Illustration by Jon Valk

LIKE THE REST OF THE COUNTRY, SPECIALTY FOOD PURVEYORS are beginning to feel the effects of the dramatic economic upheavals. But early indications are that this industry is better positioned than most to weather the recession without lasting scars.

Importers, distributors, suppliers and retailers throughout the U.S. reported strong sales into the last quarter of 2008. Even in regions where consumption lagged, research showed that people were cutting back on major purchases rather than specialty food.

“Consumers are watching their dollar, but they are not opposed to spending it on expertise, on quality, on authenticity, on homemade,” says Harvey Hartman, president of the Seattle-based market research firm Hartman Group. “We think specialty food stores have enormous potential. At times a soft economy becomes even more of an opportunity because, long-term, more people who used to eat out every night will be cooking and entertaining at home.”

Here are ten strategies for weathering the current climate:

1. Adapt to New Shopping Patterns

THE McGINNIS SISTERS Food Centre of Pittsburgh, Pa., was opened in 2008 during less than ideal circumstances. The 17,000-square-foot emporium opened 110 days late, on September 30, one day after the stock market crashed. “So when the credit crunch hit, we weren’t too happy,” Marketing Director Sharon McGinnis Young recalls.

“However, our customer base is expanding rapidly, and so is basket weight,” she continues. “This store has a young demographic, and they really do eat differently. We’re selling a lot of expensive organic cheeses, but can’t move potato chips. Kraft® mac-and-cheese is languishing on the shelf because they’re buying Annie’s Organic at three times the price. We are doing gangbusters with gluten-free products.”

Young confirms the boom in home entertaining, noting that sales of freshly prepared foods are “through the roof” at all three stores.

The iconic Zabar’s has survived countless economic downturns with aplomb since opening at its current Upper West Side Manhattan location in 1938. “We pay enormous attention to detail to offer our customers maximum value for the money, and it pays off in a slow economy,” says General Manager Scott Goldshine, who has been with the store 31 years. “One product or another might dip, but I have never seen an overall drop in sales the whole time I’ve been here.”

2. Let Premium Pay Off
THE TREND TOWARDS quality, not quantity, is true in restaurants as well, says Scott Pikovsky of Great Ciao, a Minneapolis-based importer whose customer base includes chefs. While high-end clientele may economize by ordering a glass of wine instead of a bottle or sharing an appetizer, they are not switching to Applebee’s. And this is good news for suppliers.

Whether you are New York City importer American Roland with 1,400 shelf-stable products in your line, or Be-Bop Biscotti selling 19 variations of a single fresh-baked item, a well-managed specialty food business has a wider-than-average range of options available to cushion the blow.

“Regardless of the recession, we know that there are some things people are unwilling to compromise on, especially when it comes to feeding their children,” says Lisa Kartzman, American Roland’s director of marketing and graphics. “They will still pay to serve fresh fish instead of frozen, just perhaps less frequently.”

High-end snacks are another sector that is flourishing. “There’s a difference between luxury products and high-quality products,” Hartman notes. While foie gras and caviar sales may dip, gourmet chocolate is a growing sector, because it’s a comfort food.

The emotional factor can’t be overestimated, according to Be-Bop Biscotti’s national sales manager, Misty Lee. “We’re having our best year ever; new business is up, and existing customers are ordering more,” she says of the 20-year-old wholesale bakery in Bend, Oregon. “We’re trying to be smart with it, but the truth is, we didn’t do anything different. Most of our sales are to coffee shops. And when times are tough, people like to treat themselves to a cup of coffee and a cookie.”

3. Creatively Re-evaluate Budgets THE IMPULSE MAY be to slash labor or marketing costs in a downturn, but experts urge caution. Lines of credit for most small businesses are there for emergencies. Jeffrey Carr, dean of the Berkley Center for Entrepreneurship at New York University’s Stern School of Business, advises drawing some down now as a safety valve. “If you can, access credit today at 6 percent, put it in the bank earning 3 percent, and chalk up the difference to the cost of insurance,” he recommends. 

Trim labor costs whenever possible, Zabar’s Goldshine adds—not through layoffs, but by cutting back on hours. Negotiate the best price with your suppliers, or find new ones, but never at the expense of quality. “People trust our label,” he says. “It’s that simple.”

Keep an eye on the long-term picture as well. Kartzman cautions that the last thing a company should economize on is advertising. “You need to support your brand in tough economic times, or customers will lose track of who you are and what you’re doing,” she says. “The economy will eventually cycle back and you want to be remembered when it does.”

4. Nurture Your Niche COMPANIES THAT SURVIVE and thrive know not to skimp on what they do well. “Don’t dilute your message by trying to be all things to all people,” says NYU’s Carr. “Establish an expertise in a particular arena, and sell not only the product, but how it was cooked, how it was packaged, its cultural heritage and its history.” 

Great Ciao is one of only a few wholesalers in the country to airfreight fresh cheeses in from Europe, owner Pikovsky says. “It raises our costs and leaves us more vulnerable to currency fluctuations, but it’s also what we’re known for; the difference in taste is tremendous. We sell to a lot of chef-owned restaurants. They understand that to sacrifice what goes on the plate is
false economy.”

Zabar’s president Saul Zabar, 80, visits the fish smokehouses three times a week to check on the store’s signature smoked salmon, or “Novy,” and tastes every piece of fish that enters the store to make sure it’s as ordered, Goldshine says. The Zabar patriarch also buys the store’s coffee beans personally and
custom designs its house blend in a mini-coffee-roaster in his office every Tuesday before phoning the recipe in to his supplier. 

