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42 SPECIALTY FOOD MAGAZINE

• SPECIAL REPORT: GROUNDBREAKING STATIST ICS OF THE SPECIALTY FOOD MARKETPLACE

• S P E C I A LT Y F O O D P R O D U C T I N T R O D U C T I O N S • S A L E S B Y P R O D U C T C AT E G O R Y •

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2006THE STATE OF THESPECIALTY FOODINDUSTRY

The State of the Specialty Food Industry

BY RON TANNER

S pecialty Food Magazine and the National Association for theSpecialty Food Trade, Inc. present this comprehensive reporton the State of the Specialty Food Industry. Working with two

research powerhouses—Mintel International Group and SPINS—Specialty Food Magazine has compiled definitive data on where theindustry has been for the past three years, where it is today, and whatfactors will affect its growth in the future.

Here are some of the highlights:

• Specialty food sales at retail in 2005 totaled $34.8 billion.

• Sales of specialty food at retail grew 15.1% in 2005.

• Supermarkets and other mass merchants represent 71.8% of

specialty food retail sales.

• More than 1,000 specialty beverages were launched in 2005.

• Natural food stores are the fastest growing retailer of specialty

foods, recording a jump of 33.1% in specialty food sales in 2005.

• Condiments are by far the largest specialty food category,

representing 21% of all specialty food sales.

• More than one-third of all coffee and cocoa sold is specialty.

• The median sales of specialty food manufacturers is $1.44 million.

• 30% of distributor sales are to specialty food stores.

• Deli and prepared food departments represent 13.7% of sales at

specialty food retailers.

• The fastest-growing specialty food category is yogurt and kefir,

followed by juices and functional beverages.

Illustrations by Marthe Roberts/Shea, Taxi Graphics, Incorporated.

ABOUT THE RESEARCHThe NASFT State of the Specialty Food Industry is a joint research project pre-pared by Mintel International Group and SPINS. The research encompassesthree years of sales data (2003-2005) for 30 specialty food segments, pulledfrom the SPINS database of mainstream and natural food stores. In addition,Mintel surveyed 244 specialty food manufacturers, importers, distributors andbrokers, plus 284 specialty food retailers to develop the statistics presented inthis report.

EDITOR’S NOTE: Those familiar with the 2005 State of the Specialty Food IndustryReport will notice a significant increase in total specialty food sales, especially in certaincategories, when that report is compared to the 2006 State of the Specialty FoodIndustry. SPINS has made noteworthy changes to its means of collecting data, includingan expanded brand selection in the following categories: Condiments, Coffee & Cocoa,Oils (Cooking), Beans, Grains & Rice, Shelf-Stable Fruits & Vegetables, Frozen Juices &Beverages. In addition, various ethnic products have been included in the 30 categoriesand the category of Asian foods has been eliminated, as these products are likely to bemerchandised in-store within condiments, cooking oils, and other categories.

APRIL 2006 35

The Size of the Specialty Food Market at Retail

Sales at Current Prices Sales at Constant 2005 Prices**Year $ Billion Index % Change $ Billion Index % Change

2003 26.90 100 - 28.44 100 -2004 30.21 112 12.3 31.12 109 9.42005 34.77 129 15.1 34.77 122 11.7

More than 70% of specialty foods are sold through mainstream stores, primarily supermarkets, and nearly 20% are movedto the consumer through specialty food stores. Sales growth was recorded in all channels between 2003 and 2005. Naturalfood stores and specialty food stores are growing at a much more brisk clip than mainstream markets as more consumerspatronize alternative food retailers and more of these outlets open around the country.

$ Billions 35

30

25

20

15

10

TOTAL U.S. RETAIL DOLLAR SALES AT CURRENT PRICES

2003 2004 2005

34.77

30.21

26.90

U.S. SALES OF SPECIALTY FOOD BY RETAIL CHANNEL

2003 2004 2005 2003-2005$ Billion % $ Billion % $ Billion % % Change

Mainstream 14.05 74.6 14.78 73.0 15.92 71.8 13.3Specialty Food Stores 3.27 17.4 3.72 18.4 4.24 19.1 29.6Natural Food Stores 1.51 8.0 1.74 8.6 2.02 9.1 33.1Total 18.84 100.0 20.23 100.0 22.18 100.0 17.7

EDITOR’S NOTE: Market size for the specialty food indus-try has been determined as follows. SPINS and ACNielsenprovided three-year scanner sales data for food, drug andmass merchants (excluding Wal-Mart) and natural super-markets (excluding Trader Joe's) for sales in 30 segments.This data is featured in the Market Segments section. Toreach the grand total of sales (reported in the tableabove), Mintel then added estimated sales of productsthat were not collected by scanner data. This includes PLUsales through all channels, including specialty stores, aswell as sales through Trader Joe’s.

TOTAL U.S. RETAIL DOLLAR SALES OF SPECIALTY FOODS

Does not include sales through Wal-Mart ** Adjusted for inflation using the all items CPI Source: Mintel/SPINS/ACNielsen

The specialty food industry is continuing itsexplosive growth. Total sales are now$34.77 billion at retail, a 15.1% increaseover 2004 sales. Even adjusting for infla-tion, that equals a jump of 11.7%. Thesales increase for 2005 was on top of astrong 2004. Since 2003, sales of specialtyfood at retail have skyrocketed by 29.2%.

