The specialty food category is expected to grow more in 2020 than originally forecast—16.5 percent versus 13.3 percent, said David Lockwood, consulting director at Mintel, during the session The State of the Specialty Food Industry: Category Focus, held Tuesday as part of the SFA’s Specialty Food Live! Virtual Marketplace event.
Growth in the months since COVID-19-related surge buying hit 15-17 percent in May through August versus the 10 percent originally predicted, leading Mintel to adjust its forecast. While the forecast is based on a model of a second higher rate of COVID-19 infection hitting in fall 2020, Mintel is not expecting the same spike in panic-buying purchases as consumers and the supply chain become better prepared for a next wave.
Lockwood and David Browne, a market research retail and brand consultant, work with the Specialty Food Association to produce its annual State of the Specialty Food Industry research and 10-Year Category Tracking and Forecast reports. In this session, the pair updated the performance of the specialty food category overall in light of COVID-19’s impact and zeroed in on specific categories that had been influenced by the pandemic, specifically essentials, snacks, plant-based, and beverages. Lockwood and Browne discussed the specialty sales performance of each before COVID-19, during last spring’s height of the pandemic, and today.
“It’s the year of essentials,” said Lockwood, referring to an array of pantry categories meant for at-home consumption and meal preparation. “Their growth contributed to the overall growth of specialty food this year.”
The segment totaled $29 billion in 2019 sales, comprising 41 percent of the total brick-and-mortar specialty market. The top four categories alone (cheese, meat, bread, and water) dominate with 50 percent of sales.
The COVID-19 boost was undeniable for essentials, said Browne, in particular among baking mixes, frozen entrees, oils, vinegars, and sauces as consumers faced stay-at-home mandates and turned to cooking and baking. Some stagnating categories enjoyed a “rebirth” as a result, he said. “Soup, for example, has not been a very popular category, especially with younger consumers but in March alone it grew 125 percent year on year,” he added.
Some specialty essentials were passed over in the height of surge shopping in favor of conventional brands but then boomed as shoppers could not find mainstream brands.
Browne sees the essentials category retaining its importance amid continued sheltering at home. Mintel predicts the growth rate for sales of food at home in 2021 will be roughly twice what it would have been without the pandemic.
“Center store is having a revival as a result,” said Browne.
Among innovation opportunities, Browne and Lockwood point to upgraded pantry basics, special diet-focused essentials, and culinary exploration as consumers upgrade their cooking and baking skills.
The pandemic did not slow growth of plant-based foods and beverages, which instead enjoyed a boost in most categories, especially milk and other dairy and meat alternatives. The segment benefitted from trial during surge shopping when consumers could not find traditional dairy or meat—and opted for refrigerated plant-based items or stocked up on shelf stable. The plant-based segment overall, which accounted for $5 billion in 2019 sales, has been growing at three times the pace of the total specialty market since 2017. The specialty category has a huge runway for growth, said Browne, with an increase of 10-20 percent annually through 2024. He noted that it has a similar trajectory to other lasting segments including organic and gluten free.
The category has an “unlimited amount of innovation” to tap into, said Lockwood, including meat and meat alternative mixes and cultured meat.
Specialty snacks grew slower amid COVID than one might expect as people hunkered in their homes. Though the segment is large—comprising $18.8 billion in 2019—it is also mature and consists of several large categories: chips, pretzels, and snacks; yogurt and kefir; and chocolate and other confectionery. The growth phase has passed as the segment matures, said Browne, but snacks are showcase items that get shoppers into the store. Comprising 27 percent of the total brick-and-mortar specialty market, they are nearly essential, he noted. The category was also hit by closed offices and schools and some grab-and-go wellness snack categories like yogurt and bars will likely gradually rebound as those institutions reopen. Innovations including plant-foward, grain-free, sweet/savory combos, and local/regional/small batch will drive opportunity in the snacks segment.
Growth in the $12.2 billion beverage segment experienced a surprising switch thanks to stay-at-home orders. While RTD and grab-and-go have ruled the beverage segment for the past several years, non-RTD coffee and water are the new stars. “It’s not a switch we would have predicted pre-COVID,” noted Browne. Mintel predicts growth will come from non-RTD coffee, hot cocoa, and tea, as well as water, with innovations in regional/local roasters, for example.
RTD beverages will rebound slowly as people return to normal routines but are a maturing category oversaturated with me-too brands, said Browne, and needs fresh ideas to grow. He expects shelf stable RTD, low sugar, functional ingredients including immunity boosters, sleep aids, brain health, and detox properties to be among innovation opportunities.
Browne and Lockwood also identified four trends to expect in the “next normal”:
- Health and wellness; culinary exploration; transparency; and sustainability are attributes that will resonate with consumers.
- Specialty food consumers’ ethical and economic awareness will shift. They are seeking to learn about and support women-owned, minority-owned businesses and local/regional brands.
- Innovation pace will continue to be under-average as SKU optimization continues. Makers should think about target innovation to Gen-Zs and Millennials especially.
- Consumers are trading down in price but not positioning. They’re committed to the environment, organics, plant-based, and non-GMO. Private labels are rising to meet this need.
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