5. Cultivate Personal Relationships “IT IS UNLIKELY in this environment that companies will take a chance on someone new,” points out Kartzman of American Roland, which has been held by the same family for 75 years. “We’re a long-term player, and in this type of economy it’s a huge plus.”

That is why service comes into play. The 12-year-old Great Ciao has its restaurant sales director, David Nicholson, spend time with the serving and kitchen staffs at its restaurant clients explaining the virtues of each cheese.

Three generations of Zabars are not only involved in the day-to-day store operations, but also raise their families in the neighborhood and are active in the surrounding community. Affection for them is so deep that Zabar’s has a mailing list of 500,000 customers, with many of the orders shipped to homesick New Yorkers who’ve moved to Florida or the West Coast. “Word of mouth is your best advertising, and your most valuable asset is an employee who makes a personal connection,” Goldshine says. “Your customer is your evangelist.”

6. Package and Prepare Creatively NOW IS THE PERFECT time to re-evaluate how your customers are actually using your food. If, as trends suggest, families are eating more of your prepared foods as their main meal at home, make sure to add, as McGinnis Sisters Special Food Stores did, family-sized portions of customer favorites.

Consider adding foods inspired by popular local restaurants or favorite cuisines in easy to use sizes and preparations. Fresh Direct, the online grocer serving the New York City area, offers a line of prepared foods conceived by famous Manhattan restaurant Tabla,  including ready-to-cook banana-leaf- wrapped coconut-cilantro salmon; side dishes such as mint & cashew quinoa pilaf that only take four minutes to prepare; and ready-to-reheat chicken Tikka Masala with a pea pilaf.

On the other hand, you may find that some of your customers are not buying your fresh items because the portion sizes are too large. Whole Foods Market, for example, offers small individually wrapped portions of some high-priced items and perishables to access different consumers. The chain sells “Two-Bite” versions of scones, cupcakes and brownies and tiny wedges of expensive imported cheeses that customers can savor without breaking the bank.

You may also want to add value to your packaging. Hancock Gourmet Lobster Company’s signature item is a lobster pot pie in a reusable ramekin. The firm, based in Cundy’s Harbor, Maine, also creates an entire meal solution by shipping gift baskets that pair homemade soups and chowder with cream cheese biscuits from a local bakery, or fresh lobster rolls paired with a dense chocolate Whoopee Pie.

7. Find Your Price Point “THERE’S ALMOST A knee-jerk reaction when things go bad that retailers think they have to lower prices, but then you have to lower your costs,” Zabar’s Goldshine says. Or retailers automatically increase prices when their own costs rise. Either are risky options.

“If customers think you’re overpriced, they’ll abandon you and never come back. There are lessons to be learned from the bigger guys: When the price of sugar goes up, candy bars get smaller, not more expensive,” adds Goldshine. And it isn’t just candy, everyone from Tropicana® to Breyer’s® ice cream to General Mills® cereals have been shaving back package sizes.

Though the price of its main ingredient fluctuates wildly, Hancock Gourmet Lobster Company changes its price list only once a year. “It can be tough, but our customers demand consistency,” owner Cal Hancock says. “We sell through a lot of high-end catalogs like Harry and David, Neiman-Marcus and Williams-Sonoma, so we can set our base price high enough to cover costs.”

Also consider looking at your delivery costs to see if it is feasible to provide free or reduced shipping—this way you can offer price appeal without discounting your product., the consumer-oriented outpost of New York City premium meat market DeBragga and Spitler, recently lowered its local shipping rates to $9.95 per order. This means that anyone living within
100 miles of New York City or in the corridor between New York and Washington D.C., gets this new lower rate. 

If a rigid price structure simply won’t work for your business, make sure you communicate the reasons to your clients. As the dollar fluctuates against the Euro, Great Ciao adjusts its prices accordingly, even week by week, if necessary. “I can’t think of anyone who has complained about our price structure,” Pikovsky says. “There may be a bit more volatility, but when the dollar’s strong, we pass the savings on to customers, which gives us a lot of credibility.”

8. Deliver on Trends WHETHER YOUR SHOPPER is looking for gluten-free or dairy-free foods to cope with dietary intolerances or seeking power-grains to boost health, you need to highlight these key categories to attract consumers. “Health and wellness products are growing and there’s no turning back,” notes Kartzman. “We’re seeing a lot of, not just ‘how can you help us cut costs,’ but ‘how can you help us cut calories without sacrificing flavor?”

Flavor trends are something else to be watched carefully. For example, Americans are drawn to strong flavors, which offers additional product opportunities, she adds, which is why American Roland recently launched a line featuring wasabi peas and more.

9. Keep Your Business Nimble ONE OF THE BENEFITS of being a smaller retailer or supplier is the flexibility to respond to market changes or ingredient availability and trends.  “We turn our produce every three days,”  Young says, “and I have ads printed on Friday that are delivered on the weekend. If we can get a great price on something coming in from Ohio or West Virginia, I can put that in our circular at the last minute.”

“We add 80 to 100 products per year, import from 50 countries and our buyers travel every six to 12 weeks, so we hear about market changes before almost anyone,” Kartzman says. “We shift in less time than most companies take to determine that they need to.”

10. Turn Adversity into Opportunity

IF YOU’VE FOUND that in the past, you didn’t have the infrastructure to increase your customer base, the changing landscape may help you. “If we end up selling a bit less to each customer, there is room to grow in number of customers,” says Jeff Pierce, Great Ciao’s sales director for gourmet markets. 

“If you can, this is an ideal time to expand your business,” says NYU’s Carr. “Your competitors will be pulling back. Rents will come down, advertising rates will dip, and if you have the courage and resources to step on the gas while everyone else is putting on the brakes, you can be successful.”

Molly Gordy has written for The New York Times, the Washington Post and other publications.