Does not include sales through Wal-Mart Source: Mintel/SPINS/ACNielsen

Does not include sales through Trader Joe’s, Wal-Mart or PLU sales Source: Mintel/SPINS/ACNielsenData may not equal totals due to rounding.


NEW SPECIALTY FOOD PRODUCT LAUNCHES IN THE U.S.

Category 2000 2001 2002 2003 2004 2005

Beverages 626 667 746 776 1,010 1,007Sauces & Seasonings 969 993 855 911 822 788Confectionery 361 686 583 587 553 780Bakery 499 620 617 756 743 530Pet Food 10 102 125 174 232 471Snacks 349 434 499 515 533 447Spreads 304 342 307 291 313 272Processed Fish, Meat &Egg Products 143 114 164 171 144 145

Desserts & Ice Cream 128 155 123 161 196 129Dairy 165 178 249 199 195 121Side Dishes 161 106 186 213 93 121Fruits & Vegetables 70 92 136 100 93 107Meals & Meal Centers 80 99 79 174 123 71Soup 106 113 85 147 82 50Breakfast Cereals 48 32 33 50 60 47Sweeteners & Sugar 14 19 12 30 29 37Baby Food 1 1 0 1 31 26Weight Control 79 74 61 58 67 19

Total 4,113 4,827 4,860 5,314 5,319 5,168Source: Mintel/GNPD

Mintel’s Global New Product Database (GNPD) tracks product launches through many channels. The products shownabove were introduced in specialty food stores and natural food stores. There were 5,168 specialty food products intro-duced in 2005, which is slightly lower than in 2004 and 2003, yet still more than 25% above the number of introductionsin 2000. Beverages, Sauces & Seasonings, and Confectionery led in product introductions in 2005.

Specialty Food Product Introductions

More than 5,100 specialty food products

were introduced last year.

APRIL 2006 37

Market Segments Following are detailed definitions of the specialty food segments researched for this report.

Asian: The Asian category has been deleted, with all items, such as seavegetables and canned coconut milk, redistributed into other categories,primarily Condiments, Seasonings, and Shelf-Stable Fruits & Vegetables.Baking Mixes, Supplies & Flours: All gourmet, ethnic and naturalbrands. Brands include Arrowhead Mills, Bob’s Red Mill Foods, Dassant,Ghirardelli, Hodgson Mills and Stonewall Kitchen.Beans, Grains & Rice: Gourmet and ethnic rice, rice mixes, couscous,beans and grains. Brands include Dean & DeLuca, Lundberg, Near East andRice Select. Bread & Baked Goods: Artisan breads, baked goods, scones and muffins,primarily fresh. Tortillas and bagels are not included. Candy & Individual Snacks: Gourmet and ethnic candy and gourmetjerky items. Natural candy is included. Brands include Brown & Haley,Chukar, Ghirardelli, Jelly Belly, Lake Champlain, Newman’s Own Organics,Perugina and Tropical Source.Carbonated, Functional & RTD Tea/Coffee Beverages: Gourmet, eth-nic and natural sodas. Brands include Jones and Thomas Kemper. Sparklingjuice drinks from traditional water companies are included as well asHansen’s and other crossover brands.Cheese: Gourmet and ethnic cheeses. Conventional brands of mozzarella,Parmesan, etc.; cheese alternatives are excluded. Chips, Pretzels & Snacks: Gourmet and ethnic snacks and regionalchip/snack brands. Brands include Black Jewel, Boston Popcorn, ChileToday Hot Tamale, Pennystick Pretzels, San Francisco Popcorn Companyand Tim’s Cascade. Limited selection of natural brands such as KettleChips, Terra Chips and Newman’s Own Organics are included. Brandsstrongly associated with natural consumers, such as Barbara’s Bakery andGarden of Eatin’, are excluded. Coffee & Cocoa: Gourmet and premium whole-bean and ground coffees,including Starbucks, Seattle’s Best, Peet’s, etc. Organic and fair-trade areincluded.Cold Cereals: Gourmet and ethnic items. Brands include Alpen, Familiaand Weetabix. A limited selection of natural and organic cereals, includingKashi and Golden Temple, are included.Condiments: Mustard, mayonnaise, ketchup, olives, marinades, soysauces, pickled vegetables and barbecue sauces, as well as Asian condi-ments, are included. Brands include Annie’s Naturals, Bubbie’s Pickles,Cardini, San-J Tamari, A Taste of Thai, Brianna’s, Haddon House, House ofTsang and Maple Grove Farms. Conserves, Jams & Nut Butters: Gourmet and ethnic items, includingorganic jams and preserves. Brands include American Spoon, ClearbrookFarms, Robert Rothschild, Stonewall Kitchen and St. Dalfour.Cookies & Snack Bars: Gourmet and ethnic items. Brands includeNewman’s Own Organics, Brent & Sam’s, Heaven Scent, Aunt Gussie’s,Bahlsen and Walkers.Crackers & Crispbreads: Gourmet and ethnic items, plus limited crossovernatural items such as Haute Cuisine and Ryvita. Brands include BremnerWafers, Carrs, Just Off Melrose, Partners, Starr Ridge, Venus and Wasa.Eggs: Certified organic and premium items, such as free range andOmega-3-fatty-acid-enhanced products.Entrées & Mixes: Grain-based rice and couscous mixes, tabbouleh, pastadishes such as Thai Kitchen items, macaroni and cheese items such asAnnie’s Naturals. Brands include Ashoka, Bean Cuisine, Near East, NileSpice and San Gennaro.Frozen Desserts: Regional gourmet ice creams, both organic and non-organic; all gelatos, Italian ices and high-end specialty frozen desserts.Haagen Dazs and other premium national brands are excluded. Brandsinclude Ciao Bella, Out of a Flower and Seattle Sorbet.Frozen Entrées, Pizzas & Convenience Foods: Pizzas, soups, pasta andhors d’oeuvres. Brands include American Flatbread, Cafferrata, Health isWealth, Kettle Cuisine, Ling Ling and Nancy’s.Frozen Fruits & Vegetables: Limited selection of organic, premium andnatural brands, including Alexia, Cascadian Farm, SeaPoint, Stahlbush andTree of Life.

