Last year, gourmet cheese and specialty foods shop Formaggio Kitchen shut down in-store shopping at its Cambridge, Massachusetts location for almost two months. It swiftly lost its catering and restaurant accounts as its business clients shuttered.
But unlike many small retailers, Formaggio’s business didn’t collapse. It began offering curbside delivery services just as consumers were stockpiling groceries. Sales spiked as bulk orders increased, making up for the losses in other parts of the business. The store stocked new items like biodegradable toilet paper and five-pound bags of ingredients like whole wheat and flour to meet shifting consumer demand. In the end, sales ended up flat, or even a bit above normal levels, according to Ilsan Gurdal, who owns the store with his wife, Valerie.
“People would order the craziest stuff,” Gurdal said. “People would order 10 steaks, 20 onions, flour like you wouldn’t believe. People would buy 50 pounds at a time.”
Formaggio Kitchen is one of many specialty foods companies that either profited during the pandemic or remain financially unscathed after a year that shuttered many other small businesses. While more people stayed home and avoided restaurants, they invested more in high-quality ingredients and cooking.
But now as states lift dine-in restrictions and consumers return to restaurants, it is not clear if that demand will remain. Many specialty foods companies that hired more workers or expanded last year will need to reevaluate those investments depending on how future sales fare, which could mean a decrease in jobs.
Even though revenue increased for specialty foods retailers, high demand led to unique challenges for some. It forced businesses like Formaggio Kitchen to significantly alter their business models. As Formaggio Kitchen’s curbside delivery sales shot up, its mail order business also increased by 400 percent, creating an urgent need for more employees. Formaggio Kitchen hired more workers to support the business model.
“We had to hire more people answering the phone, more people gathering the goods, more people delivering the goods, rent the vehicles to deliver the goods,” Gurdal said.
Grocery sales soared in 2020 as many consumers, stuck at home, began stocking up on groceries and cooking regularly instead of dining out at restaurants.
Specialty foods sales grew even more than the grocery category overall, suggesting consumers were seeking out specialty products in particular. Speciality food and beverage sales spiked 42 percent in March 2020 compared to March 2019, according to SPINS, a data company focused on the wellness industry. And in 2020, specialty foods categories grew between 7 and 10 percent more than overall grocery sales.
“Specialty foods and beverages were in higher demand and not just ‘rising with the tide’,” Scott Dicker, senior analyst at SPINS said in an email.
Experts say specialty foods sales grew because consumers who couldn’t dine in at restaurants were satisfying pent up desires for restaurant-quality dining by purchasing specialty foods.
Fifty-five percent of US cooks who are working from home say working from home has changed their cooking behaviors, and 30 percent of US consumers say that ordering restaurant food has become a lower priority due to COVID-19, according to Mintel research. This indicates a pandemic-induced shift in consumer food buying behavior.
And many consumers who saved money during the pandemic may have invested their extra cash in high-end ingredients.
“I think specialty food has come in and taken a shining role here because for those consumers who are working with some extra money, they’re still trying to be a little conservative with what they’re doing, but there is a mentality of treating themselves,” said Melanie Bartleme, Global Food Analyst at Mintel.
The higher demand benefitted small and large businesses alike. Stonewall Kitchen, a specialty foods business best known for its high-end jams, shut down its retail stores for part of 2020, but like Formaggio Kitchen, it didn’t lose any money. The business made it all up in online sales, and had to hire more employees to help with website management and work in its warehouse.
“Because our online sales grew so much, it actually made up for the loss in that division and then some,” said Matt Robertson, marketing manager at Stonewall Kitchen.
What happens to specialty food stores as the pandemic ebbs, however, is less clear. Economists expect consumers to spend more in entertainment and services as more of these types of businesses reopen, which might mean less spending on specialty foods if consumers can return to restaurants. Nineteen percent of US cooks say they are experiencing cooking fatigue, according to Mintel – a sign that as the pandemic goes on, some consumers will be especially eager to resume eating out.
“I think the consumer sector will be spending a lot more on services, namely restaurants, social gatherings, travel hotels, airfare,” said Steven Gallagher, chief economist at Société Générale.
Still, specialty foods experts are optimistic that spending in the category will remain elevated, even if it grows slower than it did in 2020.
“The retail boom is going to continue, and the food at home growth rate will be two times what it would have been in 2021, with essentials still being important,” said Denise Purcell, vice president of content and education at the Specialty Foods Association.