by Karen Fernandez
Specialty Foods Editor
Last month, the Specialty Food Association (SFA), the not-for-profit business trade association established in 1952 to foster trade, commerce and interest in the specialty food industry in the US, released its 2021-2022 edition of its annual State of the Specialty Food Industry Report. The report was created with the use of data from SPINS, a leading provider of retail consumer insights, analytics and consulting for the Natural, Organic and Specialty Products Industry and IRI, a market research company which provides clients with consumer, shopper and retail market intelligence and analysis focused on the CPG industry. It includes sales data tracked across 63 categories by SPINS/IRI and estimates for perishable and private-label sales for the three most recent calendar years pulled from SPINS database of mainstream and natural and specialty food stores. It also estimates online specialty food sales. David Browne and David Lockwood, the two principal writers and researchers for the report, worked with the SFA to analyze the data and forecasted 37 specialty food categories through 2025. Also employed in creating the report were one-on-one interviews with key members of the specialty food supply chain including retailers, foodservice operators, specialty food makers, brokers, and distributors.
The report found that overall sales for the specialty food market hit $170.4 billion in 2020, which grew about 7 percent between 2019 and 2020 compared to 5 percent the year before, and a 13 percent increase from 2018.
Between 2018 to 2020, all food sales, both specialty and non, grew 17 percent at retail between 2018 and 2020. Specialty food sales, which accounted for 21.5 percent of all food sales, grew 24 percent at retail in that same given time frame, and 19.4 percent in 2020 alone.
These noteworthy growth rates can largely be credited to the COVID-19 pandemic’s influence on grocery shopping habits and at-home meal preparation and cooking, which also resulted in the three major segments of specialty – center store, refrigerated, and frozen – seeing higher growth in 2020 than the preceding year. The frozen department had the biggest share gain out of the three, with $13.4 billion and 16 percent of sales and growth of 27 percent. In terms of retail dollar sales, the meat, poultry, and seafood (frozen and refrigerated) category ousted cheese and plant-based cheese from the top spot, growing 30 percent in 2020 alone and 36 percent between 2018 to 2020. Cheese and plant-based cheese still fared well, with 23 percent growth in 2020. Both categories were the only two to achieve sales in excess of $5 billion. Condiments, dressings, and marinades (shelf-stable) broke into the top 10 for the first time, moving up from last year’s number 12 spot. Refrigerated plant-based meat alternatives emerged as the fastest-growing category—jumping 130 percent between 2018 and 2020.
While there was growth last year, why, considering that grocery stores sales hit record highs during the COVID pandemic, isn’t the overall percentage for specialty food sales more significant? In a webinar previewing the report before its release, Browne, a market research brand and retail consultant in the natural/specialty industry, explained. According to him, these sales are broken up into three buckets: brick-and-mortar retail channels, online retail channels, and foodservice. Brick-and-mortar retail sales, which traditionally represent about 70 percent of sales, made up 80 percent and grew 15 percent year-over-year in 2020 with sales of $136.3 billion. Online retail channels grew 80 percent with sales of $9.8 billion after growing 5 percent the year before and a 170 percent from jump from 2018. Foodservice, which typically accounts for 20-22 percent of total specialty food sales, only made up 15 percent of it in 2020 and dropped around 30 percent in sales to $24.4 billion thus diluting its overall growth.
In brick-and-mortar retail, 85 percent of the sales in 2020 happened at multi-outlet markets (MULO) which are retailers defined by IRI as food, drug, mass, Walmart, club stores (excluding Costco), dollar stores, and military commissaries, taking away some of the share that normally goes to natural and specialty retailers. This shift can greatly be attributed to shoppers taking less frequent trips for grocery shopping because of the desire to reduce exposure to COVID-19 during the pandemic. MULO became a big beneficiary of this new habit since it often times offered a one-stop solution. Brick-and-mortar retail sales are on track for above-normal growth through the end of 2021 but will then slow to 4.4 percent compounded annual growth rate (CAGR) between 2022 and 2025. According to Lockwood, former consulting director at Mintel, last year’s growth at grocery was unprecedented but is not sustainable, and therefore will return to pre-pandemic levels when the maturing specialty food industry had a CAGR of just less than 5 percent.
Growth in the e-commerce channel is expected to continue.
“Looking forward, obviously the growth rate for online sales was huge this past year up 80 percent,” said Lockwood. “Certainly we are thinking that’s peak growth rate, but it’s still going to be very big this year and the following year so up 50 percent is probably a conservative estimate for this coming year. It’s another thing that got a permanent bump due to the pandemic but it’s going to keep going forward in the near future.”
In foodservice, which was $10.5 billion dollars down in sales, COVID has redefined restaurants with takeout and delivery being permanently increased and ghost kitchens, commissaries, and partnerships as new low-cost ways to do delivery or start new restaurants. Recovery for restaurants is expected to be significantly slow, especially when tasked with the difficulty of restaffing.
“The ripple across all channels of the specialty food industry has been tremendous,” said Bill Lynch, president of the SFA. “We’ve seen businesses flex their creativity in ways they never could have imagined, from restaurants becoming pop-up specialty food grocers to makers increasing production to meet consumer demand. Despite these historic challenges, the industry has continued to innovate and grow, as outlined in our annual research.”
This year’s report includes sales data by subcategories (new this year), which categories are expected to slow down and ramp up by 2025, and strengths, weaknesses, and innovations for each category. Also featured are key insights into COVID-19’s ongoing impact on the specialty category and retail, online, and foodservice channels.
Highlights of the 2021 State of the Specialty Food Industry report can be found in the summer edition of the SFA’s quarterly digital magazine, “Specialty Food.” To purchase The State of the Specialty Food Industry, 2021-2022 Edition Full Report + 10-Year Category Tracking and Forecasts, go to specialtyfood.com/state2021 .
