According to the Specialty Food Association, this shift is thanks in part to consumers’ growing desire for better-for-you products and their increasing interest in expressing their individualism by adopting lifestyles centered on diets.
The result is rapid growth for specialty food that far outpaces that of all food at retail by more than 9 times, according to a new report on the state of the specialty food industry conducted by Mintel and SPINS/IRI for the Specialty Food Association. The specialty food market grew 11 percent from 2015 to $140.3 billion in retail and foodservice and now accounts for 15.8% of the total market share and is projected to capture upwards of 19% by 2022. Meanwhile sales growth of all food at retail has climbed only 1.4%.
In this episode of FoodNavigator-USA’s Soup-To-Nuts Podcast, Ron Tanner, who is the Vice President Philanthropy, Government and Industry Relations at the Specialty Food Association, explains how specialty food is evolving to meet consumers' changing needs, what the top sellers now and in the near future, who is buying specialty food and where they are purchasing it.
What is ‘specialty food’?
As demand for specialty food increases, the line between products that were once considered fancy or gourmet and those that are thought of as more everyday fare is blurring. But, according to Tanner, there are still several characteristics that set specialty foods apart.
“Specialty food has an ever changing definition. We like to say it is food that is made with better ingredients, that tastes good and there is usually a person behind the product,” he explained.
He added that while it is not mass produced in factories, it also isn’t “particularly what you would call fancy or gourmet. It is just something that is a little bit better. It is not even always upscale or even more expensive than other types of food. It is just something which is made with more care.”
While specialty foods don’t have to be more expensive, they sometimes are – but the value proposition is worth it to consumers – especially those who are avoiding fillers in favor of premium ingredients with higher nutritional content, Tanner adds.
What are the top growing categories?
He explains that consumers are willing to pay more for a better quality product in part because they are thinking more about the impact of ingredients on their health and wellness and because what they put on their plate or in the glass has become an expression of who they are as an individual.
With that foundation, Tanner says there are three main areas that are driving the growth of specialty, including frozen and refrigerated products, beverages and protein-based products.
Taking a closer look at the potential of fresh and frozen specialty foods, the state of the industry report reveals that seven of the top 10 categories by retail sales were chilled or frozen foods, led by 42% growth in frozen desserts, 27% growth in refrigerated entrees and 21% growth of yogurt and kefier.
While this growth is promising, Tanner says there is still plenty of room for innovation in the freezer and refrigerator section.
“From what I have seen, there has not been a lot of innovation in frozen for a long time. You have fish sticks and TV dinners. There has been a lot of frozen natural food products with alternative burgers and burritos and things like that,” but there is room for more, he said.
Tanner also warns that the exponential growth in the frozen and refrigerated sections is restricted somewhat by limited physical space, which is increasing competitive pressure.
Another fast growing segment which could be easier to enter is the snack segment. According to the Mintel report, rice cakes was the second fastest growing category by dollar from 2015 to 2017 when it increased 64.1%. Meat snacks and jerky also climbed 62.1% in this period followed by other snack categories, including wellness bars and gels, which were up 22.6% and yogurt and kefir, which were up 20.6%.
While specialty products are doing well in general, there are some categories that are more competitive than others and could be nearing saturation, such as olive oil, hot sauce, granola and bars, cautions Tanner.
Who is buying specialty food?
While specialty products are becoming more available and more diverse across categories, the dominate consumers are still concentrated on the coasts, and tend to be younger, more affluent shoppers, according to the state of the industry report.
Consumers life stages also heavily influences which specialty products they are most likely to buy and which claims resonate the best with them.
According to the report, shoppers aged 18-23 years buy specialty products in order to support small companies, experience authentic ethnic flavors and meet their snacking needs. They are most interested in foods that are free from common allergens, high in protein, seasonal and functional. They also are most likely to buy plant-based meat alternatives.
Millennials tend to buy specialty products because they want clean ingredient decks, superior quality and to treat themselves. They also want high protein snacks and seasonal products, and tend to buy more ice cream, frozen desserts, cookies and cakes and meat snacks than other generations.
Gen Xers have more in common with the youngest shopper in that they buy specialty products for interesting tastes, flavors and experiences, but they also are more focused on nutritional and ingredient information. As they consider their health, they are more likely to buy specialty coffee, cocoa, nuts, seeds and spices than other generations.
Boomers also are interested in specialty foods to experience to new flavors and for every day meal solutions, but unlike younger shoppers they are less likely to buy beverages and snacks and more likely to buy seasonal foods and products that are local.
Bringing more people to specialty
While 60% of consumers are buying specialty foods, 40% are not – a reality that Tanner attributes in part to cost and access.
According to the report, retailers and manufacturers can encourage shoppers who do not currently purchase specialty foods by positioning them as an easy solution for entertaining or sharing with other, which are times when they already tend to splurge and which will drive trail. In addition, brands can engage light buyers by telling their story and heritage to inspire value-based purchases, as well as touting effort to reduce food waste.
Retailers also can help inspire more purchases by showing consumers how to use specialty foods as ingredients – a strategy that helps consumers feel like they are getting more out of the purchase while also enhancing their personal cooking skills.
Specialty foods are entering the mainstream
As consumer interest in specialty foods continues to increase, so too is that of retailers that previously did not focus on the products. In particular, Tanner explains, c-stores and mass market retailers are starting to see the potential of the space to drive foot traffic and increase basket ring.
As the specialty food segment continues to grow, Tanner warns manufacturers and retailers to focus on what they do best and not to become carried away trying to secure more market share by launching more products.
Stepping back, Tanner added that finding the right balance is a major take away from the report and a key element to the long term success of the segment, as well as that of the individual players within it.