TODAY S SPECIALTY FOOD CONSUMER

TODAY S SPECIALTY FOOD CONSUMER 2016

TODAY S SPECIALTY FOOD CONSUMER SPECIALTY FOODS ARE GROWING in both awareness purchases, with nearly 60 percent of consumers saying they have bought a specialty food or beverage in the past six months, according to this year s Today s Specialty Food Consumer report, compiled by the Specialty Food Association Mintel. That number is up considerably from 47 percent in 2015. More consumers said this year that they are aware of the term specialty food itself more reported understing what the term means, two factors that are likely driving the increase in purchases. Though specialty foods are sold in many different kinds of retail channels, nearly half of specialty food consumers say they d like to see greater availability of these products in the stores they frequent, a desire which bodes well for the industry. Younger consumers remain the core specialty food customer. Those between the ages of 25 44 are the most likely purchasers of specialty food, followed closely by even younger customers ages 18 to 24. The millennial generation comprises the bulk of this group, in addition to the emerging Generation Z or igeneration, those born between 1995 2007 who are just beginning to come of age. Gen Xers baby boomers (ages 40 to 70) are also engaged specialty food consumers some of the differences in their purchasing habits attitudes are examined on the following pages. MEN 62% GENDER WOMEN 5 THE CORE SPECIALTY FOOD CONSUMER: KEY DEMOGRAPHICS INCOME $150K+ 85% $100K $149.9K 74% $75K $99.9K 67% 25 44 AGES PACIFIC: 71% GEOGRAPHIC REGIONS MOUNTAIN: 66% MIDWEST: 52% SOUTH: 57% NEW ENGLAND: 61% MID ATLANTIC 62% GENERATION KEY Age groups noted throughout this research are defined as follows: igeneration: 21 under Millennials: 22-39 Generation X: 40-51 Baby Boomers: 52-70 Swing Generation: +71 ABOUT THE RESEARCH This research is based on an online questionnaire conducted by Mintel to explore consumption of attitudes behaviors toward specialty foods. Mintel the Specialty Food Association were responsible for the survey design, data analysis, reporting. Fieldwork was conducted in July among a sample of 2,155 adults aged 18+ with internet access. Mintel selects survey respondents to be proportionally balanced to the U.S. adult population based on key demographics of gender, age, household income, region. Illustrations: Peter Maria Hoey C2 TODAY S SPECIALTY FOOD CONSUMER 2016

SEVEN INSIGHTS FROM THIS YEAR S REPORT HERE ARE SOME DISCOVERIES about the purchasing behaviors, habits, attitudes of today s specialty food consumers that can help retailers producers better position grow their businesses. Parental influence. The core millennial consumers are starting families, positioning parents to be a new key demographic. Though not tabulated in this year s report, respondents indicate that being a parent is a driver for increased specialty food consumption. Close to half (48 percent) of food dollars spent by parents is on specialty food. They buy across specialty food categories, but particularly in child-friendly ones like baking mixes, cy, pasta, salty snacks. Parents are also big online shoppers, about half say they are using or looking for an online grocery delivery service. Prioritizing health. In the past two years, specialty food consumers have been more likely to cite dietary or health reasons as drivers to try specialty foods. This shift indicates how well the industry has incorporated better-for-you products with decadent foods beverages. The market for nutritionally superior food, healthier takes on familiar foods, functionally enhanced products will grow, even in non-traditional categories like chocolate. The powerful male shopper. Last year was the first time men surpassed women as the more likely to buy specialty foods, the gap widened in 2016. Male influence in food decisions is up: men now account for 43 percent of primary shoppers 46 percent report helping with meal preparation. Men have emerged as a significant consumer group to reach. Conversion opportunities. According to this year s report, 40 percent of consumers don t purchase specialty foods though, of these, 54 percent say they know what specialty products are. This translates into 22 percent of consumers who may be good targets to try to convert. Even consumers who are designated as light buyers, still buy specialty foods, especially treats like cookies, frozen desserts, chocolate. Retailers could draw them in by merchising indulgences, which often act as gateway products to further purchases. Online takes off. This year s respondents were more likely than ever to say they ve made specialty food purchases online. Millennials are the most likely to shop for specialty foods online: 75 percent of respondents report doing so, followed closely by Gen Xers. The convenience savings of e-commerce both draw in consumers earning $25K to $50K, much less affluent than the typical specialty food consumer. As online shopping becomes the norm, it opens an avenue to reach new consumer groups. Shifting shopping channels. Beyond burgeoning online sales, other non-traditional stores are becoming go-tos for specialty foods. This movement is largely driven by millennials, who are not loyal to a particular retailer will shop in the widest array of stores. Specialty food sales in club stores, convenience stores, mass merchisers, department stores, home stores, gift stores are all growing as a result, as these stores begin to carry larger sets of specialty products. Education craving. Even consumers who do the heaviest specialty food purchasing would benefit from more guidance. Fewer than half say it is easy to identify specialty foods in the stores where they shop. Education, shelf signage, staff knowledge could be an opportunity to garner even more sales from the biggest shoppers. TODAY S SPECIALTY FOOD CONSUMER 2016 C3