Frozen Juices & Beverages: Organic and natural brands only.Hot Cereals: Rolled oats, grits and farina, as well as cereals from premiumnatural companies. Brands include McCann’s, Kashi, Old Wessex, Bob’sRed Mill.Milk, Half & Half & Cream: Organic, cow’s, sheep’s, goat’s and all non-organic milk packaged in glass bottles.Nuts, Seeds, Dried Fruits & Trail Mixes: Organic and natural brands.Mixes with artificial ingredients, MSG, etc., are excluded.Oils (Cooking): Olive, flavored and sesame oils. Brands include B.R. Cohn,Colavita, Ka-Me, Spectrum and World Cuisine.Other Dairy: European and organic butters, imported and premium ricotta cheese and crème fraîche.Refrigerated Juices & Functional Beverages: Premium fresh juices,including Odwalla, Bolthouse Farms and Naked Juice, as well as enhanced,functional drinks such as Pom Wonderful. Conventional refrigerated juicesare excluded. Refrigerated Sauces, Salsas & Dips: Pasta sauces, salsas, dips, hummusand baba gannoush. Brands include Cibo, Emerald Valley Kitchen,Monterey Pasta, Native Foods and Tribe of Two Sheiks.Rice Cakes: All-natural brands of full-sized and ‘mini’ bite-sized rice cakes.Products with artificial ingredients are excluded. Seasonings: Spices, spice mixes (foil packets), baking flavors and salt.Natural brands included. Brands include Colemans, Morton & Bassett, OldBay, Spice Hunter, Knorr and Zatarians.Shelf-Stable Fruits & Vegetables: Gourmet, ethnic and natural cannedvegetables, beans and fruit. Also includes fruit sauces. Brands includeCento, Eden Foods, Gourmet Award, Haddon House, Just Tomatoes, MuirGlen, Pomi, Reese and Ty Ling.Shelf-Stable Juices & Functional Drinks: Premium natural and organicbrands, and kosher brands such as Kedem. Brands include R.W. Knudsen,Langer’s, Santa Cruz Organic and Martinelli.Shelf-Stable Meat, Poultry & Seafood: Gourmet and premium varietiesof canned fish and shellfish, caviar, etc., both imported and domestic.Conventional canned tuna and processed meat products are excluded.Shelf-Stable Pastas: Imported and domestic pastas, gourmet ethnic andnatural items. Regional brands such as Ronzoni are excluded. Brandsinclude Al Dente, Colavita, Da Vinci, DeCecco, Eden Foods, FerraraRaccontto and Roland. Shelf-Stable Puddings and Other Desserts: Gourmet and ethnic brands.Includes syrups and toppings such as Torani, Da Vinci and Wax Orchard andother brands such as Knorr, Leroux Creek and Village Cannery.Shelf-Stable Sauces, Salsas and Dips: Pasta sauce, salsas, dips, hummusand baba gannoush. Brands include Barilla, Rao’s Homemade, Contadinaand Green Mountain Gringo.Soup: Ready-to-serve, cups, mixes and instant soups. Also includes miso,bouillon and ramen-type items. Organic items, and soup mixes such asWalnut Acres, Shari Anne’s and Annie Chun are included along withbrands such as Baxter’s, Dominique’s, Knorr and Souperior Bean.Sweeteners: All pure maple syrups. All honey excluding Sue Bee and oth-er conventional brands. Alternative sweeteners such as agave, sucanat andturbinado are included.Teas: All natural brands, as well as premium and exotic varieties of pack-aged teas, including African Red (Rooibos) and Mate from South America.Also includes brands that offer specific imported varietals, such as assam,oolong and gunpowder green. “Medicinal” teas are excluded.Water: Premium brands including Evian, Perrier, etc., as well as functional,enhanced waters with no artificial ingredients (Glaceau, etc.). Functional,enhanced waters with artificial ingredients and conventional sparklingwaters, such as Arrowhead and Poland Springs, are excluded.Yogurt & Kefir: Ethnic items and premium natural brands, includingBrown Cow, Nancy’s, Stonyfield Farm, Mountain High and importedbrands such as Emmi. All sheep, goat and water buffalo yogurts.

