SPECIAL EFFECTS

Specialty food is becoming even more special. Sales grew 13% last year to $38.5 billion, according to a study by Mintel International, SPINS and the National Association for the Specialty Food Trade, based on scanner data of 36 categories (including organics) in food, drug, mass merchandisers (excluding Wal-Mart Stores) and natural supermarkets (excluding Trader Joe's). If the industry continues on

Specialty food is becoming even more special.

Sales grew 13% last year to $38.5 billion, according to a study by Mintel International, SPINS and the National Association for the Specialty Food Trade, based on scanner data of 36 categories (including organics) in food, drug, mass merchandisers (excluding Wal-Mart Stores) and natural supermarkets (excluding Trader Joe's).

If the industry continues on this track, specialty food could command 20% of all food sales at retail by 2015, up from its current 10%, according to NASFT.

“People think we're a little industry off to the side, but we're not,” said Ron Tanner, NASFT's communications vice president. “Specialty is becoming a fairly substantial player in the market.”

So much so that retailers are rethinking the types of products they offer and how they're merchandised. Making such an effort is worthwhile, because there's a trigger effect every time a supermarket doesn't have what a specialty shopper is looking for, said Mintel senior research analyst Marcia Mogelonsky. Such shoppers will not only buy specialty elsewhere, but also a lot of items on their list.

That's why retailers need to not only stock specialty foods, but also give them strong merchandising support.

“It's a disservice to stick it in the back of the store where it's going to get dusty,” Mogelonsky said.

Rather, specialty foods should be part of a major merchandising effort, such as a special section or even an international aisle, she said.

That's exactly what Grand Rapids, Mich.-based Meijer is doing in all 180 stores with its “World Foods” aisle. Thousands of stockkeeping units are available in more than two dozen sections, broken down by nationality, including British, German, Greek and Eastern European.

Meijer analyzes local demographics to determine the best mix for each store, but for the most part, it seeks to provide a wide variety of products that almost anyone would enjoy.

The reason for this is that Meijer has found that specialty appeals to a broad range of people, according to Scott Chambers, senior grocery buyer for international foods.

“The aisle is designed for the average customer,” Chambers told SN.

That's because an increasing number of people are eager to try new foods, ranging from imported Italian pasta to a Kit-Kat bar from England. The World Foods aisle is a way for Meijer to meet their needs, and make shopping less of a chore and more of an experience.

“In the middle of our grocery department we have this fun aisle that people can spend some time in and find something interesting,” he said.

Popular items include products from England and Germany, such as German barrel pickles and Gerolsteiner bottled mineral water. Even hard-to-find regional favorites are in stock.

“We try not to get too esoteric, but if you want Vegemite, you can find it,” he said.

GROWING INTEREST

Chambers said sales are good, although he declined to elaborate. He attributes the growing interest in specialty to several factors. One of the biggest is that people can get information about food 24 hours a day via cable TV and the Internet. Likewise, restaurants are serving more specialty foods, such as entrees served in chipotle sauce.

“People are looking to try and discover new things,” he said. “Our aisle gives them a little taste of that.”

While specialty prices are typically higher because of overseas shipping costs, Meijer keeps margins as low as possible (Chambers declined to reveal margins). The reason for this is that Meijer wants the departments to add to its one-stop-shopping appeal, not act as a major profit center, according to Chambers.

Meijer's efforts come at a time when specialty food is transitioning into channels that typically have not represented the category. Among other examples, Wal-Mart has deepened its commitment to organics, and Target now offers such specialty foods as Choxie, a private-label upscale chocolate line. Mainstream manufacturers are also growing their specialty business, such as Hershey's purchase of Scharffen Berger premium chocolate.

“The challenge now is how to position products as special when specialty is going mainstream,” Mintel's Mogelonsky said.

For Clayton, Mo.-based Straub's, a four-store specialty operator, the answer was clear: Go abroad. So now, along with offering domestic specialties, it relies heavily on authentic imported items.

Doing so helps the retailer's 10,000-square-foot units compete with the big 80,000-square-foot stores that are starting to bring in high-end brands once carried only by specialty retailers, said company Vice President Trip Straub.

“Stonewall Kitchen used to be only available in smaller mom-and-pop stores, but now it's in major grocery chains,” Straub said.

With the help of its distributors, Straub's searches the world for artisanal specialties produced by small companies. Rather than offer the most popular brand of shortbread, it carries one produced directly in Scotland.

“We went straight to Edinburgh to find a true traditional shortbread,” he said.

This way, even if a large chain wanted the product, it most likely couldn't source it, because small companies typically don't have enough supply for a high number of stores, Straub said.

West Point Market, a single, upscale store in Akron, Ohio, is taking a similar approach. The retailer now imports directly from manufacturers who make specialty products.

For instance, it gets Radici of Tuscany pasta and sauces right from the source in Italy, said Chief Executive Officer Rick Vernon. Doing so used to be difficult because of various charges and policies, including requirements that made it necessary to purchase in large quantities. But that's no longer the case, and West Point has not had trouble buying just a pallet, said Vernon.

West Point Market learns about new products by attending European food shows and browsing the aisles for unique foods and beverages.

“The governments of Italy, Germany and France encourage retailers to come over and network,” he said.

Another way it remains competitive is by building its specialty private label. Over the last 18 months, the retailer has almost doubled the amount of products in the West Point Market-brand line to 100 SKUs.

“This is a way for us to compete, because it's a brand people can't get anywhere else,” he said.

The brand has built up such a loyal following that it's typically the No. 1 seller in each category, according to Vernon.


A CHANGING CLIENTELE

Product assortment is not the only way West Point is fighting back. It also revamped its aisle format several months ago to cater to the growing number of young shoppers who are now buying specialty.

“Our clientele once was primarily Boomers to seniors. But now we’re seeing a lot of 20- and 30-somethings,” he said. “People are getting back into cooking again.”

West Point quickly realized that it couldn’t use a cookie-cutter approach to market to its changing clientele. Unlike its traditional shoppers, who like to browse, the younger demographic is in a rush, he said.

“They all have a BlackBerry in hand and want to get in and out in a hurry,” he said.

To help them do just that, West Point Market cut out openings halfway down its 40-foot aisles.

“Now they can cut through from aisle to aisle,” he said. “They love it.”

West Point is also catering to its older shoppers with the launch of smaller shopping carts that are more ergonomic and easier to use.

NEW ARRIVALS
More than 3,500 new specialty products were introduced last year, down from 5,100 in 2005.
Top 5 Specialty Categories Ranked by Number of New Products
2006 Product
Category Introductions
Beverages 625
Sauces and Seasonings 582
Bakery 439
Snacks 414
Confectionery 368
Source: NASFT State of the Industry Report

SPECIAL SALES
Condiments remain the largest specialty category, generating $3.6 billion in sales.
Top 10 Specialty Categories
Category 2004 Sales 2006 Sales % Change
1. Condiments $3.57B $3.68B 3.2
2. Cheese $1.05B $1.22B 15
3. Coffee/Cocoa $887M $1.15B 30
4. Chips/Pretzels/Snacks $931M $1.13B 22
5. Beverages (including carbonated and
ready-to-drink) $680M $1.07B 58
6. Shelf-Stable Juices $511M $1.06B 107
7. Candy $715M $839M 17
8. Cooking Oil $621M $803M 29
9. Refrigerated Juices/
Beverages $541M $797M 47
10. Tea $744M $784M 5
Source: NASFT State of the Industry Report