Rise and Shine

The specialty food industry is in the limelight with a record-breaking $120.5 billion in sales and a whopping 20 percent growth at retail in 2015.

The specialty food industry has never been more enticing, and that’s evident in the numbers. Sales topped an all-time high of $120.5 billion in 2015, according to the Specialty Food Association’s “State of the Industry 2016” report. Even more impressive, though, is its $94 billion in retail sales, a nearly 20 percent jump from 2013-15.

If those impressive numbers aren’t enough to make your mouth water, then consider this: 58 out of the 61 specialty food categories included in this year’s report grew over the past two years, many by double digits. In fact, two categories— Eggs and Refrigerated RTD Tea and Coffee—leapt by triple digits.

“I think the industry is growing at about 22 percent versus all foods, which was growing at about 4 percent,” says Ron Tanner, vice president of philanthropy and government for the SFA, who oversees the report. “So specialty foods are growing almost five times faster than mass-market foods.”

While the industry’s phenomenal growth is more than encouraging, the best news is the edge that independent retailers have over big-box chains like Kroger, Costco and Target. Sure, the giant counterparts comprise a massive four-fifths of industry sales after their recent expansion into the specialty food area. But smaller stores are keeping pace with sales growth, and they even enjoy a slight edge over their bigbox competitors: While mainstream stores marked a 19-percent growth in sales from 2013-15, natural food stores recorded 19.5 percent growth, and specialty food stores chalked up 20 percent growth.

According to the SFA report, the upward trend has largely been fueled by the growth of small businesses. And although about 80 percent of specialty foods are sold through supermarkets, that share has been decreasing somewhat. “People are no longer taking weekly trips to the store. Instead, they go every other couple days,” says Tanner. “They’re starting to prefer smaller stores so they can just go in and get a few things rather than doing the weekly shopping.”

Millennials are notably credited for influencing nearly every industry in retail, and food is no exception. They want smaller retail outlets, a more personal shopping experience and unique products that tell a story. Tanner says independent retailers have an advantage here because of their smaller staffs who can learn about products and relay that information to the customer.

“I think that a lot of Millennials are beginning to make specialty foods more important in their everyday eating,” he says, “whereas people in their 50’s and 60’s kind of grew up with the idea that food was fuel, and it’s something that you try to get at a less expensive price.”

But that mentality is changing. As Baby Boomers hit retirement, they are willing to splurge on some of life’s luxuries. While embracing the Information Age, many of them are rejecting the cheaper, mass-processed foods of yesteryear and opting instead for quality foods from smaller producers.

“From our consumer research, we learned that people want to get information on products, and they want to be knowledgeable about the products they buy,” says Tanner. “The independent retailers have staff and personnel who can help educate people, give them ways to prepare the products or explain how to eat them. I think that’s how specialty retailers can increase their share of the business.”

Once again, Cheese and Cheese Alternatives occupy the No. 1 spot out of 61 segments when it comes to specialty food sales. “It’s more than a $4 billion category, so it’s a very significant part of the industry—much higher than any other category—and it’s still growing,” says Tanner.

In fact, the category grew 14.7 percent from 2013-15. While cheese remains king in terms of sales, it’s followed by Meat, Poultry and Seafood at $3.6 billion (up 23 percent); Chips, Pretzels and Snacks at $3.4 billion (up 22 percent); Coffee, Coffee Substitutes and Cocoa at $3.2 billion (up 17 percent); and Bread and Baked Goods at $2.6 billion (up 15 percent).

While those fantastic numbers are impressive, it’s the Refrigerated RTD Tea and Coffee category that has exploded in the past two years, posting a whopping 301.6 percent sales growth, even though it only garnered $143 million in 2015. “Its growth is really high, but its base is relatively low,” says Tanner. However, new products, such as Kombucha, are drawing plenty of interest. Meanwhile, as sugary drinks and sodas continue to decline in popularity, bottled water grew 51.4 percent over the past two years while Juice and Functional Beverages grew 37 percent. “So people are basically looking for alternatives to mass-market sodas, and they’re finding those in teas, and there’s also a lot of growth in sparkling water and vitamin-enhanced waters,” says Tanner.

While tea and coffee drinks have been thrusted into the limelight, Frozen Juices and Beverages have plummeted into oblivion. The category posted an astounding 45 percent drop in sales from 2013-15. While no other category even comes close to that kind of loss, the four that followed it are: Shelf- Stable Non-Dairy Beverages (down 5.4 percent); Cold Cereals (down 5.2 percent); Shelf-Stable Pasta (up 3 percent); and Pickles, Peppers, Olives and Other Vegetables (up 5.6 percent).

“Consumers are looking for products that are less processed, so they’re looking for refrigerated products that are fresher,” says Tanner. “And it may not be the easiest for retailers to stock, but that’s what the consumers are demanding, so they need to.”

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