Change 2003 2005 2003-2005

$ Million % $ Million % %

Condiments 4,622 24.5 4,651 21.0 0.6Juices & Functional Beverages 889 4.7 1,343 6.1 51.1Cheese 907 4.8 1,160 5.2 27.8Coffee & Cocoa 776 4.1 1,063 4.8 37.0Chips, Pretzels & Snacks 820 4.4 991 4.5 20.9Carbonated, Functional and Ready-to-Drink Tea and Coffee Beverages 554 2.9 919 4.1 65.7Refrigerated and Shelf-Stable Sauces, Salsas and Dips 829 4.4 859 3.9 3.6Teas 764 4.1 822 3.7 7.5Milk, Half & Half, Cream and Other Dairy 542 2.9 801 3.6 47.9Candy & Individual Snacks 618 3.3 766 3.5 24.0Seasonings 641 3.4 733 3.3 14.5Oils (Cooking) 565 3.0 688 3.1 21.7Frozen and Shelf-Stable Fruits & Vegetables 514 2.7 631 2.8 22.8Shelf-Stable Pastas 552 2.9 589 2.7 6.7Cookies & Snack Bars 543 2.9 565 2.5 4.1Crackers, Crispbreads & Rice Cakes 462 2.5 509 2.3 10.2Soup 457 2.4 505 2.3 10.5Yogurt & Kefir 326 1.7 499 2.3 53.3Frozen Entrées, Pizzas & Convenience Foods 450 2.4 479 2.2 6.4Baking Mixes, Supplies & Flours 439 2.3 474 2.1 7.9Cold & Hot Cereals 420 2.2 470 2.1 11.9Frozen & Shelf-Stable Desserts & Puddings 398 2.1 415 1.9 4.4Entrées, Mixes, Shelf-Stable Meat, Poultry & Seafood 346 1.8 404 1.8 16.6Water 230 1.2 371 1.7 61.0Nuts, Seeds, Dried Fruits & Trail Mixes 277 1.5 362 1.6 30.7Eggs 217 1.2 289 1.3 32.8Beans, Grains & Rice 220 1.2 277 1.2 26.2Sweeteners 235 1.2 258 1.2 9.7Conserves, Jams & Nut Butters 201 1.1 224 1.0 11.8Bread & Baked Goods (Frozen & Non Frozen) 26 0.1 66 0.3 147.8Total* 18,840 100.0 22,182 100.0 17.7


* Does not include sales through Wal-Mart, Trader Joe’s or PLU sales Data may not equal totals due to rounding Source: Mintel/SPINS/ACNielsen

Editor’s Note: The total size of the U.S. specialty food market and the numbers presented above are different because the ProductSegment data does not include PLU items, such as prepared foods, meat, bread, pastries and so on. Mintel estimates that these prod-ucts account for approximately 38% of specialty food sales.

The specialty food market has been divided into 30 segments, as shown above. Condiments are by farthe largest category, accounting for more than one-fifth of all specialty food sales. Juices & FunctionalBeverages; Cheese; Coffee & Cocoa; and Chips, Pretzels & Snacks round out the five leading categories.Five product segments—Bread & Baked Goods; Water; Carbonated, Functional & Ready-to-Drink Tea &Coffee Beverages; Yogurt & Kefir and Juices & Functional Beverages—have grown by more than 50%between 2003 and 2005.

Dollar Sales of Specialty FoodsSALES OF SPECIALTY FOODS BY PRODUCT CATEGORY

Specialty yogurt and kefir sales

grew more than 50%.

Sales of specialty hot and cold

cereal reached $470 million

in 2005.

Specialty tea salesaccount for 29.2%

of all sales in the tea category.

APRIL 2006 39

* Does not include sales through Wal-Mart, Trader Joe’s or PLU sales Source: Mintel/SPINS/ACNielsen

Whereas mass-market foods represent 91.8% of all food sales at retail, the share of all food sales is slipping;it was at 92.6% in 2003. This has resulted from a rather anemic growth of 5.3% for all foods comparedwith a robust spurt of 17.7% for specialty foods over that two-year span. Some of the mass-marketsegments, particularly beverages and breads, dwarf the specialty side as national brands dominate sales.

Dollar Sales of All FoodsSALES OF ALL FOODS BY PRODUCT CATEGORY

Change 2003 2005 2003-2005

$ Million % $ Million % %

Condiments 8,370 3.3 8,559 3.2 2.3Juices & Functional Beverages 30,618 12.0 30,783 11.4 0.5Cheese 11,944 4.7 13,902 5.2 16.4Coffee & Cocoa 3,051 1.2 3,002 1.1 -1.6Chips, Pretzels & Snacks 21,369 8.4 23,000 8.5 7.6Carbonated Functional & Ready-to-Drink Tea & Coffee Beverages 31,332 12.3 33,409 12.4 6.6Refrigerated & Shelf-Stable Sauces, Salsas & Dips 5,569 2.2 5,851 2.2 5.1Teas 2,571 1.0 2,812 1.0 9.3Milk, Half & Half, Cream & Other Dairy 15,691 6.1 17,281 6.4 10.1Candy & Individual Snacks 27,024 10.6 27,322 10.1 1.1Seasonings 2,221 0.9 2,309 0.9 4.0Oils (Cooking) 1,598 0.6 1,811 0.7 13.3Frozen & Shelf-Stable Fruits & Vegetables 7,102 2.8 7,471 2.8 5.2Shelf-Stable Pastas 2,175 0.9 2,169 0.8 -0.3Cookies & Snack Bars 4,211 1.6 3,772 1.4 -10.4Crackers, Crispbreads & Rice Cakes 4,330 1.7 4,537 1.7 4.8Soup 3,724 1.5 3,877 1.4 4.1Yogurt & Kefir 2,790 1.1 3,650 1.4 30.8Frozen Entées, Pizzas & Convenience Foods 7,638 3.0 7,580 2.8 -0.8Baking Mixes, Supplies & Flours 2,041 0.8 2,107 0.8 3.2Cold & Hot Cereals 7,146 2.8 7,211 2.7 0.9Frozen & Shelf-Stable Desserts & Puddings 11,062 4.3 11,173 4.1 1.0Entrées, Mixes, & Shelf- Stable Meat, Poultry & Seafood 4,886 1.9 4,973 1.8 1.8Water 8,631 3.4 10,048 3.7 16.4Nuts, Seeds, Dried Fruits & Trail Mixes 3,523 1.4 4,310 1.6 22.3Eggs 2,661 1.0 2,891 1.1 8.6Beans, Grains & Rice 2,632 1.0 3,112 1.2 18.3Sweeteners 866 0.3 994 0.4 14.8Conserves, Jams & Nut Butters 1,883 0.7 1,910 0.7 1.5Bread & Baked Goods (Frozen & Non Frozen) 17,106 6.7 17,620 6.5 3.0Total* 255,765 100.0 269,445 100.0 5.3

