Grading Canada's grocery industry

Considering everything from warehousing and transportation to the consumer shopping experience, and all points in between, Retail Insider the magazine’s Editor-in-Chief sits down with the Food Professor to determine the current state of grocery innovation in Canada // By Sean Tarry

The past two-and-a-half years or so have proven to be an extremely difficult time for merchants operating in any vertical or sector within the retail industry. Labour shortages and supply chain disruptions have often dominated conversations concerning the top-of-mind issues that are keeping executives up at night, plaguing just about every type of retailer. The need to invest in technological improvements and enhancements in order to remain relevant in the age of digitization has also presented far-reaching ramifications for players industry-wide to address. And, of course, the scourge of inflation has put a dent in nearly every operation and enterprise from coastto-coast, resulting in a slew of cost-reduction exercises in an attempt to maintain profit levels.

When it comes to rising prices, few sectors have experienced such significant and sustained increases as food. In fact, food inflation has been hovering between 8 and 9 per cent for the better part of the past 12 months, threatening to surpass 10 per cent, squeezing the budget of the average Canadian and creating undue tension related to their weekly grocery shopping trip. As a result, a great deal of pressure is being placed on grocers that are operating with razor-thin margins and suffocating constraints to manage expectations. So, with little wiggle room around pricing or the ability to significantly reduce operating costs, most grocers across the country are leaning on innovation to help improve the customer experience and find efficiencies from sourcing to shelf.

With this need to innovate in mind, Retail Insider the magazine and the Food Professor, Sylvain Charlebois, analyze the current state of grocery innovation in Canada. Taking a close look at everything from product sourcing and development to the in-store and mobile customer experience, we grade the collective performance of the industry, identifying where positive strides are being made and the areas of the operation that require improvements in order to satisfy the evolving needs of the Canadian consumer and increase the profitability of their organizations.

Product sourcing and development – B+

A grocery retailer is nothing if it’s not for the product on its shelves. Afterall, it’s what brings the consumer through the front doors in the first place. However, bringing consumers back to the store, and engendering their loyalty, is becoming increasingly dependent on more than simply making product available. Today, consumers want choice and a wider variety of selection within their grocery shopping experience. And, they’re beginning to look more toward the grocers themselves to provide them with inspiration via product innovation.

According to a 2021 NielsenIQ report titled Private Label Trends During the Pandemic, a comprehensive 100 per cent of Canadian households regularly purchase private label products from the grocers they shop at, representing an average annual spend of $1,319. Further, the report found that the stature of private label products in the minds of Canadian consumers is also elevating, revealing that 45 per cent believe that they offer superior quality to that of national brands. It’s success that’s recognized by Charlebois who says that it’s the direct result of the dedication and commitment that Canadian grocers have paid toward the development of their in-house products.

“First, you have to appreciate the fact that the margin of error when it comes to product creation within the grocery sector is very slim,” he asserts. “Taking this into consideration, the industry has done extremely well to develop some really innovative products in recent years. But, one thing that those operating within the Canadian industry are trying to do is incorporate more of the innovation that’s happening outside of the country in order to diversify some of the categories that may have recently gone stale.”

Charlebois goes on to explain that there is a great deal of headway to be made with respect to product packaging and the related issues around sustainability. He says that it’s a “work in progress that isn’t an easy fix,” and that partnership alignment and a shift in approach is required in order to begin remedying those ailments within the operation.

However, when it comes to the customer experience that’s centred around the product, the veteran retail expert believes that grocers have yet to properly determine how to best service them, yielding one of the biggest opportunities to enhance their offering.

“When talking about ready-to-serve meal kits, how much time should grocers be dedicating toward their clientele?” he asks. “Providing these types of products is one way by which grocers can help save their customers time, enhancing the convenience of their experience. However, everyone within the industry has got to figure out how much time and effort they want to commit toward helping their customers feel empowered to cook at home.”

Warehousing – C-

With such razor-thin margins, most grocers within the country are starting to pay more thought and attention to the ways in which automation could be leveraged within their operations to reduce costs and increase efficiencies. In fact, McKinsey & Company research generated prior to the pandemic suggested that at least half of all work activities within North American retail are technically automatable through the use of robotic technologies. Further, its data implied that 6 in 10 (60%) occupations are comprised of tasks that are more than 30 per cent automatable.

