Specialty Food Demand Changes As The Pandemic Evolves
A new report by the Specialty Food Association (SFA) – the not-for-profit, membership-based, trade association that tracks the industry – shows that growth in the specialty food market has changed as the pandemic’s evolution over the last two years has brought dramatic price increases and a shift in consumer shopping and eating priorities.
The specialty food market grew by 7.4% in 2021 as compared to 5.8% in 2020. As a whole, specialty food accounted for 21.9% of all food and beverage sales in retail last year, reaching $175 billion in sales. Sales are expected to rise to $185 billion in 2022, according to the SFA State of the Industry report.
Yet, market forces and consumer-buying trends show that there are big differences between the first year of the pandemic and last year’s slow bounce-back.
Inflation & Supply Chain
Inflation is adding some noise to the YoY numbers. Specialty retail market sales grew at a 4.3% CAGR in 2021 compared to the previous year, but unit volume sales were only up just 0.6%. SFA attributes this to the rising cost of food and the continued struggles in the supply chain.
Supply chain issues from raw material and freight costs to labor shortages continue to hamper specialty food and beverage companies sales forecasts.
Nearly all unit volume growth (13.2%) in 2020 versus 2021, occurred in 2020, according to SFA’s calculations.
“Growth will continue, but at a slower pace than the industry experienced during the 2020 pandemic-influenced whirlwind of grocery shopping and at-home meal preparation–and will depend on supply chain bandwidth and shifts in challenges like inflation, shipping issues, cost increases, and materials shortages,” said Denise Purcell, Specialty Food Association’s vice president of content and education.
SFA anticipates that the CAGR will average to about 4.7% in the next five years, slightly higher than a pre-pandemic average of 4.1% CAGR.
Where are consumers shopping?
Growth during the pandemic is directly attributable to consumers’ reliance on eating at-home and the slower than expected return to dining out in foodservice establishments.
Foodservice is expected to recover slowly and not return to the pre-pandemic levels until sometime in 2023, according to the report. Yet, the possibility of a recession could further complicate consumers’ return to restaurant dining as discretionary spending tightens.
In 2020, the pandemic pushed specialty food sales in MULO and the Natural and Specialty channels up about 20%, leaving little room for further growth into 2021.
Brick-and-mortar retail was up to $87.2 billion in 2021 growing about 4% YoY, with e-commerce growing by nearly 6% in 2021 compared to the previous year. Specialty e-commerce is expected to continue its upward progression but at a less dramatic pace. By 2023, the category will account for 11.6% of all specialty retail sales, SFA reports.
What are consumers prioritizing?
Consumer buying of specialty food and beverage is still focused on center-store, shelf-stable SKUs, but the refrigerated category has grown the fastest in the last two years. As COVID-related restrictions loosened and people tired of cooking meals at home, refrigerated meals and grab-and-go fresh options started to accelerate.
Specialty beverages saw a sharp uptick in 2021 and grew twice as fast as specialty food compared to 2020. Products like functional beverages and RTD cocktails are growing rapidly as consumers expand from critical to discretionary products.
On the other side, some categories that had immense growth during 2020 decelerated in 2021. Plant-based specialty products grew 6%in 2021, compared to the 26% in 2020. SFA attributes some of this to the maturing of the plant-based market as a whole with more non-specialty SKUs cannibalizing the specialty products.
