According to the National Association for the Specialty Food Trade, in 2010 Specialty Foods was a $70 billion dollar industry with 76% of manufacturers reporting growth and 36% reporting growth over 20%. The largest specialty food industry is the cheese and cheese products industry, accounting for 5% of the specialty food sales. Natural food retailers are the fastest growing members of the industry, showing a 14.7% increase since 2008.

Some of the catalysts spurring this industry onwards include: the decline in restaurant customers – the restaurant industry lost 2.4 billion visits over the past 2 years; better accessibility to more diverse foods; an increasing consumer confidence in the economy; and an increasing desire to eat at home.

The biggest demographic of specialty food consumers is the 18-34 year old population, suggesting specialty foods could be an up and coming trend. Another interesting statistic is the average specialty food consumer watches 4.5 hours of food TV a week.

International Plays: H.J. Heinz set a precedent in looking to emerging markets and strategic acquisitions for future growth. Other major food companies will have to follow suit in order to stay competitive. With the demand for specialty foods increasing in the U.S., large players will have to engage in strategic acquisitions to stay profitable. Furthermore, with large food companies beginning to look abroad for growth opportunities, domestic acquisitions will decrease.

IPOs: Three years ago, the specialty foods market was worth half of what it is today. Due to the small market size, only a few specialty food companies decided to go public. Now, the market is rapidly growing, but most of the growth is occurring in the private sector implying the public market listed is still small and relatively uncompetitive. Going public is an attractive option for specialty food companies for now they can reap the benefits of an untapped sector.

Increasing Deal Velocity:  After relatively tame years in 2008 and 2009, 2010 had significantly increased M&A activity, with a 33% increase in M&A activity in food companies specifically. This trend continued into 2011 with 15 mergers and acquisitions occurring over the past 6 months.

With more than $400 billion in un-invested capital in the hands of institutional investors, transaction velocity will undoubtedly pick up.  Specifically, the capital markets and M&A transactions in the specialty foods industry look prime to grow as owners seek liquidity and brands seek to capitalize on the opportunities in this fast growing market in 2011.