-By D. Gail Fleenor

Brown-bagging has grown in popularity during these tough economic times, focusing attention on packaged lunchmeat. However, lunchmeat sales volumes haven't soared quite as high as expected, due to higher retail prices brought on by increased grain and fuel costs. Consumer demand for premium cold cuts, with a greater focus on health or deli-style product, has also added to product price. While higher prices have sliced back lunchmeat sales growth, demand remains steady, with 73 percent of U.S. households purchasing packaged lunchmeat.

Dollar sales of sliced lunchmeat increased 9 percent from 2004 to 2009, while pound volume
 sales declined over this period by 9.6 percent, according to a report by Mintel, a Chicago- based research firm. The result: the average retail price for refrigerated sliced lunchmeat in FDMx increased from $3.68 per pound to $4.32 per pound, or 17 percent, from 2005 to 2009, according to Mintel's "Lunchmeat, U.S. December 2009." Supermarkets remain the No. 1 choice when buying lunchmeat, with almost six in 10 respondents to the researcher's consumer survey saying they buy most of their lunchmeat at conventional supermarkets.

"The refrigerated lunchmeat category has benefited from the economic downturn, as more consumers are brown-bagging it," says Alan Hartline, EVP, merchandising and marketing for Grand Rapids, Mich.-based Spartan Stores. "We are seeing refrigerated lunchmeat category growth outpacing total store ACV. Private brands have experienced the most growth, in particular, our tub lunchmeat offer."

Households with children are one of the strongest indicators of lunchmeat consumption, Mintel says. While 92 percent of households with kids purchase lunchmeat, only 87 percent of households without children do so. Households with children are also more likely to use packaged lunchmeat, most likely for convenience. Lunchmeat translates to quicker, protein-packed meals, either at-home or brown-bagged.

The Case for Innovation

Consumers believe product packaging is almost as important as the product itself in the lunchmeat category, so recent packaging advances have been welcome. Freshness is a key driver to sales, so resealable packaging designed to keep meat at its freshest is crucial.

In Mintel's consumer survey, 47 percent of respondents say they've purchased lunchmeat in resealable packages in the past year. An additional 37 percent of consumers indicate they're interested in purchasing this type of packaging. Almost one-quarter of respondents, however, aren't happy with packaging, saying, "Lunchmeat packaging does not seal effectively."

Resealable packaging has evolved from "press-to-close" packs to zippered packages to plastic tubs with closable lids. Such packaging not only serves to maintain freshness, but also adds to the deli-style perception customers crave. Pat Dodson, meat department manager for Seamart Quality Foods in Sitka, Alaska, says the new plastic tub containers have increased his company's refrigerated lunchmeat sales.

Slicing it Up

Kraft Foods, the market leader in the refrigerated sliced lunchmeat category with its Oscar Mayer brand, has sales of more than $1.5 billion and a 21.2 percent market share (FDMx
from Information Resources, Inc., for Mintel). Strong branded sliced lunchmeat performance, in the Oscar Mayer Deli Fresh line in particular, helped sales grow 3.1 percent.

Oscar Mayer recently introduced two new items, based on consumer research, in its Deli Fresh line: Shaved Angus Beef Bologna and Shaved Turkey Pastrami. Responding to consumer requests for foods containing more basic ingredients that they can easily recognize, the Northfield, Ill.-based company also introduced Oscar Mayer Selects, which it says is "the first hot dog from a major brand with no nitrates or nitrites added, except those naturally occurring in celery juice."

Sara Lee is No. 2 in the lunchmeat category, with sales of $1.2 billion and a 17.8 percent share, according to Mintel's report. The Downers Grove, Ill.-based company's sales grew 4.4
percent, due in part to strong growth in the Hillshire Farm Deli Select line.

Late last year, Sara Lee voiced a commitment to reduce salt an average of 20 percent over the next five years across its key product categories, including lunchmeat, according to Jeff Dryfhout, director of marketing for Hillshire Farm Lunchmeat in Neenah, Wis. Hillshire Farm is launching two new lower-sodium lunchmeat SKUs in the Deli Select Ultra Thin line, Oven Roasted Turkey and Honey Ham, both with 25 percent less sodium than USDA data for turkey or ham. Both display the American Heart Association (AHA) heart-check mark to denote having met the association's standards for saturated fat and cholesterol for healthy people over age 2. Hillshire Farm's lower-sodium lunchmeat, in 8-ounce tubs, will be available nationally in July.

