by Jessi Devenyns
Specialty food sales increased 10.7% from 2017 to hit $158.4 billion in 2019, according to the annual State of the Specialty Food Industry Report by the Specialty Food Association. Specialty foods, which now make up a fifth of all retail sales, saw growth nearly tripling that of the entire food sector. Specialty food sales posted an 8.9% increase. As a whole, food increased 3%.
Several categories in specialty foods have seen big increases in sales and market share in the last year. Refrigerated plant-based meat alternatives saw the biggest growth of any category, up 70% in unit growth and 112% in dollar growth. But specialty foods are also huge in center store, making up 62% of all products there and 60% of sales. Many more people are buying specialty foods online, with e-commerce sales up 132.5%.
The industry association also analyzed the effect of the pandemic on specialty foods. The group found it has diminished innovation, increased the focus on value shopping, driven a resurgence in both home cooking and snacking and grown demand for plant-based and better-for-you products in the market.
The current state of affairs has been both a blessing and a curse for food manufacturers. While there have been struggles with manufacturing facility shutdowns and challenges with shipping logistics, the pandemic has also produced a boom in sales, with specialty foods seeing a huge uptick in demand.
However, the pandemic is not the only thing driving this increase in specialty food sales. Last year's report from the Specialty Food Association showed 2018 specialty food sales outpaced the growth of all food at retail at about the same rate — up 10.3% vs. 3.1%. This growth is catalyzed in large part by consumer appetite for innovation, which has led to both a proliferation of startup brands and Big Food investment in startups delivering on consumer trends, including plant-based, RTD coffee and frozen food. These categories were also specialty food sales drivers in this year's report.
However, the data in this report was amassed prior to a global pandemic turning the food and beverage market inside out.
"The impact of COVID-19 on the specialty food industry cannot be underestimated," said Bill Lynch, interim president of the SFA, said in a release.
While there are many consequences from the appearance of COVID-19 on the world stage, food price versus health value will likely become a major battlefield. The Specialty Food Association cited Mintel data indicating consumers will prioritize value more than they previously did, opting to cook at home and compare prices of different products.
At the same time, the plant-based and better-for-you trends that have been around for a while will gain even greater importance as consumers prioritize healthy and functional products in their diets. In April, plant-based food experienced a 35% higher growth ratethan general food sales, according to SPINS statistics analyzed by the Plant Based Foods Association.
Despite continued consumer interest in specialty foods, these companies are facing challenges as they try to maintain their products on shelves or release new products into the market. Former Specialty Food Association President Phil Kafarakis previously told Food Dive innovation has taken a hit as retailers opt to showcase products that have proven to be popular rather than risking shelf space for a new product that may or may not prove its worth.
Many specialty food companies are small outfits used to cobbling together resources to maintain their businesses. However, Kafarakis noted earlier this year the long term success of even the most scrappy business will depend on sales. Specialty food sales for items that cater to health and better-for-you trends will likely continue to grow even amid the challenges presented by the pandemic. Frozen and plant-based foods, two trends which landed among the top five categories for sales both this year and last, also have a good chance of staying ahead.
With 76% of Gen Zers, 82% of millennials and 70% of Gen Xers buying specialty foods, according to the report, interest in the category is widespread. The prognosis of the specialty foods industry depends on how long the pandemic continues.