 2023.”

Workforce training and development is an ongoing imperative to meet the needs of customers and employees, according to FMI. The cost of this training can be significant for food retailers, at more than $600 per employee, and for food suppliers, at more than $750 per employee.The expectation for most businesses surveyed is that these costs will increase further in 2024 as employee retention continues to be a challenge (forecast from 63% of retailers and 85% of suppliers). Almost all food retailers (95%) and suppliers (100%) have in-house training and development programs, and a majority also have purchased programs from third-party vendors.

Keeping consumers safe

Across the food industry, there is a strong commitment to maintaining and enhancing food and product safety, according to the study.

A majority of food retailers (64%) rely on external food safety and certification programs to train their associates.

Food retailers use a wide variety of programs, with ServSafe the most common (61%) and 17% using the FMI program, SafeMark . Responding food suppliers operate an average of 34 facilities, with an average of more than half of these having Global Food Safety Initiative (GFSI) recognized certification and more than one-third with Safe Quality Food (SQF) program certification, a division of FMI.

Food recalls and advisory messages about food safety require highly effective communication strategies. Almost all of the responding food retailers (92%) said they communicate these important messages to their shoppers, and they often use a variety of methods to gain maximum exposure.

This article is an excerpt from the October 2024 issue of Supermarket Perimeter. You can read the entire Fresh Foods feature and more in the digital edition here.