How to Win in the Evolving Specialty Food Space

Given the ever-changing specialty food landscape, we sat down with our very own Gary Gebenlian, Principal at T&Co, to understand the key trends and understand how players in the space today are configuring to win. 

Question: What are the key trends you are seeing?

Gary: Before we discuss trends, let’s start with a common definition for “specialty foods”.   Specialty foods, which are in my experience both stickier with customers and deliver greater profitability for restaurants & distributors, are “specialty” because of (at least) one of four factors:

1. How the food is made and the standards with which it’s handled. Example, gluten free.
2. Where and how the food is sourced. Example, locally farmed.
3. Relative scarcity / rarity of the food. Example, small batch, seasonal.
4. Degree of value-added processing. Example, pre-cut, pre-marinated, pre-cooked.

The pandemic, frankly, has been a catalyst of many of the trends that we’re seeing with specialty foods.  Let me elaborate on two that are top of mind.   The first relates to the growth of take-out & delivery and the need for speed becoming more acute for restaurants (i.e., demand for food that is faster & easier to prepare).  Why? – Because consumers’ standards for delivery times have evolved (“why isn’t my food here yet?”) in part because of the high-bar that Amazon has set in other delivery categories.  Skilled labor supply shortages and cost inflation are also affecting foodservice operations in a meaningful way. 

The second trend is that consumers are increasingly demanding healthy, sustainably sourced, and safely processed and prepared foods & ingredients.  While this isn’t due to the pandemic totally, certainly we’ve seen an acceleration of this trend over the last 18-36 months and expect this to continue post-pandemic.

Question: How should players in the industry configure to win over the next 3-5 years in this space?

Gary: There are a few different configurations emerging in the space.  Let me provide a few examples here to give you a flavor of what I mean.

One configuration is driven by what Amazon has taught us all to expect: convenience and assortment. This has given rise to endless aisles for restaurants (like US Foods Direct) or online marketplaces for consumers (like Goldbelly or Regalis Foods). Restaurant operators and consumers go online, buy locally produced, small-batch specialty items and ingredients, and receive the items in a few days via drop-ship. 

A second configuration is around investing to build and/or acquire capabilities for value-added processing (such as pre-cutting, pre-marinating, pre-cooking) and for higher-frequency/lower-volume deliveries (such as smaller last-mile delivery vehicles).

Lastly, we’re also seeing the impact of influencers in the specialty food space, thanks to Instagram, TikTok, YouTube, and other social media platforms. Consumers, especially, want origin stories, they want to meet the creator (farmer, butcher, brewer, baker, chef…), and they want to engage with creative, personal recipes and experiences.  Regardless of their role in the value chain, to win, firms are investing behind an influencer strategy that’s nimble and adaptable. 

Question: What has been a favorite example of innovation in this space that you have been personally excited about?

Gary:  The proliferation of ghost kitchens – growing at 20% year-over-year, as accelerated by the pandemic – is a fascinating innovation for me!   Ghost kitchens, to clarify, are kitchens for delivery-only, often serving multiple brands that oftentimes deliver 2X the profitability to owners vs. traditional sit-down restaurants. 

We’re seeing the ghost kitchen concept crop up across multi-brand fast-food operators (ex. Inspire Brands); local innovative restaurants; and, grocery stores (Wal-Mart and Kroger are both testing in-store kitchen facilities).   I start thinking about the ghost kitchen model complemented by an autonomous delivery vehicle, and a unique at-home dining experience powered by AR / VR – and I know we’re only in the first innings of an exciting and broad-based transformation!