GALLOPING GOURMET

NEW YORK - Nearly every category in the supermarket has been influenced by the interest in specialty food, from imported pasta to human-grade pet food. While its $35 billion in annual sales is just a morsel of the overall food market, specialty food has been growing sales more than three times as fast as all food sales. Ann G. Daw, who took over this summer as the new president of the National Association

NEW YORK - Nearly every category in the supermarket has been influenced by the interest in specialty food, from imported pasta to human-grade pet food. While its $35 billion in annual sales is just a morsel of the overall food market, specialty food has been growing sales more than three times as fast as all food sales. Ann G. Daw, who took over this summer as the new president of the National Association for the Specialty Food Trade, talked with SN about specialty's impact on conventional foods, how supermarkets can carve out a niche between value and specialty stores, and why specialty food products should be placed side by side with their mainstream counterparts.

SN: After 27 years on the mainstream consumer packaged goods side, how do you see the specialty goods side of the business as different?

AD: I think what makes this part of the business so exciting is three things that attracted me to this opportunity: It's all about innovation and newness; it's global in scope, we have a lot of international visitors from the show; and the third piece is, I really believe in brands. I feel there's a tremendous opportunity to build brands through the NASFT, and our membership association can in fact be as effective, if not more effective, than corporate America.

SN: How does the NASFT do that?

AD: It's part of what we do at the Fancy Food Show, because we bring buyers and sellers together, provide networking between trading partners. What the show does is get the product in front of consumers. You're looking for what's new, what gets people in the door. I think the question we'll face will be, how do we get closer to the consumer? The food company may not have a huge ad budget, but there's guerrilla marketing and other ways of communicating directly with the consumer.

SN: Is the growth of specialty food changing the way mainstream CPGs go to market?

AD: I think that with our desire for personalization, you see companies asking, How do we get the consumer to have a two-way conversation with us? How do we get to specific constituencies? Some companies have done that by using advocates within those constituencies. With big companies, I think you're seeing more of that. They're still doing a lot of traditional promotions, but you're seeing much more on the Web.

SN: The specialty food market is growing, but supermarkets' share of that market has declined in the past few years. What are some of supermarkets' strengths and weaknesses in selling specialty foods?

AD: I see the supermarkets changing dramatically. Years ago, you didn't see sushi bars in supermarkets. Produce has changed. There's just been a tremendous evolution. I think it's because people have been shopping someplace else when they want something interesting, and supermarkets are trying to bring them back.

I think they're struggling, though. You have the value-oriented retailers like Wal-Mart on one end and highly differentiated specialty stores on the other end, and supermarkets don't want to be stuck in the middle. It used to be that they drew people in the store through loss-leaders; now, they're trying to forge a connection with shoppers. Specialty foods' low turnover is a big concern to supermarkets, though, because they operate on razor-thin margins. I think supermarkets will end up differentiating themselves by providing good service and staying close to their communities. And, obviously, having good, fresh products.

SN: What would you add to the conversation about whether to integrate or segregate specialty foods in supermarkets?

AD: I think it's really important to simplify how consumers get their shopping done. If you have to spend too much time in the store, it gets frustrating for customers. Supermarkets have evolved in that they've begun integrating specialty products with their mainstream counterparts. Specialty isn't a category, it's a characteristic of a food that's present in many different categories. I think the specialty version of a product sitting next to the mainstream version gives consumers more information about how it's differentiated, and they know where to find it. And if consumers have a relevant frame of reference, they may be more experimental.

SN: Specialty food represents a little over 8% of all food sales, according to NASFT figures. How big do you predict specialty foods' share of all food sales getting?

AD: I really believe the consumer wants that whole enjoyment: the pleasure of food, they want it to be convenient, they want it to be healthy. The whole point of a specialty food is that it is differentiated. As people look for interesting and personalized food, I think specialty will always grow faster than the mainstream food industry. I don't think I could predict a peak. I think its growth outlook will depend on whether it's competing with other specialty foods or conventional foods. If it's only competing with specialty foods, I think the growth will be limited. It's a function of keeping interest, keeping innovation up. And there's such entrepreneurial spirit in the industry that I just don't see that stopping.