Specialty foods M&A update: H1 2018


Baker Tilly Capital’s Specialty foods M&A update provides an overview of the U.S. specialty foods market, industry trends and relevant transactions from Jan. 1, 2018 to June 30, 2018 (H1 2018).

Specialty foods continued their strong pace of growth in 2017 driven by increasing consumer demand, product innovation and growing availability of specialty foods. Specialty foods accounted for approximately $140.3 billion in sales in 2017, an approximate 11.3 percent increase from 2015 to 2017, according to the Specialty Food Association (SFA) in its State of the Specialty Food Industry 2018 report. Sales of specialty foods have far outpaced overall food sales, which grew 1.4 percent at retail from 2015 to 2017.

Sales of specialty foods through brick-and-mortar retail channels comprise approximately 77 percent of total sales, but this number has declined slightly in recent years as foodservice (approximately 22 percent) and online retail (approximately 1.6 percent) channels have continued to gain share. Sales of specialty foods through brick-and-mortar retail outlets are still well outpacing overall food retail sales, but are beginning to grow at slower rates as the industry matures. In recent years, club stores and discount retailers have meaningfully expanded specialty foods offerings and the SFA estimates mainstream channels comprise 82 percent of total retail sales. Recently, discount supermarket Aldi Inc. announced plans to add considerable new products to its U.S. stores, with a focus on easy-to-prepare food and fresh, organic produce and meat.

Consumers are also demanding more specialty foods at restaurants, which has contributed to 12.8 percent growth through foodservice channels from 2015 to 2017. Sales through online retail channels have been growing at a 10 percent annual pace, but are still projected to remain under 10 percent of industry sales by 2022.

Source: Specialty Food Association’s State of the Specialty Food Industry 2018 report

Specialty foods defined

Baker Tilly Capital defines “specialty foods” as unique, premium quality food items. Specialty foods can typically be categorized into one or more of the following market segments:

Health and wellness: This market segment includes food products that are perceived by consumers as positively contributing or that actually contribute to their health and overall well-being. Sub-segments within health and wellness can be further divided into the following: (i) organic, (ii) natural foods, (iii) fortified foods and (iv) allergen-friendly foods. 

Indulgence: Food products that satisfy or play off of consumers’ senses (especially taste and smell), evoke certain memorable feelings or turn eating into more of an experience than a necessity. 

Ready-to-eat (RTE): American consumers are snacking and eating on the go more often than ever before and the ready-to-eat market segment includes the following sub-segments: (i) fully-prepared foods, (ii) partially-prepared foods, (iii) hand-held foods or foods with convenient packaging and (iv) bundled products.

Ethnic: The ethnic market segment includes food products or dishes that are popular in other ethnic regions (i.e., taco shells, paneer cheese, sushi, etc.) or ingredients, spices or toppings that are often used in ethnic dishes (i.e., salsa, curry, hot sauce, etc.).

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