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  • State of the Specialty Food Industry Insights and Takeaways 

    Denise Purcell

    The SFA’s newly released State of the Specialty Food Industry + 10-Year Category Tracking & Forecasts, 2022-2023 edition, digs into the current business environment. Following are four insights and takeaways from this year’s research.

    The Supply Chain’s Impact on Growth
    The parts of the industry that will grow in the next few years in part hinge on supply chain bandwidth. Makers continue to report they are unable to properly forecast their sales because they often don’t know what their supplier shipments will look like. Lead times for shipments fluctuate, too, causing production schedule delays. All of this influences how makers formulate their products, as they evaluate which SKUs they can confidently produce, made with ingredients they can reliably source and price properly to achieve profit despite increased raw material costs. And once they have products ready for retail, they’re further challenged by shipping logistics, as the trucking industry faces its own issues with short-staffing and rapidly rising fuel costs.

    BIPOC- and Women-Owned Brands in Demand
    Consumers want more BIPOC-, Black, and women-owned brands and retailer buyers and foodservice operators are seeking out incubators, brokers, b2b wholesalers and distributors, and even sales consultancies that specialize in supporting and growing these brands. Showcasing these brands has moved far beyond seasonal features to align with observed months like Black History or Women’s History, and will continue to expand.

    The Next Retail Formats
    The pandemic gave retailers insight into store formats shoppers want next and smaller footprints with minimal human contact are in demand. Expect fast growth of these formats among traditional grocers, who are also reintroducing areas since the COVID scale back with new ideas. For example, redesigned sets like salad bars that are smaller and less labor-intensive and more grab-and-go opportunities. Ghost kitchens and mini fulfillment centers will be prevalent as well. And convenience stores are well-placed to do more ready-meals and foodservice. On the flipside, businesses that were built around high-touch, personal experiences to build loyalty and trust are struggling with the rising demand for convenience, pickup and delivery. They are fulfilling their customers' needs but wonder if it weakens their original position.

    Specialty eCommerce Targets
    In 2019, specialty ecommerce sales amounted to about 4.5 percent of all specialty retail sales. In just two years that share doubled to 9.4 percent, and it will expand further over the next several years, though not so rapidly. By 2023, specialty ecommerce will account for 11.6 percent of all specialty retail sales. For many makers or retailers that sell specialty products, these numbers can be a benchmark for their own goals with specialty ecommerce. Brick-and-mortar retailers ideally should be reporting online sales at roughly the same share percentages as noted above. Likewise, makers that sell their products in ecommerce, whether it’s DTC, or through Amazon or other online avenues in brick-and-mortar retail, should ideally be seeing an online sales share approximate 9-12 percent of their total retail sales in 2021-2023.

    Plant-Based Challenges
    The overall plant-based specialty retail market grew 6 percent, exceeding $7.7 billion in 2021, after stellar 26 percent growth in 2020. Plant-based growth has outpaced the entire specialty retail market, which grew 4 percent in 2021 and 20 percent in 2020.  However, some plant-based categories were among 12 total that grew specialty sales slower than the entire market in 2021. These include Yogurt and plant-based yogurt; Tofu; Creams and creamers (Shelf stable); Plant-based milk (Refrigerated); and Plant-based milk (Shelf stable).  A given category’s degree of maturity, innovation opportunities and in some cases, vulnerability to other emerging category adjacencies may cannibalize sales in specialty. The largest growth gap is with Plant-based meat alternatives (Refrigerated). It grew 34 percent in specialty but 66 percent in the total market. Historically, this category has been composed of 97 percent specialty items, but it changed in the last three years and now non-specialty items are contributing to much of the growth.

    Specialty Beverages Grow Faster than Food
    During 2020’s initial height of COVID, specialty food grew faster (21 percent) than beverages (16 percent), but that shifted in 2021 as specialty beverages grew twice as fast as food. It comes down to consumers seeing certain products as critical, and others as discretionary. In this instance, food was more a consumer priority during the initial phases of COVID but over time, consumers expanded their shopping lists to include more specialty beverage purchases. RTD alcoholic beverages like hard seltzer, hard kombucha, and fermented functional cocktails, in particular, are growing rapidly.

    Opportunities in Perishables
    New this year, we took a closer look at specialty perishables sales, which are expected to reach nearly $33.5 billion in 2022. Perishables (random weight, non-UPC’d specialty items sold in bakery, cheese, deli, meat, and seafood sections) are critical to specialty, both in scale and as a good source of growth. For specialty retailers, perishables departments represent enticing, creative merchandising and execution. Plus, they are important centers for emerging food and beverage innovation that may eventually migrate to packaged goods categories.  
           After being challenged by shutdowns during COVID, perishables can expand to better meet consumers’ needs for hot, ready-to-eat or take-home, heat-and-eat fresh meals; meal kits; sandwiches, side dishes, and salads; breakfast foods; confections and desserts; and hot and cold beverages. But retailers must adapt post-pandemic as many consumer prefer to buy sealed, pre-packaged products (even those prepared in-store), which they perceive as fresher and/or safer. 

    The new State of the Specialty Food Industry research is available for purchase here. SFA members receive discounted pricing.

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