- Specialty food sales rose 11% between 2015 and 2017, according to a report from the Specialty Food Association. The segment raked in a record $140.3 billion last year. This category is growing faster than all food sold at retail, jumping 12.9% compared to 1.4%.
- The specialty food categories with the highest dollar growth between 2015 and 2017 were water (+76%), rice cakes (+64.1%), refrigerated RTD coffee and tea (+63.2%) and jerky and meat snacks (+62.1%). The report also found that interest in specialty foods spans generations, with 79% of Gen Z shoppers, 67% of millennials, 65% of Gen Xers and 60% of baby boomers buying these premium products.
- The report details that product innovation, growing consumer and retailer interest and a greater availability of specialty foods at mainstream outlets fueled this increase. “Consumers of all ages are embracing specialty foods and making purchases everywhere they happen to be – from convenience stores to big-box retailers to online, as well as in traditional gourmet shops and groceries," Phil Kafarakis, president of the Specialty Foods Association, said in the release.
Consumer hunger for unique culinary experiences is growing at a rapid pace, pushing food manufacturers and retailers to expand their specialty food portfolios and vie for a larger share of this lucrative segment. On the food side, many legacy companies have tried to expand their presence in this market by acquiring smaller, more nimble startups that make on-trend products.
This has been a savvy strategy for most. Hershey's purchase of Krave's better-for-you meat snacks gave the chocolate giant a foothold in the growing jerky space that topped $1 billion in sales last year. The category is expected to rise 4.2% on an annualized basis through 2022, projected growth that reflects shopper demand for artisanal proteins.
Today, consumer expectations for specialty foods stretch beyond unusual flavors, textures and products. Shopper demand for clean labels, transparency and healthy offerings are at an all-time high, and they're shaping the broader food space — including indulgence products. As a result, many of the top players in this category are revamped versions of food and beverages that shoppers had rejected for attributes such as high sugar levels and over processing.
Krave, for example, quickly gained consumer popularity because its meat snacks are low fat, free of artificial ingredients and minimally processed — the antithesis of the greasy, tough convenience store jerky sticks many consumers associate with the category. Staples like bottled water also are getting the premium treatment as consumers move away from soda, with nearly two-thirds of adults reporting still or sparkling water as one of their preferred drinks.
Grocers are also looking to capture growth through specialty food offerings, and are ramping up their foodservice and private label products to compete. Foodservice is especially promising in this category. According to the Specialty Food Association's report, sales of specialty food through foodservice rose 12.8% between 2015 and 2017.
The U.S. Agriculture Department also found 62% of millennials have purchased deli prepared foods, and the fact that the demographic spends a higher percentage of their food budgets (around 6%) eating out than any other generation, makes this a grocery category ripe for specialty food innovation.
Target recently invested in this space with the debut of a packaged sustainable sushi line in select New York City store locations. The retailer, which is partnering with the same supplier behind Whole Foods' sushi, could use the partnership to bolster its premium and fresh halo. Major grocers, independent stores and even convenience chains are adding ethnic, vegan, vegetarian and gluten-free offerings to their prepared food bars to stand out from competitors and draw new shoppers to their stores.
In addition, premium store brands have proven to be profitable investments, with retailers such as Aldi winning awards for its private label rosé and premium children's products. As demand for specialty foods becomes more mainstream, it seems likely that M&A in the food space and product launches in retail will continue to be fueled by the promise of premium halos.