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Specialty food buyers, makers, and foodservice operators are optimistic in their outlook for the new year, despite some potential headwinds from the new tariffs on certain foods from Europe.

Companies are largely enthusiastic about their investments in ecommerce and technology, and they expect these investments to pay off in the form of increased convenience and an improved shopping experience for consumers. Consumer demand for convenience is also being seen in the evolution of retail store formats, as operators continue to expand offerings such as prepared foods and experiment with smaller, neighborhood-focused designs.

2020 Outlook: Legislative & Regulatory Concerns

  • Tariffs
  • CBD
  • Plastic packaging

The recent tariffs the U.S. Trade Representative has placed on approximately $1.75 billion of European goods, including cheese, yogurt, butter, olives, pork products, and other tariff lines from members of the EU is high on the industry’s list of concerns as 2020 begins. In addition to suppliers and importers, retailers are worrying about the impact of the tariffs because of the importance of cheese in their sales mix.

“There is absolutely no question we are going to have to raise prices eventually,” says Richard Sutton, a partner with his wife, Danielle, in specialty food retailer and importer St. James Cheese Company, New Orleans. In a recent interview with Specialty Food, Sutton shared concerns that increased retail prices could alienate some consumers who already have a negative impression about the cost of cheese.

In addition, he pointed out, restaurants will be challenged to set pricing on cheese plates as prices increase. Chefs often look to specialty retailers for their cheeses, and those retailers depend on that business to move their inventory. “We have lots of chefs who buy cheese from us,” says Sutton. “When their costs go up by $1, $2, or $2.50, that adds up to a lot when you are trying to price these things on a menu, because of their margin structure.”

“The bottom line is that no one has the kind of margin that they can just absorb it,” says Matt Caputo, CEO of Caputo’s Market & Deli in Salt Lake City. “The consumer is the one who pays.” He estimates that about half of the 200 or so varieties of cheese he offers will be hit by the tariffs.

Caputo doesn’t anticipate that many of his customers will switch away from their favorite imported products in favor of American alternatives. In addition, he says, price increases on imported cheeses could open a window for American producers to raise their prices as well.

The tariffs will also impact several other products at Caputo’s, including olives and tinned seafood items—the latter of which have been among the company’s fastest-growing categories, he says.

Another issue that operators throughout the specialty food industry will be paying close attention to in 2020 is legislative and regulatory activity around the use of cannabis and cannabidiol in food products, following the increasing legalization of marijuana and the reduced restrictions on the use of hemp.

“With the emergence of both hemp and cannabis and related opportunities, there is a lot of regulatory activity we’re following at the moment,” says Ryan Meczyk, president at Norman Distribution, which supplies better-for-you grocery products to a range of venues in the Chicagoland and Las Vegas markets.

He notes that while cannabis is strictly regulated, the laws around CBD have been much looser. “We strongly believe there should be strict regulatory laws implemented for CBD-based products, as there are many products currently on the market that are not third-party tested or verified,” he says.

Retailers that are already selling CBD-based products should confirm that the products they carry are safe and verified, Meczyk says.

Additional regulatory activity that the industry is keeping an eye on includes restrictions on the use of plastic, Styrofoam, and other materials that retailers often use in their prepared foods operations, says Scott Zoeller, an industry consultant and former food retailing executive.

“There’s a lot of work that has to be done on this, but for foods that are taken out, the packaging will have to be something that is biodegradable or compostable, and has a low impact on the environment,” he says.

2020 Outlook: Retail Format And Footprint Trends

  • Smaller formats with a fresh-market feel
  • Community focus
  • Natural/specialty-centered convenience stores
  • Cashierless checkouts and click-and-collect capabilities
  • In-store sustainability programs and education
  • More space for fresh departments
  • More shelves dedicated to single-serve and grab-and-go

The industry can expect to see more stores that strive for the “customization, premiumization, and experiential trifecta,” says Daena Rexho, director of growth solutions, KeHE Foods. Expect smaller store formats with premium assortments, a high-quality, fresh-market feel, and community focus, and stores that leverage technology to enhance the experience, such as cashierless checkouts and click-and-collect capabilities.

