Equipment trade shows are mesmerizing, with massive aisles of shiny new cases featuring the latest technologies. With all the beautiful equipment out there, where's a grocer to begin building a small- or medium-sized prepared foods department? Tip: Don't start with equipment.
"The most common mistake," says P.J. Hoffman, retail services coordinator at Blooming Prairie Cooperative Warehouse in Minneapolis, "is not properly understanding [your] menu" and "just getting the wrong equipment."
Don't even think of salivating over that steal-of-a-deal at next week's used restaurant equipment auction until you've created at least the framework of a menu, drafted financial projections and drawn an equipment plan.
Create a menu that is provocative to your customers' taste buds, and realistically challenging to your staff. Consider your local market, the deli's potential as a mealtime destination, customer survey data and available physical space. Market environments with heavy foot traffic, even if already dense with competitive foodservice operations, offer more opportunities to strategically develop a successful menu than do less trafficked strip-mall sites. Complementing the standard sandwich and salad routine with a program unique to your customers should be an important consideration.
"We are two blocks away from one of the best full-service delis in the Midwest, so we chose not to compete with them," says Carol Collins, general manager of People's Food Cooperative in Ann Arbor, Mich. "We knew we wanted to do something different. We chose a fabulous food bar, which they don't have, and selected items for affordability, special dietary needs and simplicity. And we make them organic whenever possible."
Even the largest stores are favoring self-service programs over full-service ones to maximize sales and minimize service labor expenses. Collins' decision to create a largely self-service deli and café operation—primarily around a hot- and cold-food buffet, a grab-and-go case and a staffed coffee, dessert and soup bar—has nearly doubled the store's customer count and increased sales by 20 percent over last year's. "Sales no longer are clustered around the weekends. We have big days all week long," Collins says. "Our food bar alone is almost 10 percent of total store sales ... bigger than our dairy department."
Having a menu is the critical first step. "You have to know what you want to do out of that space, and what you want to offer," says Eric Skogrand, contract design specialist at U.S. Food Service Contract Design, New Brighton, Minn. Collins acknowledges wishing she had better understood that in order to specify the equipment she needed to have her menu well-developed, and that the architect couldn't finish the plans until the equipment decisions were made. "So while I had prepared for delays, I anticipated them being in the construction phase, and the delay actually came much earlier in the project," she says.
Use your menu, projected store sales and customer count to develop at least three years of department sales, margin and labor projections. List the projected weekly sales and margin and the labor needed to support them, program by program. Adjust your projections, adding or deleting programs, until your prepared foods program is financially viable. One critical measure of a deli's financial success is its ability to generate contribution-to-overhead margins of at least 25 percent of sales.
As a share of store sales, a small deli without much foot traffic might generate only 8 percent of sales; a larger deli in a busy town center might account for as much as 18 percent. Most ring 10 percent to 14 percent. As a percentage of department sales, aim for gross margin around 65, labor below 35 percent, and contribution-to-overhead margin of at least 25.
Labor in a prepared foods department is often compared with restaurant work. It is different from labor in the rest of the store in volume, share of department sales, skill sets and necessary pace. Small- and medium-sized delis typically can afford only one or two better-paid creativity-focused chefs; remaining kitchen staff members need to be production focused.
Smaller delis should consider menu programs that don't require service. Soup, pastry and rotisserie chicken sales, for example, can easily double with the right self-service merchandiser. Designing a service station that can be covered by just one or two service people who make and sell some products will cost far less than a station requiring three or four people to scoop salads.
Having a 4-foot full-service case with an 8-foot grab-and-go program will generate more sales with much less labor than will a traditional 12-foot full-service case. To meet such needs, major manufacturers have introduced "interesting integrations," Hoffman says, including a "growing variety of combination display and work centers that face the customer." Hoffman cites the Barker PT Series, which features a low-domed display case and a worktop or refrigerated prep table behind.
Delis are in the business of selling products with some service, not services with some product. After all, you can have the best service staff in the world, but you still need to offer an abundance of outstanding food, most of which is made by cooks, or your customers won't be coming back.
Start With A Solid Plan
The space layout and equipment plans are best created concurrently to connect your menu, service and production plans with your budget and available space. Regardless of whether the equipment plan is drawn on using a computer-aided design and drafting program or by hand, include icons in the layout to match specific pieces of equipment that support your menu and financial projections. Verify that your plans comply with local health and building codes. What's acceptable in one county may be forbidden or uniquely regulated in another.
The most common mistakes in building or renovating delis, Hoffman says, "is underbuying or overbuying on equipment." Buying equipment that fails to support a menu and financial plan can create an eternity of financial, production and merchandising struggles.
Prepare a sources and uses budget based on your drawing and equipment plan that specifies the capital and estimated start-up expenses, and where the money will come from. Excluding construction costs, plan to spend at least $100 per square foot—and know you could easily spend three times that—to equip a prepared foods department. The department's kitchen, merchandising and storage areas will need at least 600 square feet for a small deli, and 1,000 to 1,800 square feet for a medium-sized department.
If your budget isn't big enough, scale back your plans, raise more capital, consider some leased or reconditioned equipment or delay your project. Do not plan on funding an unrealistic portion of your project with future cash flow.
Spend what you possibly can on merchandising pieces to display your product and, if necessary, skimp a bit in the back of the house. Platters and bowls of healthy, delicious prepared foods aren't going to get the attention, respect and sales they deserve if they're displayed in a 15-year-old meat case.
"We chose to make our food bar the centerpiece of the expansion and spent our biggest equipment dollars to highlight that program," Collins says. "We also listened to our consultants and spent a little more on the bells and whistles for our grab-and-go display case, and that was a good decision."
The biggest challenge smaller stores face in buying new equipment is getting a good and fair price. When buying new equipment, do everything possible to avoid paying retail list price. "If you're working without an advocate, or somebody who's coordinating it for you, then you definitely want to go to more than one source and let people know you're getting competing quotes," Hoffman says.
Manufacturers and their sales representatives invest a disproportionate amount of time for a single store sale than they do for a chain. "There's a tendency for these little independent stores to be treated as if there's no future," Hoffman says. "Sort of like everybody's work is for the highest possible margin on that day's sale. [Vendors are] not thinking in three years they're going to get a repeat sale. For a one-shot deal, you're going to pay dearly for that, usually."
Be willing to cast your equipment procurement net wide to find a source that considers your store a valuable customer, or one that is a valued customer to manufacturers. A display case that retails for $21,000 can be sold for $12,000 to a valued customer. Invest in a few key relationships in which you're able to expect reliable and honest communications and advice, and services for a good price. Good vendors can be price-competitive, bring you years of wisdom and offer some gratis services. "We do design plans and mechanical plans for customers," Skogrand says. "If you're loyal to your vendor, [you] get great pricing and a lot of services because [we] don't want to recreate customers."
Allen Seidner runs Thought for Food Consulting in Fairfax, Calif. He can be reached at 415.485.5333 or by e-mail at [email protected]
Natural Foods Merchandiser volume XXIII/number 8/p. 20, 22
Natural Foods Merchandiser volume XXIII/number 8/p. 23