Five specialty productsegments grew bymore than 50%

since 2003.


Sales Growth or Decline for Specialty Foods

50

75

150

Yogurt & Kefir Water Bread & Baked Goods(Frozen & Non Frozen)

30.8%

53.3%

61%

16.4% 3%

Juices & FunctionalBeverages

51.1%

0.5%

Carbonated, Functional & Ready to Drink Tea & Coffee Beverages

65.7%

6.6%

Belo

w 2

5

147.8%

Chips, Pretzels & Snacks

-1.6%

Candy & Individual Snacks

24%

30.7%32.8%

8.6%

22.3%

13.3%

21.7%

1.1%

Cheese

27.8%

16.4%

47.9%

10.1%

Milk, Half & Half,Cream & Other Dairy

Coffee & Cocoa

37%

50

Belo

w 2

20

30

40

Frozen &Shelf-StableFruits &Vegetables

22.8%26.2%

Oils(Cooking)

Nuts, Seeds,Dried Fruits &Trail Mixes

Eggs Beans,Grains & Rice

7.6%

20.9%

18.3%

5.2%

Specialty food sales are growing more rapidly than sales of all food. Overall, 26 of the 30 specialty food categories recorded salesincreases significantly higher than their mainstream counterparts.

Spec

ialty

Foo

ds

All

Food

s

KEYDoes not include sales through Wal-Mart, Trader Joe’s or PLU sales Source: Mintel/SPINS/ACNielsen

APRIL 2006 41

and All Foods by Product Category

-0.8%

6.4%

7.9%

3.2%

4.4%

1%

7.5%

9.3%

5

10

15

20

Seasonings Entrées, Mixes, Shelf-Stable Meat, Poultry & Seafood

Conserves,Jams &Nut Butters

SweetenersSoupCrackers, Crispbreads & Rice Cakes

Refrigerated andShelf-Stable Sauces, Salsas & Dips

Teas

4%

10.2%10.5%

4.1%4.8%

14.5%

3.6%

5.1%

10

Belo

w 2

Belo

w 2

4

6

8

Shelf- StablePastas

Frozen Entrées, Pizzas & Convenience Foods

Baking Mixes, Supplies & Flour

Frozen & Shelf-StableDesserts & Puddings

6.7%

-0.3%

-10.4%

16.6%

14.8%

9.7%

11.8%

1.5%1.8%

Cookies & SnackBars

4.1%

11.9%

0.9%

Cold &Hot Cereals

Condiments

0.6%2.3%

Stuffed

Stuffed

2003 2004 2005 ChangesUnits Units Units 2003-2005

(Million) (Million) (Million) %

Condiments 1,802 1,757 1,721 -4.5Juices & Functional Beverages 193 213 226 17.1Cheese 164 166 168 2.4Coffee & Cocoa 336 347 372 10.7Chips, Pretzels & Snacks 331 380 436 31.7Carbonated, Functional, & Ready-to-Drink

Tea & Coffee Beverages 217 216 221 1.8Refrigerated & Shelf-Stable Sauces,

Salsas & Dips 325 361 381 17.2Teas 320 323 327 2.2Milk, Half & Half, Cream & Other Dairy 95 98 102 7.4Candy & Individual Snacks 104 135 171 64.4Seasonings 436 422 436 0.0Oils (Cooking) 280 303 324 15.7Frozen & Shelf-Stable Fruits & Vegetables 220 229 227 3.2Shelf-Stable Pastas 100 122 142 42.0Cookies & Snack Bars 402 413 421 4.7Crackers, Crispbreads & Rice Cakes 211 212 216 2.4Soup 236 231 232 -1.7Yogurt & Kefir 167 169 172 3.0Frozen Entrées, Pizzas & Convenience Foods 126 122 129 2.4Baking Mixes, Supplies & Flours 181 205 254 40.3Cold & Hot Cereals 231 229 232 0.4Frozen & Shelf-Stable Desserts & Puddings 98 101 103 5.1Entrées, Mixes, Shelf-Stable Meat,

Poultry & Seafood 166 171 181 9.0Water 108 131 179 65.7Nuts, Seeds, Dried Fruits & Trail Mixes 82 101 110 34.1Eggs 87 96 100 14.9Beans, Grains & Rice 69 64 62 -10.1Sweeteners 74 85 91 23.0Conserves, Jams & Nut Butters 116 121 125 7.8Bread & Baked Goods (Frozen & Non Frozen) 57 54 55 -3.5Total 7,334 7,577 7,916 7.9