Rexho cites as examples Amazon Go, Meijer’s Bridge Street Market, and Woodward Corner Market small-format stores, Giant’s Heirloom Market, and the food-focused 7-Eleven lab test stores. Additionally, the convenience-store channel is poised to introduce more stores that cater to the natural/specialty consumer, along the lines of Green Zebra in the Pacific Northwest, she says.

In store, retailers will continue to expand perimeter departments with more space devoted to specialty cheeses, deli, seafood, bulk foods, and prepared foods, says Rexho. Throughout the store, look for more refrigerated grab-and-go sections in key destinations, and more shelves dedicated to single-serve packs and more portable formats, such as soup cups, nut butter pouches, and microwaveable rice/grain meal cups.

Retailers will also continue to call attention to their sustainability efforts throughout the store, says Rexho. “We’re seeing more retailers taking steps to educate consumers at the shelf on the sustainable products they carry. This takes the education beyond the side panel and allows for some cool endcaps/displays.”

Other sustainability-related efforts include carrying upcycled produce and other products that use recycled materials, and offering discounts to consumers who bring their own container or mug, or who walk or bike to the store.

Retailers have differing opinions on ecommerce’s role in their operations.

Caputo says his company’s online sales have picked up after years of investment. “That took a huge amount of effort for many, many years that didn’t pay any dividends, and then all of a sudden it is, which is great,” he says. “That’s an important channel for us, and I think that it will increase.”

Danielle Vogel, owner of Glen’s Garden Market in Washington, D.C., however, says she believes the in-store experience will win out over ecommerce when it comes to specialty food retailing.

“Specialty food retailers are the antidote to Amazon,” she says. “It’s been my belief and experience that our differentiator is the feeling folks get when they walk through our doors. We offer a sense of community and connectedness that can’t be translated to online retailing.”

Glen’s Garden Market experimented with online sales, but Vogel says the company discovered that its customers “were uninterested in buying our products on the internet—they chose experience over convenience.

“Grocery delivery services just don’t accord with our intention: to physically, emotionally, and intellectually connect our neighbors to each other in celebration and appreciation of food made here, by people who live here,” she says.

2020 Outlook: Maker Focus

  • Online sales
  • Speedier last-mile delivery
  • Packaging innovations

An increasing number of specialty food makers are embracing direct-to-consumer sales through various online channels.

Jafflz, a brand of clean-label, toasted sandwich pockets filled with a variety of sweet and savory ingredients, is among the specialty food makers seeking to gain an ecommerce sales presence. The Park City, Utah-based company currently offers its products in several hundred stores, mainly in the Western U.S., and the company is expanding into 280 new retail locations in January.

“While we launched in traditional retail, we are well aware that emerging brands like [ours] will not make it without a strong ecommerce strategy and social media presence,” says Jafflz creator Meryl van der Merwe, a former high-end private chef.

To that end the company recently promoted its products on home-shopping TV network QVC, which she says was “very successful” and gained national exposure for the brand. It also benefited from a plug from celebrity chef Emeril Lagasse, who made an impromptu appearance during her QVC pitch and invited her to appear on his show.

The success of the QVC sales effort prompted van der Merwe to launch a QVC-style sales effort on Facebook Live.

While the company’s direct-to-consumer sales are still relatively low compared to traditional retail, van der Merwe said Jafflz has been seeing consistent improvements. “We are focusing our efforts on direct to consumer, and making progress daily,” she says.

She has considered selling through Amazon but says she will continue to focus on selling direct through the Jafflz website and social media channels for the near term.

Distributors though can be helpful partners in building online sales. KeHE, for example, assists makers with the tools to assess and improve their presence online through its BrandDriver platform, says Jay Rogers, executive director of e-commerce.

Brandon Barnholt, KeHE president and chief executive officer, says 2020 “is shaping up to be the year of digital for KeHE,” as they enable the supply chain to operate more efficiently and offer digital solutions to make supplier and retailer interactions easier and faster.

