It's not enough for retailers to carry specialty foods. They must be committed to the category through dedicated promotions, competitive pricing, broad education and a varied assortment, retailers and industry observers told SN.The problem is, the majority of supermarkets don't view specialty products the same way they do national brands, said Jay Rosengarten, principal, The Rosengarten Group, a Tarrytown,

It's not enough for retailers to carry specialty foods. They must be committed to the category through dedicated promotions, competitive pricing, broad education and a varied assortment, retailers and industry observers told SN.

The problem is, the majority of supermarkets don't view specialty products the same way they do national brands, said Jay Rosengarten, principal, The Rosengarten Group, a Tarrytown, N.Y., consultancy.

"Most supermarket chains don't look at specialty as a selling opportunity -- only a margin builder," he said.

Such retailers are remiss, Rosengarten said, citing that the specialty foods market in the United States has had an annual growth rate of 7% for several years. Retail sales passed the $20 billion mark in 2000 and are expected to top $27 billion in 2005, according to Packaged Facts, a division of MarketResearch.com, New York, a provider of global market intelligence products and services. According to the report, 55% of gourmet/specialty food sales in 2000 were made in supermarkets.

More and more, people are prone to try specialty, said Rosengarten. There are several reasons for this, including America's growing diverse population, the Internet, and the popularity of the Food Network and celebrity chefs like Emeril.

"People see chefs on TV use specialty foods, such as high-quality soy sauce, vanilla beans and saffron, and they want to purchase those foods to use at home," noted Ron Tanner, vice president of communications and education, National Association for the Specialty Food Trade, New York, a not-for-profit trade association.

Specialty consumers spend more on food than other consumers, so they are a good market for supermarkets, said Tanner. According to NASFT research, 75% of all people purchase specialty foods, at least in one category.

Nowadays, there's particular interest in specialty tea, chocolate, cheese, ginger products and artisan bread, as reflected in NASFT data. According to the Packaged Facts report, the coffee and tea industry leads the market, with sales of almost $4.3 billion in 2000. Specialty coffee/tea is predicted to remain the fastest-growing sector of the market through 2005.

Catering to specialty consumers requires strong pricing, assortment and promotion strategies. Supermarkets have an advantage over specialty food stores because of the perception that specialty food stores are too expensive, said Ann Brody, principal, Ann Brody Enterprises, a Bethesda, Md., consultancy. Supermarkets should embrace this opportunity by educating consumers about why the products are unique. Signs, demos and samplings are among the ways this can be done.

"Putting it on the shelf is not good enough," said Brody. "You need to educate the consumer."

Mars Super Markets, Baltimore, Md., a 16-store retailer, uses seasonal promotions such as in-aisle shippers filled with tea in the winter, marinades in the summer.

Mars also advertises specialty food in its weekly circular, then backs it up with shelf tags. The retailer has increased its assortment of specialty food since changing distributors to Fleming four years ago, according to Joseph Osment, category manager. It currently offers 5,000 specialty stockkeeping units, many of which carry 35% to 37% margins.

The retailer would like to expand its assortment even further, though the size of its stores (30,000-35,000 square feet) makes it difficult. Sauces and marinades from World Harbors, Auburn, Maine, are especially popular.

"Most of what we do is sell low-priced items, so specialty foods let us provide something extra for our customers," Osment said.

Mars once separated specialty items from their mainstream counterparts, but found that sales improved when it began integrating, Osment said.

Kowalski's Markets, St. Paul, Minn., defines specialty largely as gourmet, ethnic and kosher. It sees specialty and natural as two separate categories, though it has seen some crossover, said Debbie Leland, specialty and natural food buyer. Natural/specialty foods account for 25% of the grocery department at Kowalski's.

Specialty food products, which carry about 25% to 30% margins, have always been integrated with mainstream products because "that's the way customers like to shop," said Leland.

Leland acknowledges that some retailers view specialty food as nothing more than slow-moving items. But this isn't the case at Kowalski's, said Leland.

The chain heavily promotes the category on endcap and side/wing displays. Specialty pasta, olive oil, salty snacks, and jams are among the items commonly merchandised on these displays.

Popular items include balsamic vinegar and olive oil. She also points to strong interest in Thai food, a segment Leland said is so popular that it's almost become mainstream. Kowalski's runs discounts, but not often. The reason for this is that specialty is not a price-sensitive category at the retailer, according to Leland.

Rosengarten contends, however, that retailers need to be competitive when it comes to pricing. He knows that many retailers carry disproportionately high margins for specialty foods, sometimes up to 10% higher than mainstream products.

"You don't have to give away the product, but you need to be reasonable about it," he noted.

Though Kowalski's doesn't focus heavily on price, it places strong emphasis on consumer education. While consumers know a lot about specialty food, they want to learn even more, Leland said. Kowalski's shelf signs explain what makes the product so unique, said Leland. They are frequently used for regional specialty products, including, most recently, confections from B.T. McElrath, Minneapolis. The signs explained that B.T. McElrath's Epicurean Truffles were named NASFT's "Outstanding Confection" in 2002. Other retailers, too, are giving more support to regional products. The Kroger Co., Cincinnati, for instance, is merchandising five specialty SKUs from the Braswell Food Co. in 120 of its Georgia stores, according to Jeff Braswell, sales manager for the Statesboro, Ga.-based specialty food company. Each SKU features a regional vegetable, including the Vidalia onion, Georgia's official state vegetable. SKUs include Vidalia onion steak sauce and Vidalia onion peach salsa. A "Georgia Grown" logo is featured on the packaging.

The assortment is merchandised in the produce department next to a spindle rack containing pamphlets of recipes featuring fresh Georgia produce.

This kind of specialty cross merchandising is in use at other retailers, including the eight Lunds and 12 Byerly's stores owned by Lund Food Holdings, Minneapolis. Over the last year, the retailer's culinary director, Julie Griffin, has spearheaded a program to pair specialty food with nonfood items, including kitchen gadgets. The program has already been implemented in seven stores and is slated to roll out to another four this year.

Recently, Clearbrook Farms' tart shells were featured on an eye-catching orchard cart filled with fruit and a serving tray for sale. Likewise, Lunds/Byerly's showcased Stonewall Kitchen barbecue sauces and a sauce brush-and-cup set.

"Pulling out a specialty food and showing it with a nonfood item gives our customers a new [usage] idea and expands on what our customers are able to prepare and serve at home," Griffin said.

Lunds and Byerly's put specialty food in the spotlight even more by merchandising it in the highly coveted front end. In select checkouts in four stores, candy and magazines have been replaced with specialty cross-merchandising programs, including soup with soup bowls.

Lunds/Byerly's also brings dry grocery items into the perimeter of the store. Stonewall Kitchen jams, for instance, are merchandised in the bakery adjacent to artisan breads. And in the meat department, the retailer's dry-aged prime beef customers are tempted by Smith & Wollensky steak sauce and Golden Whisk Bistro Bleu & Garlique. In the seafood department, Stonewall Kitchen lemon and dill cocktail sauce is placed near shrimp.

"It's important to have specialty foods in-line, but it's just as important to pull them out and put them in other areas of the store," Griffin said.