SPECIAL INTEREST GROUP

BARBARA MURRAY

Specialty foods are very important to the retailer, and they have a bigger impact than some might think, according to Eric Sorenson, assistant professor at the Center for Retail Management at Northwestern University's Kellogg School of Management, and others who have documented the impact of specialty foods.

First of all, specialty foods are critical to the best consumers and therefore drive retailer profitability. If a retailer loses 10% of his best, most loyal or highest dollar customers due to not having the variety of specialty foods they want, he will lose 1.5% of the store's net profit, according to Sorenson.

Specialty foods are ideal for meeting the needs of growing consumer segments such as ethnic, healthy, indulgent, international, very high quality, hot, tastier, different and unique foods, Sorenson said.

Time will play an increasing role in consumers' shopping decisions. The efficiency of shopping and delivery will be very critical. Food retailers without specialty foods and variety will prove to be an inefficient source for customers, Sorenson said.

Although the U.S. economy is not as robust as it was a year ago, "it's still a pretty viable market for specialty food," said Don Stuart, partner with Cannondale Associates, Westport, Conn. A decline in consumer spending may presage a pullback from restaurant dining, but food consumed at home will actually increase, he said.

"I'm not sure specialty food would suffer, because people still look for special treats. A mild recession would probably result in a shift from restaurant dining to more food at home," Stuart told SN. Some estimates credit the specialty food shopper with building the market basket and being a key driver of sales within the total store. Jon Hauptman, vice president of Willard Bishop Consulting, Barrington, Ill., says that not only do these "better" shoppers spend more on the specialty goods they came in for, but once in the store, they will spend more on the higher-margin foods, such as produce or premium orange juice. Therefore, Center Store's offerings in specialty is a key link. The top 30% of shoppers generate 68% of the sales, says Hauptman.

Some statistics say that close to 70% of all specialty foods are sold within supermarkets, said Ron Tanner, vice president, communications, National Association of the Specialty Food Trade, New York. Specialty foods are not always carried in 100% of a mainstream chain's stores, but they will be stocked in those stores that have customers looking for specialty foods, who will spend more money in the store, and who typically have a market basket that contains higher-margin items, he said.

Better shoppers spend over 50% more than other shoppers, and these are the ones, not surprisingly, with a taste for the more costly and unusual foods. Paul Cesca, general manager of Ancona's, Ridgefield, Conn., a 15,500-square-foot traditional supermarket in a suburban town, said, "We carry a large line of gourmet foods, along with some ethnic foods, and a large amount of imported goods, especially for the holidays. At holidays, we bring in more imported goods that we don't usually carry, like pannetone from Italy, chocolate from Belgium and Italy, like Perrugina and Bacia Italian chocolate with hazelnuts.

"People look for these items because they know we have them," Cesca said. "We set up a 12-foot table, two levels high, on the center of the first aisle going to the produce department, and basically it's covered with imported foods for the holidays.

"People look for these things from us, and we try and go out and meet the demand. And it helps. Once they get in the store, they do buy other things, since we are a full-service supermarket."

"These 'top shoppers' are not looking for what's on sale. It's like a prescription; they have a direct relationship with the product that outweighs what most people would have. They are looking for that item for a menu or a taste preference, and they will move to another retailer if you don't carry that product," agreed Joe Shannon, vice president of sales and marketing for Kehe Food Distributors, Romeoville, Ill., which distributes specialty food to retailers in 28 states.

Retailers need to attract, hold and satisfy these consumers, Hauptman said, and one or two ways to do this is to highlight the importance of specialty foods to a retailer's "better" customers, as well as to realize the positive impact of these products on overall category performance.

Lund's and Byerly's, Minneapolis-St. Paul, Minn., are upscale, full-service supermarkets and are considered more mainstream than a high-end specialty food store. The company has never done a formal study of what its specialty food customers buy, "but that is our hope, that people will buy other things, too," when they come in for specialty foods, said Michelle Croteau, spokeswoman.

Specialty food these days can be defined as natural, organic, functional, ethnic, kosher as well as gourmet or imported, so specialty food could be found in many locations in the store, she said. "For Lund's and Byerly's Whole Health and Living Wise program, we integrate, and gourmet is integrated, too. We integrate our Whole Health program, so you'll find natural and organic throughout all our departments."

D'Agostino's, Larchmont, N.Y., which carries an extensive lineup of specialty foods, has seen an increase in specialty grocery items during the past five years or more, according to Fred van Roie, director of grocery. Even if this mostly urban chain had room in its units for store-within-stores, its management wouldn't want to separate food that way, van Roie told SN.

"You want to 'bring up' the customer who usually shops the regular products to the upscale and gourmet, so they need to be subjected to the offering," van Roie explained.

"The specialty shoppers know what they want, and it's no big deal for them to find it in the integrated sections," he said. "The only segregation is in the produce, where the organic is displayed separately."

Straub's Market, which has four stores in St. Louis, added specialty foods a long time ago, but really started paying attention to it over the last three or four years, said Tripp Straub, an owner and member of the family that founded the store in 1901.

Although the stores are not large -- 10,000 to 12,000 square feet -- they have every category. "We started to de-emphasize the paper, soap and pet food, in favor of chocolates, condiments, all different sauces, cookies and crackers, and that is where we've seen tremendous growth," Straub said.

"The clientele we draw will treat themselves to a $7 jar of mustard," added Straub, who is in charge of buying grocery items, frozen, dairy, liquor and wine for the four stores.

"We are really concentrating on the specialty food side, because it increases margins. We make a lot more on the specialty foods than on your everyday Campbell's tomato soup or a box of Kellogg's cornflakes. We can't differentiate ourselves on those items, but we can on something like Robert Rothschild's raspberry honey mustard," he said.

For mainstream retailers, it would certainly be a good idea to know who the specialty customer is.

"Some of the bigger retailers are doing an outstanding job of offering specialty foods. But the opportunity to drive profitable growth through specialty foods is one that any supermarket operator can take advantage of. An advantage that some of the bigger and even independent operators have access to is loyalty card programs," Hauptman said. "The ultimate vision would be for every retailer to make decisions based on perceptions and purchase behavior of their top customers. Right now, retailers make decisions typically based on 'the average.' They know in general what sells, and they make assortment decisions on that.

"Just because an item is slow-selling does not mean it should be de-listed," said Hauptman. Specialty foods disproportionately influence the high-margin sales in other departments of the store.

"An item could be slow-selling but selling to the most important people in your store. The top 30% of customers generate 60% to 70% of sales and an even higher proportion of profit," he maintains.

"There is a tendency for retailers to de-list slow movers if they are serious about category management. But they could say instead, 'My best customers are looking for these items and it's a great way to differentiate ourselves from the supermarket across the street.' Customers purchase specialty foods, like a specialty pasta and a mainstream pasta, too, on the same shopping trip," Hauptman has found. "On average, I think in over 40% of cases, consumers are buying specialty food and mainstream food from the same category on the same trip."

This would be because they are already experienced in the category, and typically they are doing it for special occasions, for guests or for themselves, while getting mainstream for their kids' tastes.

"There are not too many people out there who buy Carr's crackers for the kids," Hauptman said. "They buy Ritz.

"To me, it means it's real important to merchandise specialty foods right next to the mainstream in the same category, preferably highlighted in a special way. And it's preferable to have your specialty jams and jellies next to the mainstream ones, so that consumers see them and give the store credit."