Rogers notes that he also sees more companies implementing last-mile, small parcel solutions to meet customer expectations for speedy delivery, as well as seeking packaging innovations. “Specifically, finding cost-effective and sustainable solutions to get products to market in an eco-friendly way,” he says.

2020 Outlook: Tech Trends

  • Data science
  • Machine learning and artificial intelligence
  • Targeted promotions
  • Blockchain in food safety and traceability
  • Robotics

“Leveraging data and data science to derive insights is one of the biggest areas of opportunity,” says Brian Wilkinson, chief information officer, KeHE Foods. “New technologies such as machine learning and artificial intelligence will help us mine thousands of terabytes of data to detect trends, risks, and opportunities that we couldn’t have dreamed of just a few years ago.”

In addition, mobile technologies and the Internet of Things are maturing rapidly, he says, and stand to enhance the retail experience.

“The opportunity for personalization of the store experience through a digital medium will drive new ways to grow sales through targeted promotions, analytics around people behaviors, and seamless integration between online and in-store formats,” says Wilkinson.

Data may also play an increasing role in helping manage food safety challenges and traceability, he says, citing the potential of blockchain technology in that area in the future.

Foodservice operators are also embracing technology, both to enhance personalization and to streamline operations through robotics and other innovations.

One such operator is Ono Food Co., which recently opened a mobile smoothie truck that relies heavily on robotics and automation to process orders. The truck features a modular, robotic kitchen that functions like an assembly line to create a range of signature smoothie blends.

“At Ono Food Co., we believe the future of food is modular,” says Stephen Klein, co-founder and chief executive officer. “At its core, this means flexibility and adaptability. For example, our robotics kitchen could be used in a busy airport stall, sports stadium, or concert venue where real estate is at a premium.”

He says he expects to see operators scaling automation technology faster and more efficiently. “We believe that robotics and automation have the power to revolutionize the restaurant space,” Klein says. “We can expect to see more operators approaching their concepts with an eye toward automation that we haven’t seen in years past. That said, it doesn’t matter how well your technology is functioning if you don’t have a quality and consistent product.”

Another foodservice company that is embracing technology in its operations is Centerplate, a noncommercial foodservice operator owned by French foodservice giant Sodexo.

Centerplate has been testing a variety of advanced technologies throughout its operations, including a robotic pizza maker that the company deployed for the last 12 home games of the Seattle Mariners baseball team at T-Mobile Park.

The technology “could potentially be a game-changer for us and the industry, when it comes to addressing the labor shortage and ensuring product quality consistency,” says Steve Pangburn, chief operating officer, Centerplate.

“Technology is an incredibly important facet for the future of our food-and-beverage approach at our sports venues,” he says. “We are taking a careful, design-minded approach with our in-house data analytics and emerging payments teams to make sure our solutions are as forward-facing and user-friendly as possible.”

The goal is to move toward a more seamless and frictionless customer journey for game attendees, and to make food-and-beverage concessions user friendly.

Along those lines, Centerplate has also deployed technology called CLEAR, which allows customers to use fingerprints for payment and age verification at T-Mobile Park, and a new mobile ordering tool at BC Place in Vancouver.

“This type of innovation will only increase in the next few years,” says Pangburn.

Among the “next frontiers” of food and beverage concessions will be leveraging ticket sales data and order histories for specific seats in order to generate targeted offers, he says.

Capital Provides Opportunities

Overall, business conditions are looking good for the specialty food industry heading into 2020, says Barnholt of KeHE Foods. “It’s exciting that natural and specialty products are driving overall CPG growth heading into the new year—a trend that we’ve been seeing for some time now,” he said in a presentation at the distributor’s Holiday Show in June.

Access to capital is helping small, specialty brands get to market, he adds. “Capital is easier to find for food brands—specifically offers with lower interest rates from a more diverse pool of investors—which is helping innovative brands get to market quicker, while keeping more of their equity and innovative control,” says Barnholt.

Mark Hamstra is regular contributor to Specialty Food.