Specialty Food Magazine

SPECIALTY FOODS 'CONSIDERABLY MORE PROFITABLE' THAN MAINSTREAM What were some of your key findings from this recent research? With the report 10 years ago, we started out with the premise that we were entering a "golden age" of specialty foods. I think now it's more appropriate to just call it an "era." It is not just something that's trending, but something that has really become ingrained in terms of consumer behavior. It really doesn't have very many headwinds at all, but there are a lot of tailwinds. That's where the growth is, and if you don't get on the train, it's going to pass you by. It's not just a niche part of the retailer product offering anymore. It's 20 percent of total volume in dollars and has continued to grow for the last 10 or 20 years, at a steady rate. It's something that really can't be ignored. Specialty foods are considerably more profitable than mainstream food items. I don't think most retailers fully comprehend what the category dynamics are that take place. Within the category, what typically happens is you will have the specialty item selling at a much higher retail [price] than the mainstream item, and you will also have it generating a much higher gross margin rate. Your gross margin return in many cases may be four times more on the specialty item. Then when you look at ROI—factoring in your inventory investment, how fast does it turn, and all that—you find that specialty foods literally are about twice as profitable as selling a mainstream item. Retailers might say, "Well, if I lose that $4 sale, so what?" because they only sell a few a week. The problem is the hard, sticky loyalty to many of these items will lead consumers to go elsewhere. Then they're not just going there and picking up that item; they're buying a whole range of other things, and so what happens is you're not just losing a $5 sale, you're losing a $50 trip. We're going to measure that, and come up with a dollar value, and look at what would happen if you could just retain one of every 10 trips. What are some of the practical lessons for both retailers and their suppliers? One of the difficulties we see is that when retailers are working with smaller vendors, they have expectations around slotting fees and free merchandise, and taking it beyond a threshold that these smaller companies can absorb. I think that really inhibits what some retailers wind up offering their customers. The small manufacturers simply don't have the deep pockets to be able to afford that. Another of the practical lessons is this convergence of specialty and private label. When I ask people, "Where do you really like to shop?" What names come up? H-E-B, and Trader Joe's, and Costco, and when you start to ask about those retailers, they have the best specialty food programs, and they have the best private-brand programs. It's the same list. Now with inflation, and the economy, how do you reconcile the fact that we have people trading into private label to spend less money, and you have people trading up for specialty? Those two things seem to be in conflict, and actually they're not. Specialty always does well during economic downturns because people may gravitate to some more expensive items on the shelf, to offset the fact that they are not going to restaurants as often. We saw that during the pandemic, when people couldn't go to restaurants, and they decided to raise their game at home. The flip side is that private brands also do well because people look to save some money on some items, so they can afford to buy some other things. What's happening now is that both sides are starting to pick up steam. People can elevate their experience in a value proposition in a private brand, such as Kroger Private Selection, and with better-for-you brands, which frankly now are mostly retailers' brands as well. By Mark Hamstra Nearly 10 years after compiling a research report quantifying the value that specialty foods provide to retailers for the Specialty Food Association, Jim Wisner, founder of Wisner Marketing, is revisiting that topic with a comprehensive, updated report. The first edition, Understating the Real Value of Specialty Foods, took a deep dive into the true profitability of specialty foods, relative to mainstream grocery products, when all factors are considered. The new report will look at the role of specialty foods in creating and retaining shopper trips, the value of distributor-provided services, and the importance of specialty foods to younger generations, among other related topics. Wisner is scheduled to discuss the report's findings on Sunday, January 21 at 2:30 p.m. at in a presentation called "The Real Value of Specialty Foods." He recently spoke with Specialty Food about the report and the trends driving specialty food sales. 44 SPECIALTY FOOD SPECIALTYFOOD.COM Mark Hamstra is a regular contributor to Specialty Food and SFA News Daily.

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