• by Karlene Lukovitz  @KLmarketdaily, July 26, 2007

Americans are increasingly taking a "bah humbug" attitude about gift giving, but food gifts are a major exception.

The overall consumer gifts market shrank by 8.3%, to $92.3 billion between 2004 and 2006--a continuation of a trend seen for several years.

However, consumer food gifts flowed--leaping by 56% to $13.4 billion, according to a new study on food gifting from the Packaged Facts division of MarketResearch.com. Food gifts' share of the total '06 consumer gifts market was 14.5%--up 70% from an 8.6% share in '04.

Food gifts also helped to drive corporate gift sales. Overall corporate gifting increased by 7% to $7.6 billion during the two-year period, and food gifts accounted for $2.5 billion, or 33%, of those sales. That represented a 14% increase in corporate food sales and a two percentage-point increase in share of the corporate market.

In all, food accounted for 16% ($15.9 billion) of the combined consumer/corporate gift market ($99.9 billion) last year, compared to 10% in 2004.

Only gift cards/certificates, the lazy shopper's way out, showed slightly greater growth than food, jumping 59% during the period. Electronics gift sales also showed momentum (up 19%).

One key factor behind the decline in overall gift-giving--frustration with gift misfires and time wasted on returning rejects--is also a key driver of safer choices like food, gift cards and electronics. (Rising gas prices/less discretionary income and stagnant population growth among the key gift-recipient segment of children under age 14 are also depressing gift-giving, according to PF analysts.)

While gift card sales are booming, consumer surveys show growing dissatisfaction with certain aspects of these stand-bys, including expiration dates and loss of value when they not redeemed. Lack of personalization/creativity is also an issue. Food gifts have the edge in these respects.

Food gifts are also being buoyed significantly by the overall growth in gourmet and organic foods. Gourmet/organic/specialty food gifts not only mean premium pricing, but brand image enhancement and a profitable trial-use channel for reaching prospective customers: all excellent reasons for brands and retailers to do everything possible to feed the trend.

At Whole Foods, which is driving the growth of the gourmet foods channel, food gifting grew 77% to $1.4 billion between '04 and '06. The chain expanded its number of gift assortments from nine in 2001 to 27 as of March of this year. It is also making gifting convenient by having store personnel create custom gift packages and offering a growing number of prepackaged gift basket options, such as a Kosher version and one featuring the company's private-label 365 organic brand.

Meanwhile, gourmet retailers Williams-Sonoma and Cost Plus now have combined packaged food gift sales of $200 million.

But upscale purveyors are by no means alone. Wal-Mart, which has been adding branded products such as Ghirardelli and Mrs. Fields, showed the fastest food-gift sales growth within mainstream retail between '04 and '06: 76%, with sales of just over $800 million. Target also carries Mrs. Fields, as well as brands like Hickory Farms, and is now offering nearly 800 packaged food gifts in its online store (versus 60 in 2004). Costco, too, has expanded its online gift-food selection, and now offers Harry and David products.

Department stores are seeking to recover gift-food sales lost to discounters in recent years. Macy's is using cooking lessons from top chefs to drive traffic to its in-store "Cellar" departments, which feature a huge selection of gourmet gift foods, including the chain's private-label Frango chocolates.

Brick-and-mortar retailers account for 47% of total gift-food sales, but online and direct marketers now command a 32% share. Sales in the online/direct channels rose by 57% between '04 and '06. (Independent/franchise/distributorship companies have a 21% share.)

Savvy brands are, of course, increasingly making the most of all channels. Harry and David derives about 70% of its $600 million in gift-food sales from catalogs, but its online and direct marketing revenues jumped 14% during the two years. Moreover, its wholesale business, through stores such as Costco, Target and Macy's, grew from $7.7 million in second-half '04 to nearly $30 million in second-half '06.

PF estimates that the gift-food market will grow another 45% by 2010, to reach over $23 billion. More gift customization options, more organic/ethnic/wellness options and increased marketing of food as a year-round, non-seasonal gift will contribute to the growth.