SPECIALTY FOOD PERCENTAGEOF ALL FOOD SALES

BY CATEGORY

Specialty Product % of AllCategory Sales

ALL SPECIALTY FOOD 8.2Condiments 54.3Juices & Functional Beverages 4.4Cheese 8.3Coffee & Cocoa 35.4Chips, Pretzels & Snacks 4.3Carbonated, Functional,

& Ready-to-Drink Tea & Coffee Beverages 2.8

Refrigerated & Shelf-Stable Sauces, Salsas & Dips 14.7

Teas 29.2Milk, Half & Half,

Cream & Other Dairy 4.6Candy & Individual Snacks 2.8Seasonings 31.7Oils (Cooking) 38.0Frozen & Shelf-Stable

Fruits & Vegetables 8.4Shelf-Stable Pastas 27.2Cookies & Snack Bars 15.0Crackers, Crispbreads

& Rice Cakes 11.2Soup 13.0Yogurt & Kefir 13.7Frozen Entrées, Pizzas

& Convenience Foods 6.3Baking Mixes, Supplies & Flours 22.5Cold & Hot Cereals 6.5Frozen & Shelf-Stable

Desserts & Puddings 3.7Entrées, Mixes, Shelf-Stable

Meat, Poultry & Seafood 8.1Water 3.7Nuts, Seeds, Dried Fruits

& Trail Mixes 8.4Eggs 10.0Beans, Grains & Rice 8.9Sweeteners 26.0Conserves, Jams & Nut Butters 11.7Bread & Baked Goods

(Frozen & Non Frozen) 0.3

UNIT SALES OF SPECIALTY FOODS BY PRODUCT CATEGORY

Source: Mintel/SPINS/ACNielsen

Includes sales through FDM and natural channels only. Does not include specialty stores, Trader Joe’s, or Wal-Mart.

The Unit Sales data presents a slightly altered picture of the market. Candy & Individual Snacks,Shelf-Stable Pastas, Baking Mixes, Supplies and Flours, and Water are all sporting healthy unit salesincreases in excess of 40%, as the public shifts away from the low-carb diets that were hurting salesin some of these categories in 2003. Specialty categories showing negative unit growth includeBeans, Grains & Rice, Bread & Baked Goods, Soup and Condiments.

Source: Mintel/SPINS/ACNielsen

Left: Some specialty food categories have made much more significant inroads into sales of allfoods than others. Specialty Condiments and Seasonings account for 54.3% and 31.7%, respec-tively, of all sales in those categories. Specialty categories that are struggling include Bread & BakedGoods, Candy & Individual Snacks, and Carbonated, Functional & Ready-To-Drink Tea & CoffeeBeverages as they face competition from powerful national brands.

Unit Sales of Specialty Foods

The Specialty Food Supply Chain

Manufacturers, importers, distributors and brokers all help move specialty food products to the retail environment and into the homes of consumers.

Source: Mintel/Market Tools

There is a tremendous breadth to the sizes of businesses in thespecialty food industry, ranging from an individual who imports ahandful of artisanal products to distributors with fleets of trucks thatmove billions of dollars of specialty foods from warehouses to storeshelves. By and large, most suppliers operate relatively smallbusinesses. The average specialty food manufacturer does $1.4 million in annual sales and the average importer comes in withaverage volume of $835,000.

Manufacturers $1,440,000

Importers $835,000

Distributors

Brokers $2,250,000

MEDIAN ANNUAL SALES BY SUPPLIER

0 1 2 3 4 5 6 7$ Millions

$6,750,000(mean)

Median Annual Sales

SKUS BY TYPE OF SUPPLIERMean Number of SKUs

Manufacturers 86Importers 153Distributors 2,983Brokers 2,053


Despite the small-business status of mostmanufacturers and importers, they marketmany SKUs. This translates into a lot ofspecialized products, many of which haverelatively low movement. For instance, theaverage item produced by a specialty foodmanufacturer would only do $16,744 inannual sales when you take into accountthe mean number of SKUs and the medi-an annual sales volume of the manufac-turers. Distributors and brokers, whichrepresent multiple manufacturers, carryconsiderably more SKUs.

APRIL 2006 43

The mean number of SKUs carried by

importersis 153.


Specialty Food

ManufacturersSpecialty Food Manufacturer Median Sales: $1.44 Million

25

20

15

10

0

SALES OF SPECIALTY FOOD MANUFACTURERS

% of Manufacturers

20.2%

Less than$100,000

$100,000-$500,000

$501,000-$1,000,000

$1,100,000-$5,000,000

$5,100,000-$10,000,000

More than$10,000,000

16%

12.3%

26.4%

9.8%

15.3%

Average Annual Sales


Nearly half of specialty food manufacturers recorded sales of less than$1 million in 2005, reflecting the small entrepreneurial aspect of theindustry. Many of these companies started with a treasured familyrecipe or creative culinary idea, and it takes time, effort and capital tobuild those into a substantial business. Nevertheless, more than 15%of manufacturers have grown their businesses to exceed $10 million.

Retail Stores (Direct) 43.6

Distributors 33.7

Institutional/ Foodservice 13.1 Other Channels; i.e., Online, 9.6 Mail Order

SHARE OF SPECIALTY FOOD MANUFACTURERS

0 10 20 30 40 50 %

Annual Sales by Channel


Direct sales to retailers is the most likely method of selling by special-ty food manufacturers. Yet, approximately one-third of sales does goto distributors, who then resell the products to retailers. The foodser-vice channel is also an important outlet for specialty food manufac-turers, accounting for 13.1% of their annual sales.

