Specialty foods have gone mainstream. “Beyond Organic: The Revolution in Consumer Food Expectations,” found that in 2014 organic sales topped $39 billion while USDA’s Organic Survey (2014) found that total organic product sales by farms in the U.S. increased 83 percent between 2007 and 2012. USDA’s report is a third in a series of ongoing surveys to assist not only producers but suppliers to the organic industry who use the data to plan production and marketing of new products.
The “Beyond Organic” study, authored by Manny Picciola and Peter Walter, managing directors at L.E.E. Consulting, looked at consumer preferences and purchase habits of specialty foods including gluten-free and ethically produced products (antibiotic and hormone free, non-GMO, etc.). With sales skyrocketing, large food manufacturing companies in particular, are struggling to keep up with consumer demand, found the report.
Walter says consumers are particularly committed to certain types of specialty or organic foods. For example, 70 percent of respondents who purchase either occasionally or frequently prefer all natural products while 68 percent prefer locally produced food.
The rise of specialty foods can be good news for Big Food. Walter says food companies that address the health, sustainability, and ethical concerns of consumers are poised to benefit.
Photo credit: Joanna Schroeder.
“Using facilities that are Safe Quality Food certified, making food that is not processed, and adopting or promoting sustainable farming and production are all good examples of activities from food companies that influence consumers’ purchase decisions,” notes Walter.
He says there are some legacy consumer packaged good (CPG) and grocery/food service companies that are ahead of others in terms of trying to position themselves in the minds of consumers, such as Whole Foods, Trader Joes, Sprouts, and other organic-focused grocery chains. These companies have made strategic decisions to focus their business model to meet the growing demands of consumers buying specialty and organic foods, and it’s paying off.
This tectonic shift in consumer preference will require overhauling or rebuilding supply chains, launching or acquiring new brands, and identifying how to manage input costs while still turning a profit. Some Big Food brands have entered the market through purchasing current specialty-only businesses. For example, General Mills purchased Annie’s while Hormel purchased Applegate Farms. Yet does this move retain the credibility of the brand among consumers? Research suggests that consumers often trust specially brands more than big food brands but more research is needed to confirm this finding.
Photo credit: Joanna Schroeder.
Perhaps the most important finding of the study, says Walter, is that consumers are willing, and pay more, for specialty products, and that they are here to stay.
“This is not just a Millennial, high income, coastal trends,” says Walter, “but one that is fairly mainstream and its appeal crosses all demographics. This is not just a trend, but a meaningful shift in how people think about food.”
Other key findings include:
- People are increasingly using food choices as a way to define their identity and position on health and sustainability issues, and are trending to be more judgmental about others based on their food choices; and
- Consumers are still willing to pay a premium for some of these specialty foods, they would like to see better price parity for organic and ethnical foods, and they would like to see greater availability of these types of foods than they have today.
Significant commitments have been made by CPGs, grocery, and food service industry to consumers and the supply chain is evolving to cope with this. Walter says they are all adapting in different ways. For example, General Mills has updated its Cheerios product to be gluten-free and non-GMO and other major brands are reformulating their products to meet demand. Grocery chains such as Kroger are selling premium organic food brands, but have also rolled out their own private label organic line with such a price parity that consumers are coming back to the store from organic-food only focused chains. A practice that is prevalent in the dairy industry, says Walter, is to contract directly with farmers at a slightly premium price for their milk so they know their investment will have a return.
Growers are responding to the specialty food demand. The USDA Organics Survey looks at how many acres are currently “organic” approved, exempted, or in the transition phase to become organic. The survey finds there are 14,093 current certified or exempted organic farms in the U.S. with 3,670, 560 total organic acres in production with California in the lead. There are also thousands of acres in some phase of the three-year transition process.
Today, Big Food is behind, says Walter, but they will catch up.
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