Every January, a wide spectrum of retailers, buyers, manufacturers and brands working within the specialty channel meet for the Specialty Food Association’s annual Winter Fancy Food Show in San Francisco.
As the overall attendance has grown, so has the importance of beverages as a sales driver for the specialty retail channel. According to data from the National Specialty Food Association, beverage sales totalled $10.5 billion in 2016, equivalent to about 18 percent of the total specialty retail market.
Specialty retailers still aim to serve consumers looking for distinctive and innovative beverage products, but that category’s role within the channel’s commercial ecosystem is evolving.
Speaking with BevNET at the Fancy Food Show, Phillip Kafarakis, president of the Specialty Food Association, cited a rise in beverage brands exhibiting at the show as an example of growing interest in the category, particularly as it relates to capturing on-trend ingredients and functional benefits. “There’s more innovation in beverage than ever before,” he said.
While consumers look to those specialty retailers more than ever for innovative and on-trend products, conventional and mainstream retailers are also increasingly trying to stay ahead of the curve with their beverage sets.
“Mainstream and specialty are now serving the same consumers,” said Paul Harney, VP at Harney & Sons Fine Teas. “There’s more funding and more distribution around beverages now, so I think specialty retailers are more selective about what they bring in now. It has to turn, first and foremost.”
Harney’s company is itself an example of the changes in both the manufacturing and distributing components of serving the specialty channel. In addition selling loose leaf teas and distributing products to independent retailers in the New York City market, the Millerton, N.Y.-based Harney also makes a line of ready-to-drink (RTD) teas. Though marketed to the specialty channel, Harney noted that the line was in sync with consumer trends that are prevalent across all beverage types and retailers: clean ingredient label, low sugar, and a degree of functional or health benefits.
“We want to provide the retailers with something that they can understand,” he said. “A lot of customers are asking for low-sugar products, so this fits in with that mix.”
As specialty retailers sort through the increasingly competitive beverage category, they have become growing consumer demand for innovative, and often healthier, products.
“Specialty is our most important channel, because that’s where the innovation is seeded,” said Dan Mader, senior VP of sales at Califia Farms. The brand has made new product development one of its cornerstones, pushing it into over 80 ready-to-drink SKUs spanning categories from cold brew coffee to nut milks. As Mader explained, by presenting innovative products to the consumers demanding them, education can happen in the aisle and on the shelf.
Felicia Vieira entered the specialty beverage market in 2013 as the founder and CEO of Crafted Cocktails, a shrubs and mixers brand that has found placement in retailers ranging from H-E-B to Bed, Bath & Beyond. At WFFS 2018, the company debuted a line of drinking vinegars and announced it was expanding beyond cocktails, and will rebrand as Crafted Beverage Company.
Shrubs and mixers, Vieira said, are becoming increasingly understood by specialty channel consumers and buyers, and the company no longer struggles to educate consumers on its products, and the name change reflects that decision to move beyond the single scope of alcohol-related products.
“They know us, they know the brand, and the whole consumer market has changed,” Viera said. “All the new emerging brands that are like us don’t need to convince people anymore — it’s already established.”
But within those areas that have crossed over from specialty to mainstream, the fast growth continues to attract a lot of competition, meaning that it is still hard to break through.
“There’s not a huge chance for velocity, especially when you’re in our category, in comparison to the other channels,” said Ryan Emmons, founder and CEO of bottled water brand Waiakea.
Having strong brokers was vital for Waiakea to earn placement early on, he said. Startups are frequently hindered by small sales teams and crowded shelf space in specialty retailers, particularly in grab-and-go coolers.
“Most of the bottled waters that are consistently in the cold box have really solid DSD relationships, they have really serious exclusivities, and if you don’t have that same DSD relationship and the same guy going in there and stocking the shelves every day, then your stuff is just not going to be consistently there,” he said. “And if you’re not in the cold box then you’re on the dry shelf, and there’s nothing happening on the dry shelf.”
In less crowded categories, however, growth via specialty can come fast. Nutpods differentiated early by being a dairy alternative product that was ahead of the curve on removing ingredients such as carrageenan from its labels. Combined with its online success, Madeline Haydon said the brand has leveraged the specialty channel to quickly expand into mainstream retailers.
“We’re not even three years on the market, and yet Publix found us and asked us if we would come on board in their stores — which we were thrilled about,” Haydon said. “Now we’ve been able to secure the Krogers, the Wegmans, the Publix and H-E-Bs, and it’s been on the strength of how we’ve built our brand in specialty and natural.”