Behind the dynamic rise of the specialty food and beverage industry is a shift in consumer perception of premium. Shoppers today seek upgraded experiences in everyday occasions, driving growth of a segment that is far outpacing conventional food and beverage sales, said Shelley Balanko, Ph.D., senior vice-president of The Hartman Group, Bellevue, Wash.
“Today’s consumers want something better all the time,” Dr. Balanko said during a presentation at the Specialty Food Association’s Summer Fancy Food Show, held June 25-27 in New York. “They are expecting distinctive flavors, want locally sourced foods, artisanal foods, things that are handmade and locally produced. Whether it’s condiments or commodities, consumers are trading up across all of these kinds of categories. And even if the consumer is just doing that a couple of times a week, it’s having a significant impact on the industry.”
Consumers are adopting new food routines with a focus on health and wellness, transparency and global flavors, Dr. Balanko said. Offering products with such distinctions of quality, small and mid-size brands are carving a space formerly dominated by legacy players, she said.
“Of the top 100 brands in the United States, 90% are losing share, and 68% are experiencing falling sales,” Dr. Balanko said. “Brands capturing the consumer imagination are offering something new, something different and something perceived as high quality.”
Small specialty brands may have relatively low household penetration but are generating as much as or more revenue than legacy brands, she said. As an example, she compared Oscar Mayer, in 23% of households with $172 million in annual sales, with GT’s Kombucha, in 2% of households with $313 million in sales.
“It takes very few households to generate a lot of specialty dollars because users tend to be more loyal and buying at higher price point,” she said.
Only 35% of U.S. adults have purchased a specialty brand in the past 30 days, according to Hartman research, but all demographics participate in the segment, Dr. Balanko said.
“Millennials have been at the forefront of redefining food culture for the last decade, and it’s not surprising they are the ones who want these upgraded experiences all the time, but Gen X finally matters to the premium marketplace because they tend to overindex for purchasing.”
The rise of the specialty food segment is changing the retailer-supplier relationship, she said. As specialty sales drive retailer profitability, retailers become less dependent on slotting fees paid by larger consumer packaged goods firms and become more confident in allocating additional space in stores to smaller specialty brands, Dr. Balanko said.
“Retailers have a lot to say about the evolution of the specialty marketplace,” she said.
Going forward, she added, “retailers will need to commit to a position around specialty or value because that’s where we’re seeing growth in retail industry. Folks who are putting a stake in the ground and offering more innovative food and beverage experiences, and those offering a strong value play like the Aldis and Lidls of the world.”
Packaged food will continue to represent the majority of specialty food sales, she said.
“Convenient specialty food experiences are really going to disrupt the marketplace because consumers want quality but they also want convenience,” Dr. Balanko said. “This is going to apply more pressure on some legacy C.P.G. players to evolve in a new way.”
A popular path to growth lately among larger organizations is acquisition of emerging specialty brands, but this strategy requires careful management, she said.“One thing we’ve noticed is that it takes a different mindset for a larger organization to actually grow a small, emerging brand and not kill it,” she said. “You can’t just blow out distribution. Those small brands need organic growth; they need consumer pull. That hasn’t been a strong suit of larger organizations managing small brands.”