Sales growth for specialty foods is eclipsing that of the overall food retail market, according to the Specialty Food Association (SFA) 2019-20 State of the Specialty Food Industry Report.
SFA said Tuesday that specialty food and beverage sales reached $148.7 billion in 2018, up 9.8% since 2016. Though year-over-year dollar sales gains have slowed, advancing 5.4% in 2017 and 4.3% in 2018, the specialty segment has seen compound annual growth rate of 10.3% for the period, more than three times the 3.1% rate for all food at retail, the association reported. By unit sales, specialty had a CAGR of 8.1% during that time span.
All charts are from the Specialty Food Association 2019-20 State of the Industry Report.
Driving increased specialty food sales are broader availability, product innovation and escalating interest from consumers and retailers, SFA noted. Last year, 74% of consumers polled said they bought specialty food and/or beverage products.
"Diverse consumer lifestyles are taking specialty foods mainstream," Phil Kafarakis, president of New York-based SFA, said in a statement. "To reach these consumers and increase their own sales, food merchants have embraced the vast assortment of specialty products.”
The SFA State of the Specialty Food Industry report is a joint research project of Mintel and SPINS/IRI. It includes sales data for 63 specialty food categories (SPINS/IRI), forecasts for 35 specialty food categories through 2023 (Mintel) and results from a January survey of 1,630 U.S. adults.
In 2018, specialty food sales at brick-and-mortar retailers totaled $113.4 billion, accounting for 76% of the market, while specialty foodservice sales came in at $32.4 billion, for a 22% share. The SFA report said specialty foodservice sales grew 12.9% from 2016 to 2018 versus 8.4% for retail stores, yet for both channels sales were stronger in 2017 than 2018.
“Growing competition from foodservice and restaurant delivery is putting pressure on retailers,” SFA said in the annual report. “Specialty food sales in foodservice outpace retail, though foodservice accounts for a smaller market share. Consumers report spending more of their food dollars on foodservice.”
Online sales of specialty foods and beverages in 2018 surged 24% to $2.85 billion. Though representing just 2.5% of total specialty food sales, the online channel has seen 41% compound annual growth since 2016. In terms of physical stores, mainstream retailers have seen double-digit sales growth from 2016 to 2018 (+11%), while growth has only edged up at natural food stores (+3%) and specialty stores (+2%).
“Online retail continues to expand. It is the smallest channel but is growing the fastest. On the brick-and-mortar retail side, the mainstream channel’s growth outperforms specialty and natural stores,” the SFA report stated. “Consumers across age ranges are shopping in a variety of channels, as many specialty food and beverage options are now widely available.”
Of the total food and beverage market, specialty food and beverage sales accounted for 16.1% of sales, up one percentage point since 2016. From 2013 to 2018, specialty food and beverage sales at retail rose an average of 7.2% annually, from $47.3 billion to $67 billion.
“Today, mainstream outlet growth — including supermarkets, mass merchandisers, drug stores and other mass outlets — is the strongest, with specialty and natural food stores lagging,” SFA observed. “The wide availability of specialty products in conventional outlets is a definite factor.”
Collectively, the top 10 specialty food categories represented almost half of all specialty food and beverage sales last year. Six of the top 10 categories by retail sales are sold in the refrigerated or frozen sections, including cheese and plant-based cheese; refrigerated and frozen meat, poultry and seafood; refrigerated entrees; frozen entrees; frozen desserts; and yogurt and kefir. Rounding out the top 10 were chips, pretzels and snacks; coffee and hot cocoa (not ready-to-drink); bread and baked goods; and chocolate and other confections.
“Consumers continue to focus on fresh, frozen, health-oriented products and ingredients,” the report said. “For example, the frozen and refrigerated departments were the fastest-growing in specialty retail during 2016-2018, up 16.3% and 12%, respectively.” Refrigerated categories such as entrees, juice and functional beverages are among categories Mintel projects to grow in the next five years, SFA added.
Of the top 10 categories with the highest dollar sales growth from 2016 to 2018, plant-based meat alternatives (refrigerated and frozen) had two of the top three slots. Also showing strong growth are refrigerated beverages and frozen desserts, with the latter being driven by low- or no-sugar, premium and plant-based varieties.
Other fast-growing categories by dollars were rice cakes, water, refrigerated ready-to-drink tea and coffee, shelf-stable and refrigerated creams and creamers, jerky and meat snacks, and refrigerated pasta.
“Plant-based categories continue to lead in terms of specialty share,” SFA’s report noted. “Most of these categories originally were developed specifically for the natural and specialty consumer. Many of the most cutting-edge plant-based products begin in natural or specialty retail and migrate to larger channels if sales reach critical mass.”
Mintel forecasts the specialty food market to hit $89.1 billion by 2023, expanding at a 5.9% CAGR from 2018. Besides continued strength for plant-based foods and specialty beverages, the SFA report points to opportunities in breakfast and describes convenience stores as “an undertapped market for specialty items.”
Millennials are the most likely customers, with 84% saying they bought specialty foods in 2018. Yet the appeal of specialty products remains strong across generations, as 66% of Gen-Z, 75% of Gen-X and 69% of Baby Boomer consumers reporting they purchased specialty foods last year.
“Ultimately, a core specialty food consumer is surfacing that is between 35-54 years old, though younger and older age groups are active consumers,” SFA said in the report.