Smithfield Foods, which offers lunchmeat brands like Healthy Ones and John Morrell, has an 8.4 percent market share and sales growth of 2.5 percent from September 2008 to 2009, according to Mintel numbers. Armour-Eckrich, a Smithfield subsidiary, launched the Healthy Ones line in response to consumer demand for healthier lunchmeat.

"Healthy Ones believes great-tasting meats don't have to be high in fat or overly salted if they're made with the good stuff to begin with," says Ellie Halevy, marketing director at Healthy Ones in Lisle, Ill. The 97 percent fat-free brand is unique to the category, she adds, as it's the only full line of products certified by the AHA. The products have no fillers or artificial flavorings and are low in sodium. Healthy Ones' growth rate outpaces the tub segment by 42 percent, according to Halevy. New varieties include Roast Beef, Black Forest Ham and Rotisserie Chicken.

John Morrell's Off the Bone branded tub lunchmeat is "uniquely positioned as the only 'home-style carved' thick-sliced premium lunchmeat in the grocer's meat case,” notes Mark Dietz, VP of marketing and business development for the Cincinnati-based Smithfield subsidiary. "Off the Bone lunchmeats deliver that 'holiday leftover' sandwich experience everyone craves 52 weeks a year."

The brand is lean — 90 percent fat-free or better — and growing at a rate of 40 percent (IRI Total U.S.) and 66 percent in same-store sales vs. a year ago (IRI ending Feb. 28, 2010).

John Morrell is building on its growth by launching Kettle Cooked Off the Bone Roasted Chicken and Turkey varieties. "Kettle Cooked 'Homestyle Carved' slices are crispy brown on the outside and moist and tender inside," Dietz says. Another new line debuts this month. Hot Off the Bone features carved meats packaged with gravies and sauces for at-home restaurant-quality hot sandwiches. Varieties include Carved Chicken Breast in BBQ Sauce, Sliced Roast Beef in Au Jus Gravy, Sliced Turkey Breast in Gravy, and Hand-Pulled Chicken in Buffalo Sauce.

Going Private?

While some customers, because of the economy, changed their purchase habits in the lunchmeat category by opting for sale brands or switching to store brands, most consumers still feel premium brands of cold cuts are worth the price. Mintel's survey showed 56 percent of respondents would go for the higher premium ring.

One in 10 respondents to Mintel's survey is buying less lunchmeat because of economic conditions. However, 7 percent said they're buying lunchmeat more often, most likely due to brown-bagging. Some consumers who previously purchased deli meats are now opting for packaged lunchmeat because of lower price points, longer shelf life and greater perceived control over price than in the deli.

Sales of private label lunchmeat grew 6 percent from September 2008 to 2009, according
to Chicago researcher Mintel, eventually reaching an 11.8 percent market share. In response to private label growth, Smithfield's Healthy Ones and John Morrell are increasing brand promotional support with attractive price points and high-value coupons, according to Healthy Ones' Halevy. John Morrell is launching a national TV campaign touting brand uniqueness and the "value proposition of enjoying restaurant-quality sandwiches, hot or cold, anytime," Dietz says.

Both Oscar Mayer and Hillshire Farm are touting product quality in the face of threats from private label. Hillshire Farm's Dryfhout says consumers want quality and are willing to pay more for freshness and taste. "Our successful new line of Ultra Thin 16-ounce tubs offers larger families the quantities they want at an attractive price, while delivering on the same great quality they've come to expect from Deli Select lunchmeat."

No one knows at this point whether private label lunchmeat will keep recent sales gains as the economy improves. However, market researcher Mintel forecasts continued category growth in all refrigerated sliced lunchmeat of 8 percent, at a rate of about 1.5 percent per year through the year 2014, mainly due to continued gains made during the recession.