How fancy food brands are faring amid the shifting supply chain

How fancy food brands are faring amid the shifting supply chain

Angel Planet Foods sampled its plant-based chicken at the Summer Fancy Food Show.

(Image credit: Angel Planet Foods)

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The specialty food industry is still growing and winning new startups, many of whom enthusiastically told their stories earlier this month at the Summer Fancy Food Show in New York City. The show was back in person for the first time since 2019, showing off the latest in new and innovative foods and beverages.

The specialty food category grew 25.4% from 2019 through 2021, according to a report from the Specialty Food Association, compared to a 17.6% increase for the overall food industry. Retail sales in the category are on track to hit about $91 billion this year, up from $87.2 billion last year and about $64.3 billion in 2017, and growth going forward is forecast to level off to 4.7% annually.

That said, the industry has faced the same sorts of challenges that other companies in the food world have had to navigate since the start of the pandemic.

“Almost everything has become harder or more expensive.” David Lockwood, industry consultant and co-principal of the Specialty Food Association’s State of the Specialty Food Industry Report. Lockwood presented the results of the report in a session at the show.

The entire specialty food market, including all retail and foodservice channels, grew 7.4% in 2021 from the previous year to $175 billion, but inflation rather than unit growth accounted for much of the increase, Lockwood said. The report forecasts 6.8% growth for this year, with just 1% or less coming from unit growth and the rest from price increases.

Fallout from the COVID-19 pandemic continued to affect the specialty food industry, including supply chain disruptions, rising shipping and fuel costs and shortages of everything from labor to packaging.

And, as inflation continues to hit consumers’ budgets, they’re making tougher calls at the supermarket, and shoppers who were buying specialty foods before are now looking for ways to save money by trading down to less-expensive options or, in some cases , opting out altogether, Lockwood said.

The top 10 specialty food categories ranked by retail sales were unchanged from last year, a sign that the industry is maturing, Lockwood said. Frozen and refrigerated meat, seafood and poultry topped the list, followed by cheese, both dairy and plant-based.

The report forecasts growth for this year and 2023, factoring in the uncertainties of the supply chain. Specialty food makers that depend on imported ingredients continue to be concerned about securing a steady supply and delays in shipments can throw off production schedules. Fluctuations in the availability and cost of ingredients also bring new challenges when it comes to pricing the finished products affordably while still making a profit.

In addition to the effects of supply chain challenges, the report and Lockwood’s presentation outlined some other trends expected to drive growth in the coming years.

Plant-based, the next generation

Plant-based meat and dairy alternatives broke into the news in a big way in 2019 when Beyond Meat went public and the brand and its biggest rival, Impossible Foods, were suddenly everywhere, Lockwood said. Investors discovered the category and put billions into plant-based innovation and, in the years since, Beyond and Impossible have continued to roll out new products and spur the creation of an ever-growing roster of new players.

That said, the plant-based category is still relatively young. Growth in retail sales slowed to 6% last year from 26% in 2020, a sign that many consumers are still interested in the category but seeking new products with more of a “wow” factor, Lockwood said.

The products they’re seeking could be just on the horizon in a category Lockwood calls “new proteins.” New proteins include products made through fermentation processes, cell-cultured meat and mycoproteins, which are meat alternatives made from a fungus that’s similar to mushrooms.

A slew of companies are expected to release new protein products by year’s end, including Nature’s Fynd, Aleph Farms and Perfect Day, Lockwood said, and the new entrants in the category have the potential to rev up sales.

Good things come in small, sealed packages – and often via FedEx

The pandemic has fueled demand for smaller retail formats and convenience food options that consumers can shop and pay for with little or no human contact, the report says. Convenience stores are continuing to grow prepared food selections and traditional grocers are rethinking areas like salad bars, with smaller setups and more grab-and-go items.

E-commerce sales surged for specialty food brands and retailers along with the rise in overall online grocery shopping during the pandemic, and the trend is expected to continue over the next couple years. Online channels generated 4.5% of total specialty food retail sales in 2019 and that share grew to 9.4% by 2021 and is forecast to hit 11.6% by next year.

Diversifying the menu

Brands created and owned by women and people of color are increasingly in demand among specialty food consumers, and not just during February and March, the report found. “Retail buyers and foodservice operators are seeking out incubators, brokers, b2b wholesalers and distributors, and even sales consultancies that specialize in supporting and growing these brands. Showcasing these brands has moved far beyond seasonal features to align with observed months like Black History or Women’s History, and will continue to expand,” the report says.

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