Private Label Buyer

Specialty Grocery Branding

The specialty grocery channel grows increasingly competitive as sales skyrocket.

May 30, 2014
Specialty Grocery Branding

Specialty grocery stores operating in gourmet, natural and organic product areas—and typically a tactical combination of all three—continue to capture more retail

The Bottom Line

  • Specialty food products sales are through the roof
  • Private label competition in the channel has intensified
  • Specialty grocery activity can inspire across all channels

market share. Today’s mantra repeats that “growth is at the top and the bottom,” and specialty grocery is the upscale, largely national-brand-better (NBB) counterpart to the often value-driven discount channel.

The specialty grocery channel includes natural and organic retailers like Whole Foods Market and Mrs. Green’s Natural Market; gourmet chains like The Fresh Market, Central Market (H-E-B banner) and Mariano’s (Roundy’s banner); and private label ace Trader Joe’s. Every one of these chains is expanding. Trader Joe’s is currently ranked at No. 13 on the Top 35 Private Label Retailers list, and Whole Foods comes in at No. 30. The Fresh Market opened 20 new stores last year, with over 20 more planned for this year.
H-E-B continues to acquire real estate for future expansion. Trader Joe’s continually adds stores.

This activity has fostered a healthy level of competition in specialty grocery of late. In the wake of record revenue numbers, Whole Foods recently had to lower its 2014 expectations—dropping same-store sales projections to 5–5.5 percent from the previous 5.5–6.2—due to heavy competition in the channel with retailers like Trader Joe’s and The Fresh Market. Discount mega retailer Walmart was also specifically named as cutting into Whole Foods’ business—a factor that might gain more weight as Walmart ramps up its Wild Oats Marketplace organic product rollouts.


Specialty Inspirations

“Specialty” foods can show up in any retail channel, and sales of such products increased by 18.4 percent from 2011–2013—with 8 percent growth during 2013—per 2014’s “State of the Specialty Food Industry” report, a joint research project from Mintel International and SPINS and put out by the Specialty Food Association. Total 2013 sales of specialty foods hit $88.3 billion. Now that the specialty market has begun to mature, gains will likely prove more moderate—but are anticipated to maintain an upward trajectory. Highlights from the report include:

• The largest specialty food category is cheese and cheese alternatives

• The fastest-growing category is nut and seed butters up 51.6 percent from 2011–2013, hitting $231 million in 2013

• 8 in 10 specialty food manufacturers recorded positive sales in 2013

• Distributors project that non-GMO products have the highest potential for growth over the next three years

• Importers report that Latin and Mediterranean are two of the fastest growing ethnic foods

• 7 in 10 specialty retailers report “local” is the most-important product claim

While traditional supermarkets account for over two-thirds of specialty food sales, notes the report, that channel’s share has slipped over the past three years. Over in the specialty channel, sales jumped by 42.4 percent, hitting $9.6 billion.

Specialty foods often become destination products for shoppers—with these demographics tending to enjoy the thrill of discovery that’s involved with walking the aisles of specialty grocery stores, anticipating the next intriguing NBB product just around the bend. To that end, specialty store brand activity provides fresh inspirations for retailers across all retail channels:

• Upscale and interesting cheeses are king of specialty, and Trader Joe’s recently released an aged Cinco Lanzas Spanish With Rosemary

• Snacks are another big specialty growth area—Whole Foods builds snack intrigue with its 365 Everyday Value Applewood Smoked White Cheddar Popcorn

• The Fresh Market understands coffee’s “third wave,” offering single-origin coffees in its private label Explorer’s Collection

• Greek yogurt as ingredient is expanding, as seen in Trader Joe’s Greek Yogurt Lemon Poppy Seed Muffins and Central Market’s Strawberry Lemon Greek Yogurt Cake

• Bread and baked goods hit No. 6 on the top specialty products list in terms of revenue growth, and every Mariano’s store features a sophisticated in-store bakery turning out store branded specialties like its Parisian Chocolate Swirl Croissants

Specialty products will continue to build intrigue across all channels, and private label holds significant potential as a tool for driving retailer differentiation in an increasingly competitive market.