The Current State of the Specialty Food Industry in 2018
Specialty foods are unique and highly valuable food items. Typically, this type of food is produced from small amounts of high-quality ingredients, which is the reason behind their above-average price tag, but also their overall quality and health benefits.
In 2018, The Specialty Food Association released a two-year study titled The State of the Specialty Food Industry. Author and researcher, Denise Purcell discovered significant changes in the food industry, with a focus on specialty foods. The study highlights the impact specialty foods have on sales and consumer decisions. Here is a brief overview of her findings and the current state of the specialty food industry.
Reasons Behind the Rise of Specialty Foods
Specialty foods might seem like a trend, but its roots span much deeper. Thanks to FDA regulations on labels and nutrition guidelines, more people are aware of the health risks involved with food and beverages. Ingredient labels help people to understand what they eat and drink, and watch out for ingredients like sugar, artificial flavoring, or chemical food dies, to improve health.
Consumer demand for higher quality food is another major contributor to the rise of specialty foods. It is affecting everyone in the supply chain. Food manufacturers are taking more care when sourcing raw food, while distributors and suppliers, like UNFI and Whole Foods, are changing the landscape of the natural food industry.
All of these changes are contributing to much higher demand and supply of specialized food, and choice remains the main reason behind The State of the Specialty Food Industry study.
The Rise of the Specialty Food Industry
As of this year, 65% of consumers purchase specialty food. Specialty food dominates sales revenue as well, with a peak income of $140.3 billion in both retail (78.4%) and foodservice (21.6%), an 11% increase from 2015.
Sales from specialty food and beverage have a share total of 15.8%, with plant-based foods dominating the first four spots. Due to the increased interest in organic produce, their input is expected to rise over the next five years.
When it comes to consumer retail purchase, mainstream channels hold an 82% share of total retail sales. However, the biggest winners are both the physical and online versions of the food service. Their sales have doubled in size over the two year period from 2015 and outgrew regular retail options.
On the other hand, retail makers are increasing their offer of specialty foods, which is raising their sales input, but it is growing at a much slower pace. Major chain supplies have only seen significant growth potential in the convenience, drug and vending channels.
When it comes to consumers and who is purchasing specialty foods, demographics reveal that the most significant number of consumers belong to the iGeneration (18-23).
Other Millenials are also significant consumers because generally, these groups have the highest awareness of what they consume. They also make the decision to buy specialty foods based on many different non-traditional factors, like benefits to health, environmental impact, and even trendiness.
Top Ten Selling Specialty Food Groups in Retail
In 2017, the top-selling retail products reached a combined total of almost $29 billion out of around $1.4 trillion of total food spending. It included fresh, refrigerated, frozen, plant-based, and health-focused food, which also had the most notable growth in retail sales.
What’s interesting, on the other hand, is the growth rate of specialty foods which peaked at a combined 12.9%. That’s 11.5% more when compared to all other food, which only achieved a 1.4% growth.
Seven groups in the top ten are chilled or frozen foods, which indicates the demand for other specialty foods will have to increase to create a genuinely diversified offer on the market. Here is a brief overview of the top ten specialty food groups and their performance on the market in 2017:
Cheese and Plant-Based Cheese – cheese achieved the highest sales total, reaching little over four billion in sales. But it’s growth was relatively insignificant with an average of just 6.6% from 2015, which indicates a stable demand for cheese.
Frozen or Refrigerated Meat, Poultry and Seafood – frozen meat in all its forms reached $3.8 billion in sales over the period. What’s most interesting is that it had the lowest change over the two year period between 2015 and 2017, with an average growth of just 3.3%.
Chips, Pretzels, and Snacks – this group is characterized by a top three spot when it comes to sales in 2017 with $3.8 billion (little less than the previous group). However, it had a below-average growth rate for the observed period with 11.8%.
Non-RTD Coffee and Hot Cocoa – owing to the love of coffee in the United States, it is not surprising that this specialty food group earned $3.3 billion in retail sales. Still, the traditionally loyal consumer base also means it had a low growth rate of only 5.4% over a two-year period.
Bread and Baked Goods – bread is a staple food group and earned an expected $3 billion in retail. What’s surprising though is the above-average growth of 18.1% from 2015 to 2017, meaning demand and consumption has risen significantly.
Chocolate and Other Confectionery – chocolate and confectionaries brought in a combined sum of $2.3 billion in sales last year. And according to the data collected from the previous two years, they exhibited a slightly below average growth of 10.8%.
Yogurt and Kefir – healthier dairy-based products like yogurt and kefir massed a total sum of $2.2 billion in retail sales last year. However, the market growth was excellent in the previous two years, and the specialized food group saw an increase of 20.6%, which is the third best value among the top ten groups.
Frozen Deserts – the frozen deserts group has a strong eight position in retail sales, earning a total sum of 2.2 million. More importantly, frozen deserts achieved the highest growth rate out of all the groups in the top 10 with 41.6% between 2015-2017.
Refrigerated Entrees – ready-to-eat refrigerated entrees gained a combined amount of $2.1 billion from retail sales, which was enough to secure them ninth place. But the good news for suppliers and distributors is that this group of specialty foods takes second place when it comes to exponential market growth with 27.2% change from 2015.
Frozen Lunch or Dinner Entrees – frozen lunches and dinner entrees performed similarly to refrigerated dinner entrees taking $2.1 billion from sales, which is a 13.1% of growth during a two-year period. But if you combined the two similar last entrees, they would top the list with $4.2 billion in revenue and 40.3% change.
The Bottom Line
Observing the changes in the specialty food market Denise Purcell remarked on future growth: “We see the future growth of the [specialty] category being driven more by foodservice, convenience, and vending. We’ve seen a lot of growth in drug (CVS, Walgreens, etc.) as well. You’ve got all these different players now that want to carry some of these products.”
If you want to know more about the general state of the food and beverage industry, stay up to date with the latest news. Use the most recent information as an opportunity to improve your offer, and boost your bottom line.
Please visit our website at www.cascadiamanagingbrands.com