Denise Purcell

Each year as part of the State of the Specialty Food Industry research, we track and forecast sales performance of key categories over 10 years. As part of this work, our research team, David Lockwood and David Browne, analyzes what’s happening innovation-wise at the shelf-, brand-, and item-level through a combination of trend research online, as well as in-person experiences at Winter and Summer Fancy Food Shows, and store visits at specialty retailers. Several of the most prominent innovation trends in 2022 include: Diverse-owned brands in the spotlight. Much as specialty consumers have gained affinity for local/regional brands where they shop for food and beverages, many now have an ethical/moral interest in another subset of products; women-, BIPOC-, and/or LGBTQ+- owned brands. Some retailers identify relevant brands in featured sets or with shelf signage and build promotions around key months in the year that celebrate these groups. Brands can obtain certifications, which may help to entice label-reading shoppers. It’s too early to tell if there are certain food and beverage categories where these brands compete more commonly. Instead, it’s apparent that an attentive shopper will often have a choice at the shelf. It’s also unclear if a consumer will prioritize brand ownership over other characteristics such as organic, non-GMO, etc, if given limited options. Convenience after COVID. As we come out of COVID, or at least have migrated into later phases of the virus, it’s apparent that consumers are tired of all the at-home meal preparation. While they honed their cooking and baking skills in 2020, and branched out and experimented in 2021, they entered 2022 fatigued and craving convenience. This takes many forms: Ready-to-eat (RTE), heat-and-eat, ready-to-drink (RTD) innovations have helped grow categories including Beans, grains, rice, dry (Shelf stable); Entrées (Refrigerated); Entrées, lunch, dinner (Frozen); and Tea and coffee, RTD (Refrigerated). Even as boxed mac-and-cheese slowed in 2021, Pasta (Shel stable) and Sauces, pasta, pizza (Shelf stable) both continued to perform well into early 2022, not only due to rising food prices that make these categories stay appealing, but also simple convenience. Kitchen shortcuts in the Baking mixes, ingredients, flours category that only require water or oil, readily available with any diet or allergy in mind. At the same time, growth in mature specialty categories like Cheese and plant-based cheese came from shredded/sliced subcategories. Deli meat correspondingly did well, too. Improved home-brewed tea and coffee via Creams and creamers (Refrigerated). An ever-increasing array of flavors, functional additives (e.g., mushrooms, healthy fats, vitamins), and bases (dairy or plant-based) give consumers many options to enhance their tea/coffee. The return of indulgence. It never really went away, except perhaps when it took a back seat during the earliest phases of COVID panic buying, but consumers are increasingly enjoying sweet and savory snack categories, even as inflation drives food prices higher. A quick look at some of the best performing categories in early 2022 includes Chips, pretzels, snacks; Chocolate and other confectionery; Cookies and snack bars; and Desserts (Frozen), and we’re seeing indulgence run through many categories both in ingredient profile and marketing messaging. Upcycling and food waste solutions. Brands like Renewal Mill, Fabalish, and The Spare Co. are just the tip of the iceberg. They’re partnering in some cases with widely-known brands, too, which should help more consumers get exposed to this segment. Retailers including Misfits Market focus their entire business model on food waste solutions, too, and “upcycled” shopping is fairly easy on a site such as HiveBrands.com. You can view innovation and flavor trends in each of the 37 categories forecasted by purchasing the full State of the Specialty Food Industry report, 2022-2023 Edition. SFA members receive discounted pricing.

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.

The specialty food market has prospered amid two difficult years. According to SFA’s newly released State of the Specialty Food Industry research, the market hit $175 billion in retail, foodservice, and ecommerce sales is 2021 and continues to grow at a faster rate than all food. Growth will continue but at a much slower pace than the industry experienced in the 2020 stay-at-home whirlwind of grocery shopping and at-home meal preparation. The market faces well-known challenges due to inflation’s role in pushing food prices, supply chain difficulties, fuel cost increases, packaging shortages, and shipping issues. Growth over the next few years depends heavily on shifts in these challenges and supply chain bandwidth. In the Summer issue of Specialty Food magazine, you can discover the highlights from this year’s research, such as sales and forecasts in key segments, fastest-growing categories and subcategories, and COVID’s impact on category sales. In addition to a deeper dive into all this data, the full 112-page research— available for purchase in the specialtyfood.com Learning Center—also details key trends driving opportunities and decision-making in the market. Here is a preview of some: Home cooking and baking slows as COVID subsides. As COVID took hold in 2020, consumers returned to kitchens in full force. Up until then, consumer food spending had been pretty evenly split between groceries versus at restaurants, but tilted heavily back on groceries almost overnight, with specialty benefitting from the shift. Fast-forward through 2021 and dollar sales growth in various cooking/baking categories has taken a turn, giving back much of the 2020 COVID gains. But unit sales through April 2022 are strengthening, suggesting that home cooking/ baking will remain a long-term trend but not nearly as strong as the pandemic-influenced phenomenon. Collaboration carries the industry forward. Supply chain challenges necessitated long overdue SKU rationalization, not only among makers who have pared down production to essential products, but also retailers who are more cautious than ever about bringing in new products. The impetus is on makers to innovate with far more thought, R&D, and investment. Innovation centers, incubators, and culinary kitchens are ramping up efforts to help producers design, package, and create products that will make their way into specialty retail. BIPOC- and women-owned brands in the spotlight. Consumer desire for brands from Black, indigenous, and people of color (BIPOC)- and women-owned companies is skyrocketing. According to the State of the Industry’s companion research, Today’s Specialty Food Consumer, published in September 2021, 17 percent of specialty food consumers say they buy specialty food “to support diverse suppliers (e.g., women-, Black-, BIPOC-, LGBTQ+-, veteran-, disabled- owned companies).” Meanwhile, 22 percent of SFCs said they prefer to shop in stores that feature these types of brands/products. Increasingly incubators, distributors, and brokers are specializing in supporting diverse-owned brands. Retailer and foodservice operators are also seeking out a broader diversity of brands. Target launched its Racial Equity and Change program with plans to spend $2 billion+ with Black-owned businesses by 2025. Pop Up Grocer featured a Washington, DC spot to highlight brands that are women-owned, BIPOC- and queer-owned, and/or local. Many specialty retailers, such as PCC Natural Markets, are retooling their mission to address Justice, Equity, Diversity and Inclusion, which is translating to product assortment in stores. To learn more about The State of the Specialty Food Industry + 10-Year Category Tracking and Forecasts, 2022-2023 Edition, look for upcoming information about our webinar on July 21.