MILLENNIALS Millennials make up the bulk of the core specialty food consumer group. They purchase specialty foods in the largest WHO BUYS SPECIALTY FOODS? GENERATION X Nearly two-thirds of Gen Xers report buying specialty foods. These consumers use specialty foods daily, in equal amounts for meals treats. They do seek out convenience during meal WHO BUYS SPECIALTY FOODS? number of categories. These shoppers buy a lot of snacks treats but, based on their high incidence of purchasing items like meat, poultry, seafood, seasonings spices, they are doing some at-home cooking too. Respondents reported that they use specialty foods both for everyday meals indulgences. They also use specialty foods for the largest array of reasons, to enjoy personally or to share with others. Millennials shop for specialty foods through an assortment of retailers. These products are a part of their lives this convenience-oriented group expects to find these foods wherever they are shopping. How Millennials Use Specialty Foods: Everyday meals or snacking; treats; gifts; to serve guests; for special occasions; to share at the office. Most Likely to Shop at: Natural food stores; mass merchants; club stores; specialty food stores; online; convenience stores; department stores; other outlets. Purchase Drivers: Impulse; convenience; social or environmental concerns; to entertain or impress. preparation will turn to kits or packaged sauces. Gen Xers, who are between the ages of 40 51, are becoming more health- focused as they age. They are the most likely consumer group to look for quality ingredients on packaging they are the most likely to shop for fresh foods at farmers markets. ATTITUDES AND HABITS: KEY OPPORTUNITIES Merchising: This group buys specialty foods to share with others. They like to entertain plan parties for family friends they look for products to help them impress guests. Product Development: Millennials are the most adventurous with their diets: 80 percent report trying an alternative diet like high protein or low sugar. Positioning: To millennials, a company s values matter just as much as the products they make. But the position companies espouse must be genuine; this group is suspicious of marketing ploys. Marketing: Restaurants retailers need to have a socialmedia presence across platforms to connect with millennials. They are the most likely generation to use social media to talk/learn about food places where they can eat or shop. Service: Millennials report that they would like retail staff to educate them about specialty foods. They are also the most likely consumer group to ask about recipes or preparation techniques. C4 TODAY S SPECIALTY FOOD CONSUMER 2016

Merchising: Gen Xers are the most likely consumer group to make a purchase based on sampling a product in store. Product Development: Convenience matters to Gen Xers: They are the most likely to cook or prepare a meal from a quick option like a meal kit or pasta sauce. They also seek out specialty foods to use as ingredients to improve prepared or takeout foods. Positioning: As they enter their 40s 50s, Gen Xers are health conscious look for brs that provide ATTITUDES AND HABITS: KEY OPPORTUNITIES quality, clean ingredients. They are the group who most believes GMOs should never be used in food beverage products. Marketing: Gen Xers report frequently using apps to find or use store coupons or restaurant discounts. Service: Personal connections with retailers are important to Gen Xers. They like to hear the story or heritage behind the stores where they shop they like to shop where they know the owners. How Gen Xers Use Specialty Foods: Everyday meals snacking; to treat themselves; special occasions Most Likely to Shop at: Farmers markets Purchase Drivers: Health; recommendations from others BABY BOOMERS Boomers are an experiential experimental group. They use specialty foods the most of all groups for cooking at home. They do a lot of scratch cooking enjoy trying new things. They consider themselves knowledgeable about WHO BUYS SPECIALTY FOODS? food, excitement a desire for new experiences drive their specialty food purchases. While excitement may be front burner, health social consciousness also plays into purchasing decisions with this group. Boomers, now between the ages of 52 70, are taking their health seriously report eating more natural healthy foods such as those with fewer artificial ingredients or preservatives. They are also the most likely consumer group to purchase products that claim to be fair trade, ethical, or sustainable. ATTITUDES AND HABITS: KEY OPPORTUNITIES Merchising: Boomers like to cook don t seem driven by shortcuts or convenience. Ingredients recipes for scratch cooking go over well with this group. Product Development: Boomers report wanting to eat healthfully steer clear of artificial ingredients but they still want exciting different tastes. Positioning: Boomers like to shop where they agree with the company values or philosophy. Marketing: Product claims like locally sourced, non-gmo, gluten-free, fair trade, ethical, sustainable are purchase drivers with this group. Service: Boomers like to shop where employees are knowledgeable about the products. How Boomers Use Specialty Foods: Everyday meals; treats Most Likely to Shop at: Supermarkets Purchase Drivers: Excitement health TODAY S SPECIALTY FOOD CONSUMER 2016 C5

