Specialty foods M&A update: H2-2017

Overview

Baker Tilly Capital, LLC’s H2-2017 Specialty foods M&A update provides an overview of the U.S. specialty foods market, industry trends and relevant transactions from July 1, 2017 to December 31, 2017 (H2-2017).

Specialty foods accounted for approximately $99.7 billion in sales at retail in 2016 (5.6 percent increase from 2015 and 15.4 percent increase from 2014), and $27.7 billion in foodservice outlets (4.9 percent increase from 2015 and 13.7 percent increase from 2014), according to the Specialty Food Association (SFA) in its The State of the Specialty Food Industry 2017 report. This compares to just 2.3 percent growth in overall food sales (non-specialty and specialty) from 2014 to 2016. Consumer preferences have continued their shift towards higher quality foods that are more wholesome and offer more transparency in regards to ingredients and how they are made. This shift became even more apparent after Kellogg’s $600 million acquisition of RXBAR, which is known for transparency and simplicity, listing all ingredients in big font right on the front of its packaging (more on this transaction later). As tastes have changed, the 10 largest packaged-food companies have experienced nearly $17 billion in lost sales during the past three years. According to data from the SFA, approximately 35 percent of adults currently purchase a specialty brand.  

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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