The dramatic spike in inflation during the past year, along with fears of a looming recession and supply chain challenges, have combined to stall sales growth of specialty foods, according to SFA's soon-to-be released State of the Specialty Food Industry report, 2023-2024 Edition, authored by David Lockwood, a consumer market research and strategy consultant.
Lockwood is scheduled to present his findings on the specialty food market, and his predictions for its future, on Monday, June 26 at 10:30 a.m. on the Big Idea Stage at the Summer Fancy Food Show in New York, during a session called "Research Spotlight: The State of the Specialty Food Industry." SFA News Daily spoke with him about his observations based on the data from this year’s research report.
What are some of the key trends that you're seeing so far in this year’s data?
What always jumps to the top is inflation, and the interesting angle on inflation for specialty food is that there has been an unprecedented shift. There’s never been a year where conventional outperformed specialty products—in terms of top-line growth—until 2022. Conventional foods grew 9.9 percent, and specialty grew 8 percent. But in terms of units, conventional fell 2.4 percent, and specialty fell 6 percent in 2022. That’s a glacial shift, in that it has never happened before, and it’s entirely due to inflation.
This year, we expect to basically see the same thing, but less intense. We suspect that conventional will still outperform specialty this year, but by a much smaller amount, and then it will go back to normal. After this year, specialty will continue to outperform conventional, like it has every other year this century.
Was this trend expected, based on the data in previous reports?
We were talking about it. Even when COVID started, we said that there could be a flip at some point where conventional outperforms specialty, but it didn't happen in 2020, and it didn't happen in 2021 either. As I’ve been doing interviews with people throughout the supply chain, it’s become clearer as to why this is happening and what it means.
Inflation affects everybody, so why did it affect specialty foods more than conventional foods? The main answer is that when all the points in the supply chain became a problem—everything from who you buy ingredients from, to shipping, fuel, storage, packaging, and labor—all those things combined into a perfect storm. The largest retailers and the largest brands can ride that kind of thing out, but the smaller companies and startups have to wait in line, so to speak. When boats are stacked up in harbors, the biggest companies get serviced first, for example.
A second reason for what has happened is what I am calling “the democratization of specialty.” What I've been saying over the last 10 years or more is that the market is getting bigger and bigger, and we have a growing number of highly committed specialty food consumers, who we, in our reports, call SFCs. But in the last several years, there has been growth in newcomers to the market—people who are occasional purchasers. Those are the purchasers who are easier to shake off when inflation hits. For consumers who are new to the specialty food world, that’s an easy thing to cut back on.
Why do you think trends will return to normal after this year?
Basically, people have either felt like they were in a recession or have been preparing for a recession for at least two years now. As people have developed that mentality, it does tend to constrict things.
What we have measured and continue to measure is that the excitement for specialty foods hasn’t wavered at all, so we’re extremely confident that that will continue through what I still see as a coming recession. The desire for specialty isn’t wavering, and I see that on two levels: There’s the sensory level, where people are always looking for convenient, indulgent, fresh, fun brands, and that's exactly what specialty excels at. Then on the personal level, specialty food consumers still very much like to know how the food is made, where it comes from, who's making it, and how the product impacts local and global communities, and the environment. On both the sensory level and the personal level, that desire is very strong, and that is what has caused specialty to grow for decades now.
What other key trends should the industry be looking for from your report?
One is foodservice. Conventional foodservice overtook its 2019 peak last year, and although specialty foodservice didn’t do so last year, it's going to do it this year. That market is definitely growing very well, and makers are actively pursuing foodservice as a growth strategy even more than they have in the past.
Ecommerce also certainly stands out. If you read all the headlines in the past year, you would think it was a catastrophe for ecommerce because growth slowed a lot, but it’s still growing faster than brick and mortar. People talk about our stores going away, but it’s just not happening. If nothing else, specialty food consumers will keep stores open, because that’s the undisputed place for discovery, and specialty food consumers are looking for new things. It’s a lot easier to discover new things when you can see them, feel them, taste them; that's why brick-and-mortar has continued to thrive.
And, from the makers’ side, ecommerce is evolving. Makers are looking for ways around their best frenemy, which is Amazon. If you are a startup company, you want to have your product on Amazon, but then you find out exactly how hard that is and how expensive that is. So, while startups still flock to Amazon, they’re also looking for ways around it. They are trying various types of direct-to-consumer sales, but they are also experimenting with other platforms out there that aren’t Amazon, like Thrive Market, Hive Brands, Good Eggs, GTFO It’s Vegan, Mike's Organic, WholeLotta Good—there are quite a few platforms that they are experimenting with.
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