Natural Foods Merchandiser

Organic delis can serve up profits

If your store has a deli, you probably want it to reflect your commitment to natural and organic foods. The challenge in running an organic deli, though, is you need a steady supply of organic ingredients. But sometimes you just can?t buy, say, organic tomatillos; even if you can, they may cost more than you can plausibly charge for a bowl of salsa. Nonetheless, natural foods markets coast to coast are dreaming the improbable dream and gradually transforming their delis into organic smorgasbords.

With rising consumer demand for organics stimulating production of more and more organic items—from spices to produce to grains—the laws of supply and demand are slowly bringing the possibility of an all-organic deli within reach. The trick, of course, is to develop a deli that?s not only organic, but also profitable. One man who thinks it can be done is Steve Rosen. He bases his assurance on his own experiences during the 1990s at the Old Unicorn Market, a natural foods store in Miami. At Old Unicorn, Rosen boosted the deli?s performance to 27 percent of store sales, he says.

Nowadays, Rosen consults for natural foods store owners looking to develop their delis and increase the representation of organic food at the deli counter. He?s on a mission to prove that delis—in particular organic delis—don?t have to be loss leaders. ?I teach people how to make a profit with their delis,? he says. ?My feeling is to use organic [food] wherever and whenever it is readily available and priced reasonably.?

Availability and cost have historically been the two major organics stumbling blocks. While availability still isn?t always guaranteed, Rosen says it?s getting easier to find a steady supply of organic ingredients, especially on the West Coast. Price can still be prohibitive for certain items, but there too Rosen expects costs to drop as the organic food movement moves into the mainstream, as evidenced by the rise of organic produce departments in conventional stores.

For now, it still can be difficult for delis to take a diehard, 100 percent organic approach. Rosen explains that deli customers like to know that they can come in every day and find the same items available. If you can?t find an organic ingredient at a reasonable price point for a popular dish, you have two choices: pull the item from the menu or substitute a conventional ingredient and continue to serve the item. Rosen says nearly all the delis he advises would make the substitution and continue to sell the popular item. That?s a strategy he endorses as long as the deli makes the ingredient substitution clear to its customers—for example, by posting a list of the ingredients that day on a dry-erase board next to the counter.

Another option is to do what Marlene Beadle, owner of Seattle-area Marlene?s Market and Deli, does. ?We don?t list our organic ingredients on a sign, but if our customers want to know the organic ingredients in a dish that is served by the pound, we print out a label and give it to them or talk to them about it,? she says.

As demand for organic food rises, Rosen says more and more organics suppliers are stepping into the market, thereby reducing price volatility and increasing supply. Rosen says the list of frequently available organic supplies has grown to include rice, soybeans, grains, black beans, chickpeas, lentils, couscous and bulgur wheat. Even in a recipe like tahini, Rosen says that delis can now use 100 percent organic Santa Cruz lemon juice in their mix.

Organic ingredient supplies may be increasing, but they are still not plentiful enough to allow Beadle to run a completely organic deli. Currently, her deli is about half organic. ?It?s always easier to find organic produce in the summer, and it?s least expensive for us if we buy seasonally,? Beadle says.

Organic recipes differ from Boston to Berkeley
Organic ingredients that are consistently in good supply differ by region. In California, a recipe for green salsa could include organic tomatillos, corn, cilantro and jalapenos. When deli consultant Steve Rosen tried to make the same recipe in Alberta, Canada, the deli owner said he?d never even seen an organic tomatillo on his produce list. ?This is a great salsa,? says Rosen. ?If you can use all-organic ingredients except for one, then your store has to make a decision whether to not make the salsa or to make it and let people know that the tomatillos are not organic.?

Sometimes customers are willing to pay more for an organic deli item, but there are definitely limits to price flexibility among consumers. ?You?ll reach a price point at which people will object,? Rosen says. ?We did a test in which we put organic broccoli salad at $7.99 per pound side-by-side with a conventional broccoli salad at $3.99 a pound. The conventional outsold the organic 5-to-1.?

It?s not that customers don?t care about the organic/natural distinction, but ?once the price becomes too high, they just won?t pay the difference,? says Rich Packman, general manager of Clearwater, Fla.-based Nature?s Food Patch, a 14,000-square-foot, full-service natural market, deli and café with a salad bar. ?For example, we use organic eggs in our deli because we have a good deal from our supplier so that the eggs don?t cost us more than commercial eggs. But if we had to pay the going price for organic eggs, we would have to raise the price of the dishes made with eggs. It?s tough to identify the price-point barrier, because that number is a moving target, but at some point the price will just scream out at them.?

In situations where such costs present obstacles, Rosen encourages making realistic compromises. If you know you won?t be able to sell a $16.95 per pound salad made with $10 organic chicken, use $5 per pound free-range, antibiotic-free chicken and sell your salad for $10 a pound.

Don?t give up your hopes of an all-organic deli; just recognize that it might be hard to achieve that goal immediately. ?As more organic products become available and as the prices get closer to commercial it becomes easier to switch to organic,? Packman says. The recent availability of organic confectioners? sugar, for example, has allowed the baker at Nature?s Food Patch to make organic frostings for desserts.

Can a deli make money?
In plenty of natural foods stores, delis barely hold their own financially and exist mainly to draw customers into the store, but Rosen believes that delis can make a strong contribution to a store?s bottom line. Here?s how he calculates a deli?s potential contribution relative to other sectors of a store:

Cost of goods = 67% of sales
Labor = 15% of sales
Gross profit (Sales minus cost of goods and labor) = 18%

Cost of goods = 75% of sales
Labor = 15% of sales
Gross profit = 10%

Cost of goods = 80% of sales
Labor = 15% of sales
Gross profit = 5%

?Properly Run Deli? (by Rosen?s standards):
Cost of goods = 33% of sales
Cost of labor = 33% of sales
Gross profit = 33%

?A properly run deli doing any kind of volume can become an ATM machine for your store that just spits out money,? says Rosen. ?That?s why in any traditional store like an Albertsons, you?ll see the fresh food—deli, bakery, meat—on the perimeter of the store. That?s where the store makes all its money. If a properly run deli does 12 percent to 15 percent of store sales, it can become a huge engine of store profit.?

: ?It?s easy for small delis to take what they need from the shelves and racks of the produce department. That makes it very difficult to track ingredient usage,? Rosen says. ?Have the deli set up its own separate accounts with produce suppliers.?


Such financial contributions from a deli—organic or otherwise—may be theoretically possible, but that doesn?t make them easy to achieve. Neither Packman nor Beadle would describe their delis as profit centers. Packman says that at Nature?s Food Patch they?re happy for now to use the deli mainly as a way to draw customers into the store. ?We?d hope to reach the point where the deli is making a positive financial impact, but we?re not counting on that,? he says.

Aaron Dalton is a New York-based freelance writer.

Natural Foods Merchandiser volume XXVI/number 3/p. 60, 64

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