WHAT DO SPECIALTY FOOD CONSUMERS BUY? In 2015 there were six categories that had at least 25 percent of specialty food consumers saying they d made purchases in the past six months. This year that number has increased to 10 categories, seven in food three in beverages. Perennial favorites cheese chocolate remain in the top three categories, as does frozen desserts, driven by dairy as well as non-dairy alternative products. TOP 10 MOST-PURCHASED CATEGORIES 2016 Cheese cheese alternatives 33% Ice cream frozen desserts 32% Chocolate 31% Coffee, coffee substitutes, cocoa 2 Oils vinegars 2 Cookies, brownies, cakes, pies 2 2 pizza sauces 26% Beverages: alcoholic nonalcoholic; coffee; tea pizza sauces Salty snacks Yogurt kefir MILLENNIALS ARE FREQUENT PURCHASERS OF: Meat, poultry, seafood Meals, frozen Cereal or chilled Nuts, seeds, dried fruit Ice cream frozen desserts; chocolate non-chocolate cy; cookies, brownies, cakes, pies Oils vinegars Salsas dips Seasonings, spices, spice rubs Beverages non-alcoholic (e.g., juice, soft drinks, water) Tea (packaged) 25% 25% TOP GROWING CATEGORIES 2015 2016 Beverages non-alcoholic (e.g., juice, soft drinks, water) Source: Mintel 20% 25% Snack bars energy bars Spreads dessert sauces GEN-XERS ARE FREQUENT PURCHASERS OF: Cooking sauces marinades Appetizers antipasti Condiments dressings Cy (non-chocolate) 13% 17% Cereal (hot, cold, granola, museli) Meals (frozen, chilled) 1 24% 23% 20% 2 Cheese cheese alternatives BOOMERS ARE FREQUENT PURCHASERS OF: Condiments dressings pizza sauces Appetizers antipasti (pickles, peppers, olives) Beverages alcoholic Condiments dressings 22% 15% 26% 1 1 1 Snack bars energy bars Grains, beans, rice Oils vinegars Source: Mintel C6 TODAY S SPECIALTY FOOD CONSUMER 2016