SKUS OF SPECIALTY FOOD MANUFACTURERSMean Number of SKUs: 86

Number of SKUs %10 or Fewer 22.611-25 15.526-50 18.551-100 16.1101 or More 27.3Source: Mintel/Market Tools

FUTURE ATTITUDES OF SPECIALTY FOOD

MANUFACTURERS

Plan to increase the number of SKUs

manufactured over the next three years:

83.3%

Expect an increase in future competition

from abroad:33.6%


Manufacturers foresee a brightfuture for the industry, with morethan four in five planning to increasethe number of SKUs they marketover the next three years. One-thirdare concerned about foreign compe-tition as countries around the worldset their sights on the booming U.S.specialty food market.

The number of SKUs produced by specialty food manufacturers varies,with 56% producing less than 50 and44% making more than 50. Some feelthat it is best to limit production andconcentrate sales and marketing onjust a few items, whereas other manu-facturers believe that a broad selectionof products will gain them better expo-sure in the marketplace.

SKUS OF SPECIALTY FOOD IMPORTERS

Mean Number of SKUs: 153Number of SKUs %

10 or Fewer 16.711-25 12.526-50 16.651-125 16.7126-200 12.5201 or More 25.0

Specialty Food

ImportersSpecialty Food Importer Median Sales: $835,000


Although one would think that importers generally run large busi-nesses, many importers in the specialty food industry are smallentrepreneurs. Half do less that $1 million in annual sales. Of course,there are extremely large importers as well that bring in boatloads ofproducts from continents around the world.

Average Annual Sales

Less than $100,000

$100,000 - $500,000

$501,000 - $1,000,000

$1,100,000 - $5,000,000

$5,100,000 - $10,000,000

More than $10,000.000

SALES OF SPECIALTY FOOD IMPORTERS

4.2

16.6

37.5

16.7

20.8

4.2

% of Importers


Whereas foods from Europe remain the stronghold of productsbeing brought to the U.S., an increasing number of importers areseeking foods from Asia and South America. As the Asian andHispanic populations in the U.S. continue to grow and people learnto appreciate the cuisines of these continents, even more productswill be coming from far-off lands.

Europe 78.3

Asia 30.4

South America 26.1

Africa 13.0

North America 13.0

Other 4.3

GEOGRAPHIC SOURCE OF IMPORTSContinents Imported From

SHARE OF IMPORTER SALES BY CHANNEL

Annual Sales by Channel %

Distributors 51.6Retailers 32.5Other/Not Specified 15.9


Importers range from individuals seek-ing out limited lines produced by tradi-tional methods to gigantic companieswishing to bring the major brands ofdifferent countries to U.S. soil. Nearly30% of importers carry fewer than 25SKUs, allowing them to focus on build-ing awareness of sales for a narrowline of products.


Importers are more likely to sell throughdistributors than are specialty food man-ufacturers. More than half of all import-ed products go through the distributornetwork, with about one-third beingshipped directly to retailers.

APRIL 2006 45

Specialty Food

DistributorsSpecialty Food Distributor Mean Sales: $6.75 Million

% of Distributors

Less than $500,000 29.4%

$501,000 - 29.4%

$5,000,000

More than

$5,000,000 41.2%

DISTRIBUTORS AVERAGE ANNUAL SALES

0 10 20 30 40 50


The specialty food distribution business is becoming increasinglydominated by major companies. Four out of ten distributorsrecord in excess of $5 million in annual business.

SKUS OF SPECIALTY FOODDISTRIBUTORS

Mean Number of SKUs: 2,983Number of SKUs % 100 or Fewer 38.9101-500 11.1501-3,000 22.23,001-4,999 11.15,000 or More 16.7Source: Mintel/Market Tools


Specialty food stores and supermarkets are the primary sales out-let for specialty food distributors, accounting for nearly two-thirdsof sales. Natural food stores and restaurants also represent signif-icant business, each accounting for 10% of distributor sales.

Specialty Food

BrokersSpecialty Food Broker Median Sales: $2.25 Million


Specialty food brokers range from individuals selling a fewproducts in their local area to large companies with broker net-works that cover many states. This is reflected in the diversity ofannual sales. More than one in five brokers have annual salesunder $500,000, yet almost half record sales in excess of $2million.

% of BrokersAverage Annual Sales

SALES OF SPECIALTY FOOD BROKERS

35

30

25

20

15

10

5

0

15.8%

31.6%31.6%

21.1%

Less than$500,000

$501,000 -$2,000,000

$2,100,000 -$5,000,000

More than$5,000,000

SKUS OF SPECIALTY FOOD BROKERS

Mean Number of SKUs 2,053Number of SKUs % 500 or Fewer 42.1501-1,000 21.11,001-2,000 15.82,001-5,000 15.85,000 or More 5.2


NUMBER OF STORES SERVICED BY SPECIALTY FOOD BROKERS

Number of Stores %100 or Fewer 38.1101-500 23.8501-1,999 33.32,000 or More 4.8Source: Mintel/Market Tools

More than 60% of brokers call on 500 stores or fewer, with38% servicing less than 100 stores. Some brokers are quitelarge, however, selling to 2,000-plus stores.

The distributor segment is thebroadest within the specialtyfood industry. Although nearly40% of distributors carry fewerthan 100 items, 16.7% distrib-ute more than 5,000.Companies, such as Kehe Foodsand Tree of Life, take tens ofthousands of specialty foods tosupermarkets, specialty foodstores and restaurants.

