Despite ongoing competition from supermarkets, delicatessens are anticipated to perform well over the next five years, according to Ibisworld.
Over the five years through 2014-15, delicatessen industry revenue in Australia is projected to post annualised growth of 0.6 per cent to reach $908.3 million.
Delicatessens in Australia have struggled over the past five years, with poor consumer sentiment and strong competition from the major supermarkets have all been major factors contributing to the industry’s decline, however, according to IbisWorld industry analyst, Brooke Tonkin, rising preferences for premium products among consumers have buoyed the industry over the past three years.
Supermarkets and grocery stores are the largest competitive threat to the industry. The price war that escalated in 2011 drew consumers away from specialised retailers and into supermarkets. Consumers at the low price end of the market changed their shopping habits, purchasing deli items in the supermarket instead of at delicatessens.
Delicatessens targeting the lower income quintiles have been forced to decrease their prices in order to compete and entice customers back to their shops, however, the combination of rising purchase costs and lower prices has caused average industry profit margins to fall over the past five years.
Some delicatessens have distinguished themselves from supermarkets by targeting consumers at the premium end of the market. Rising discretionary income among these consumers has contributed to a growing trend of premiumisation.
Delicatessens that have altered their product mix and shifted their focus to the premium end of the market are expected to have performed better financially over the past five years.
Industry revenue is expected to grow by 1.7 per cent in 2014-15 as a result of the premiumisation trend.
“Despite ongoing competition from supermarkets, the industry is anticipated to perform well over the next five years,” says Tonkin.
Ongoing premiumisation and opportunities for expansion will contribute to revenue growth.
The delicatessens industry is expected to exhibit a low level of market share concentration. The industry is characterised by a large number of highly diverse operators.
The majority of delicatessens are independently owned and operated, targeting a relatively small geographic area such as their local neighborhood.Consequently, it is difficult for any individual delicatessen to build the economies of scale required to expand nationally.
This has made the industry highly susceptible to competition from other retailers, most notably the major supermarkets, Woolworths and Coles.
Over the past five years, the industry’s market share concentration has remained low. Industry operators have struggled to compete against supermarkets that are also offering an increasing range of deli-style products.
Over the coming years, the industry is expected to increasingly gear its product offerings towards higher income shoppers, though this is not expected to significantly change market share concentration.
