Centers for Foundation

Center for Marketing Excellence

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By Jay M. Rosengarten, President, The Rosengarten Group

Community-focused retailers can use specialty foods as a powerful competitive weapon, but they must treat them like any other item they carry in their store.

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Specialty foods should play an important part in your store’s merchandising plan. These are foods that will differentiate your store from the competition. They will be responsive to the community, and if properly merchandised they will increase your gross margins and your store’s sales.

IMPORTS FROM GERMANY now gaining favor in the U.S. include robust breads, flavorful cheeses, light but crisp-tasting pilsner beer, flavorful mustard, and cold cuts.

There doesn’t appear to be a clear definition of specialty foods. Most retailers think of them as products that come from a specialty food distributor. I choose to give them more definition. In general, specialty foods can be put into several categories: ethnic foods, regional foods, imported foods and artisan foods. Some foods that may be called specialty in one store may in fact be a staple in another. As an example, Goya food products in a Puerto Rican community will be considered essential, whereas in other communities they might be considered ethnic foods. Zatarian products in Louisiana are a strong regional brand, but in New York that brand will be considered a specialty food.

I always wonder why most retailers treat specialty foods differently then products that come through the “warehouse.” Specialty foods are often treated as a necessary evil. Generally we let the specialty food distributor select the item mix and set the retail price. Often stores designate a section for the specialty distributor to pack out. We rarely use these items as part of our sales plan, and infrequently think to display or sign these products.

Why then do we find it easy to ignore specialty foods? Is it because they are higher priced? Is it the packaging? Is it easier to let the specialty food supplier worry about what to sell in your store? Is the perception that these items really don’t sell, or we need specialty food items because our chain store competition carries them?

Whatever the reason, it appears that specialty foods usually have a second class status. The fact is specialty foods could become an asset to the independent retailer if he or she only pays attention to them.

Food is food, whether it comes from the “warehouse” or through a specialty food distributor. Therefore, we need to treat specialty foods like any other item we sell. We need to make them a part of our store.

To accomplish this, retailers first must identify products their customers want to buy. Knowing the demographics of your customer and the lifestyle issues that are important to them is essential when making product choices. Is the community older, or are there many young couples with children? What is the ethnic makeup of your customers? Are there high levels of disposable income in the community, and what percentage of families have two members working? Do people want more convenience because they are working harder? Is nutrition important to many of your customers, and do customers have curiosity about foods that they may have tried while traveling or eating in ethnic restaurants?

We know consumer buying habits vary dramatically from one neighborhood to the next. If specialty foods are going to become a meaningful part of your product offering, you need to start by identifying the items your custome rs want to buy. This will take some necessary research and effort, but the result will be worthwhile.

Once you have identified the specialty food items that your customers will likely buy, what else needs to be done? Simply put, everything you do for any other item. Pricing, promotion, display, advertising, product demonstrations, integration, and positioning all need to be considered.

Most of us allow our specialty food distributor to recommend a pricing strategy. This usually consists of a choice of 30%, 35%, or 40% gross margin. Once the retailer selects the targeted gross margin, all of the specialty foods are priced accordingly.

I believe that specialty foods should be priced in relationship to the category. You might consider the following:

The “warehouse” pasta category might have suggested retails that create a category margin of 25%. If you were to price imported pasta (specialty foods in this category) at 28%, the retail price point will be in closer relationship to the national brand pasta. By doing so, you will induce more customers to try the imported pasta. As the sales of the imported pasta increase, the margin realized in the category will improve.

As we do with any item, specialty foods need to be promoted, displayed, and advertised. Specialty food manufacturers and distributors provide promotional programs on a regular basis. Do you review these programs, and include specialty foods in your ads, end displays, and aisle stacks? For example, imported pasta is ideal for Italian promotions or Columbus Day ads. There is a high probability it will be on deal, if not, ask your supplier for a promotion. You will be surprised at the answer.

As you advertise specialty foods, customers will try them, get to know them, and add them to their regular shopping list. Specialty foods on promotion are high margin. Build them into your displays and use them in the aisles to build sales and profit margins.

Customers may steer away from some specialty foods because of price, not knowing how they taste or what to do with them. Demonstrations answer all these questions.

More then any “warehouse” product, specialty foods create interest in demos. Customers are curious; specialty foods satisfy this curiosity, and can create an image for the store that is unique.

It’s not bad, if your store becomes known as the place for new and interesting foods. You’ll become the food people in your community.

Don’t be afraid to integrate and position specialty foods in the category so customers find them easily. There are reasons specialty foods cost more. It may be the ingredients, their origin, or the packaging. Don’t be afraid to give your customer a choice. They will surprise you and buy what they can see. I believe that customers understand differences in quality and in some cases will be willing to pay for it.

Don’t Inconvenience the Customer

In Florida, I recently visited a store operated by a national chain. Their answer to specialty foods was to inconvenience their customers.

I was looking at an Italian section. It included sauces, tomatoes and pasta. At the end of the section, probably 50 feet from the beginning of the aisle, a four-foot specialty food section appeared.

In this section was any Italian item the specialty food supplier could get in. There were sauces, pasta, condiments, tomatoes and the list goes on.

These specialty foods were out of context. By the time customers saw the section they had made their product choice. The only people shopping this section were those who happened to know it existed. The chance for impulse sale was greatly reduced.

I can only conclude that the store’s goal was to impede the sale of specialty foods.

Over the years I have found a number of categories that lend themselves to specialty foods. These are categories that will impress your customers with the variety you carry. They will have relevance to your customers buying habits, and they will establish your store for its food expertise and variety.

When you determine your product selection, pay particular attention to teas and coffee, salad dressings, Mexican (Tex-Mex), Asian and Italian foods (including sauces, pastas and condiments), salsas, olive oil and vinegar, crackers, candy, cookies, rice, beans and couscus, and condiments, steak sauces, marinades and mustards. These are the image categories. They will create a favorable impression, establish customer interest, build sales, and increase your gross profits.

In addition to your grocery department, other departments need to be included in your specialty food selection.

Frozen foods could include Wolfgang Puck’s pizza, specialty ice creams, soups and ethnic foods. Imported butters and cheese and organic yogurts would be a nice addition to your dairy department.

The meat department might add game, fruitwood-smoked bacon, and wursts.

An oyster bar, crab cakes and seafood salads will add to your seafood offer.

Your produce department will be enhanced with large size fruit, tree-ripened fruit, vine ripe tomatoes, and specialty produce like star fruit.

Olives, caviar, smoked fish, rice salads will all help differentiate your deli, and kitchen gadgets, coffee makers and tortilla presses will make a statement in your general merchandise department.

Using specialty foods to enhance your store’s image, gives it a competitive advantage and establishes it as THE place for different foods. Again, specialty foods will add sales and improve your gross margin.

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