WHERE DO SPECIALTY FOOD CONSUMERS SHOP? Supermarkets, natural food stores, mass merchants were the top three channels where consumers purchased specialty foods in 2016. But sales dipped slightly or stayed stable in all of those while rising in assorted untraditional channels. Club stores, online shopping, convenience stores, department stores, home stores, gifts stores all saw an increasing number of shoppers buying specialty foods. SPECIALTY FOOD AND DRINK CATEGORIES PURCHASED ONLINE 2015 2016 Coffee, coffee substitutes, cocoa Tea (packaged) Chocolate Oils vinegars pizza sauces Cookies, brownies, cakes, pies Nuts, seeds, dried fruit vegetables Seasonings, spices, spice rubs Snack bars energy bars 53% 10% 10% 6% 5% 7% 5 11% 11% 10% CHANNELS WHERE SPECIALTY FOOD CONSUMERS SHOP 2015 2016 Supermarket Natural food store (e.g., Whole Foods, Trader Joe s) Mass merchiser (e.g., Walmart, Target) Farmers market Club store (e.g., Costco, Sam s Club, BJ s Wholesale) Specialty food store Online St-alone bakery (not in a grocery store) Convenience store Department store Home store (e.g., Bed, Bath & Beyond, Cost Plus) Wine or liquor store Gift store Other None of the above 67% 44% 35% 33% 27% 26% 12% 17% 11% 11% 4% 1% 0% 5 40% 36% 31% 2 25% 15% 12% 12% 12% 2% 3% DIGITAL AND DELIVERY: KEY OPPORTUNITIES Apps delivery services for groceries or meal ingredients are going to be more important in the coming years. The core specialty food consumers are already using or seeking these solutions, they will be the norm among even younger consumers as they reach adulthood. Apps: Usage is up overall to: purchase groceries find or use store coupons or manufacturer coupons check for recipes scan products in store to compare prices or learn about allergens or nutritional levels Delivery services: More than one-third of respondents are actively looking for an online grocery delivery service. Millennials are the most likely to be seeking these services, followed by Gen Xers. Overall, 15 percent of respondents already use apps from food delivery services like Blue Apron. Online payments: Millennials are frequently using apps like Google Wallet to pay for food or meals at markets or restaurants. TODAY S SPECIALTY FOOD CONSUMER 2016 C7

HOW MUCH DO SPECIALTY FOOD CONSUMERS SPEND? Specialty food consumers spend considerably more on food they prepare at home or eat in restaurants compared to their non specialty food consumer counterparts. Non specialty food consumers spend a mean of $93 per week on food at home versus $113 for specialty food consumers, $40 per week to eat in restaurants, nearly half of the $77 spent weekly by specialty food consumers. MEAN WEEKLY SPENDING ON FOOD FOR SPECIALTY FOOD CONSUMERS OVERALL Cook/prepare at home: $113 From restaurants: $77 MILLENNIALS Cook/prepare at home: $118 From restaurants: $95 GEN XERS Cook/prepare at home: $104 From restaurants: $62 BABY BOOMERS Cook/prepare at home: $109 From restaurants: $56 THE LESS AFFLUENT SPECIALTY FOOD CONSUMER: KEY OPPORTUNITIES With younger people representing the core shopper, it sts to reason that they may be earning less than the $100K+ annual salary key demographic of the specialty food consumer. Consumers earning considerably less are still making these foods beverages part of their daily lives. (See box, right.) Specialty food consumers purchase in an average of 7.2 categories. That number hits eight categories among the most affluent consumers earning between $100K $150K+ annually. However, consumers who earn less still shop in a significant number of categories. Groups on both ends of the income spectrum report they d like to see more specialty foods for sale at the stores where they shop. Focus on Snacking, Indulgence Convenience Certain categories are a draw to less affluent shoppers, who will spend on specialty foods for snacking or to enjoy as treats. Chocolate, cakes, salty snacks, cheese are just some categories where these shoppers spend their most dollars. Other products like pasta or pizza sauces or cooking sauces marinades do well as they offer convenience in meal preparation. Retailers can draw in these groups by featuring snacks, treats, convenience items cross merchising them with related foods beverages for further purchase potential. THE LESS AFFLUENT SPECIALTY FOOD CONSUMER Uses specialty foods for everything from treats to everyday snacking. Purchase drivers: New experiences; the desire to eat more healthfully; impulse; convenience; interesting packaging; recommendations from friends. Consumers earning under $25K - $74.9K annually: Buy in an average of 6.5 categories What they buy: Cheese; ice cream; chocolate; coffee; oils vinegars; cookies, brownies, cakes, pies; pasta pizza sauces; pasta; tea; meat, poultry, seafood. Consumers earning $75K - $99.9K annually: Buy in an average of 7.9 categories What they buy: oils vinegars; cookies, brownies, cakes, pies; pasta; non-alcoholic beverages; meat, poultry, seafood; salty snacks; cereal; salsas dips; frozen or chilled meals; cooking sauces marinades; grains, beans, rice. Attend our webinar Today s Specialty Food Consumer Tuesday, Oct. 4, 1-2 p.m. EDT Written by Denise Purcell, editor of Specialty Food Magazine; research led by Ian Au, br specialist for the Specialty Food Association. C8 TODAY S SPECIALTY FOOD CONSUMER 2016