A common complaint ofmanufacturers andimporters is that brokersrepresent too manyproducts, making it diffi-cult to focus on an indi-vidual company’s line.Yet 42% of brokers rep-resent fewer than 500SKUs, and nearly two-thirds manage less than1,000 products.

Specialty Food Stores

30%

Supermarkets 35%

Natural

Food Stores 10%

Gift Stores 5%

Foodservice/

Restaurants 10%

Delis 5%

Other 5%

SPECIALTY FOOD DISTRIBUTORSCustomers by Channel

SPECIALTY FOOD DISTRIBUTOR SALESSPECIALTY FOOD DISTRIBUTORS


Specialty Food Retail

Operating Statistics

Sales at

Constant

Dollar

Prices*

Year $ Billion Index % Change

2003 14.05 100 —

2004 14.78 105 5.2

2005 15.92 113 7.7

Sales at

Constant

Dollar

Prices*


2003 3.27 100 —

2004 3.72 114 13.8

2005 4.24 130 14.0

Sales at

Constant

Dollar

Prices*


2003 1.51 100 —

2004 1.74 115 15.2

2005 2.02 134 16.1

SPECIALTY FOOD SALES BY RETAIL CHANNEL

SUPERMARKETS (71.8%)

SPECIALTY FOOD STORES (19.1%)

NATURAL FOOD STORES (9.1%)

Does not include sales through Wal-Mart or PLU sales

Sources: Mintel/Technometrica, Mintel/SPINS/ACNeilsenDoes not include PLU sales Does not include sales through Trader Joe’s or PLU sales

In 2005, sales of specialty food in supermarkets increased by 7.7%, a healthy spike compared to sales of all foods throughsupermarkets. Supermarkets remain the dominant format for selling specialty foods, representing more than 7 of 10 special-ty food dollars. This is primarily due to their overwhelming presence, plus the knowledge of supermarket operators that spe-cialty foods can be a significant donor to the bottom line. However, both specialty food stores and natural food stores aregaining market share from supermarkets. Specialty food stores are recording remarkably healthy sales as consumers choosethis format, often known for its easy access and knowledgeable personnel. Natural food stores are the fastest growing, inlarge part due to their willingness to add specialty foods to the product mix and the rapid growth of companies, such asWhole Foods and Wild Oats. With a 16% gain in 2005, natural food stores are the most robust growth segment of the spe-cialty retail universe.

APRIL 2006 47


Specialty Food Retail

Operating StatisticsSpecialty Food Store Average Annual Sales: $3,931,252 • Annual Sales Per Square Foot: $569.92

SPECIALTY FOOD STORE TRANSACTIONS

Transactions 2004 2005per % of % ofweek transactions transactions

100 or Fewer 27.6 16.2

100-200 12.3 11.7

201-750 23.3 26.9

751-4,999 23.3 29.4

5,000 or More 13.5 15.8


Specialty grocery, althoughthe largest department,accounts for just 24.6% ofsales in specialty foodstores. Most stores have amix of perishable and non-perishable products, withperishables representingmore than half of sales.


Whereas some markets are highly specialized with only a handful of daily shoppers, others have as much traffic as a busy mall. In fact, more than 15% ofspecialty food retailers record in excess of 5,000 transactions weekly.

For further information and freecontents pages of the 125-pageNASFT State of the Specialty FoodIndustry Report 2006, pleasecontact Erik Thoresen at312.932.0400, ext. 302 [email protected]. NASFTmembers are entitled to a 40%discount on the purchase of thisreport. Please quote NASFT to beeligible for this special offer.

Ron Tanner is editor of Specialty Food Magazine

SKUS CARRIED BY SPECIALTY FOOD STORES

Median Number of SKUs 1,250Number of SKUs 100 or Fewer 19.1101 – 500 16.9501 – 1,999 23.12,000 or More 40.9

PERCENTAGE OF SALES BY DEPARTMENT%

Specialty Grocery 24.6Non-Food 12.8Wine and Other Alcoholic Beverages 9.0Deli and Prepared Foods 13.7Bakery 7.4Cheese 10.2Meat and Seafood 5.6Produce 6.2Other 10.5


Specialty food stores may be small infootage, but most cram as much producton the selling floor as possible. Morethan 40% of these merchants stock inexcess of 2,000 items. Those carrying100 or fewer products are probablyfocused more on specialized or perish-able departments.

* The separately asked questions means that figuresmay not sum to 100Source: Mintel/Market Tools

The role of distributors is quite active,even at the smaller specialty food stores.Nearly half of all products carried aresourced through distributors. Productsshipped directly from the manufactureror importer is also important, accountingfor 47% of products purchased.

%Through distributors 48.3%Direct 47.1%

SPECIALTY FOOD STORE PURCHASING PATTERN

Stores Operated (Mean) 4.2Average Store Size (Mean) 6,898 sq. ft.Transactions per Week per Store (Mean) 3,287Median Transaction Size $23.00Value of Inventory (Mean) $662,062

SPECIALTY FOOD RETAILERS


The average specialty food retailer records more than 3,200 transactions perweek, with a mean transaction size of $23.

Documents

THE STATE OF THE SPECIALTY FOOD 2006 • TOTAL U.S. …admin.specialtyfood.com/fileManager/11597StateIndustryRpt06.pdf · Report will notice a signiﬁcant increase in total specialty