Fast-forward nearly five years and a global lockdown later, and the general sentiment with respect to automation and the benefits it can present are becoming even more pervasive. And, when examining the Canadian grocery operation, it seems that perhaps the area offering the greatest opportunities with respect to the introduction and use of autonomous technologies is that of warehousing. Robotics present the potential for significant enhancements through the facilitation of the steady and efficient flow of product. However, according to Charlebois, there is much work required in order to begin realizing even a portion of its true capabilities.

“There have been some strides made around the use of warehouse technologies to not only save human capital, but to improve the accuracy and efficiency of orders,” he says. “However, generally speaking, when you compare the food industry with other sectors, there is a definite lag. The pandemic provided a bit of a wakeup call for those within the industry. But, to change any legacy systems or ways of doing things within grocery is difficult. You’re dealing with family businesses and tradition, so positive evolution most often happens relatively slowly and is tough to come by. In addition, it takes time to implement the tools required to build a technologically-driven operation – something that Canadian grocers have generally not done enough of to date.”

Supply chain and logistics - B

Transporting product along the grocery supply, from its source of origin all the way to grocery store shelves, requires efforts of gargantuan proportions. And, given the volatility of today’s global supply chain – one that’s been tainted and tarnished by geopolitical unrest, record-breaking inflation and rising costs, and general congestion at ports around the world – it’s no wonder that grocery CEOs and their teams are concerned about the viability of their supply.

According to a report conducted by New Yorkbased advisory firm, Mazars, supply chain issues are at the top of the list of business challenges that have got to be addressed in order to maintain and increase profitability. The Annual Food & Beverage Industry Outlook for the United States revealed that 54 per cent of leaders within the sector consider issues around the supply chain the greatest threat to their near-term success.

In order to mitigate and manage risks within the supply more effectively, most leaders (41%) believe that strategic investments made toward diversifying their supply chains pose the most meaningful improvements. And, as part of this diversification, nearly a third (30%) plan to source more product domestically, increasing the use of near-shoring and local sourcing. It’s a trend that is recognized by Charlebois who believes that these shifts may in the end change the entire grocery supply, for the good.

“There are a lot of changes happening, both around the world as well as here at home, when it comes to supply chain innovation and strategic thinking,” he says. “And, a lot of it is centred around the near-shoring of product. Everyone is becoming more compelled to take a close look at the just-in-time model, determining how it needs to evolve in order to operate more efficiently. In fact, we’re likely to see a just-in-time 2.0 model very soon, making operations much more lean, nimble and protected against black swan events, which is so critical when dealing with such narrow margins. It will involve an increased reliance on local producers, forcing greater innovation and the development and design of new supply chains.”

Digital and e-commerce – C+

There is no doubting that perhaps the biggest impact sustained by the Canadian grocery industry as a result of the COVID-19 global pandemic was the incredible spike in online orders that occurred. According to Statistics Canada data, only 19 per cent of Canadians had ordered their groceries online at least once prior to lockdowns. That number increased to an estimated 30 per cent just a month into the pandemic, and to an astounding 49 per cent following 12 full months. And, as recent data generated by industry research firm, Caddle, indicates, the promise of positive online experiences is becoming a prominent factor when it comes to customer loyalty, with 52 per cent of Canadian grocery shoppers stating to be somewhat willing to switch brands for better ecommerce service. It’s a digital trend that Charlebois says has been critical in the recent success of grocers as customer expectations around the online grocery offering continue to rise.

“The industry did a great job pivoting during the pandemic to make curbside pickup available for their customers,” he says. “It alleviated consumer concerns over health and safety and ensured that Canadians across the country were still able to complete their weekly grocery purchases. Home delivery services were also enhanced to meet the changing needs of the consumer. Today, however, there is increased competition as new players enter the market promising delivery within half an hour in some regions. As a result, expectations concerning the entire digital grocery experience are heightening, and grocers are well aware of that. They need to adjust and continue to pivot as much as possible to service a virtual market that’s growing every day. There’s still an unbelievable amount of work to be done in order for the industry in general to get to where they’d like to be digitally. However, the improvements that have been made over the course of the past few years have been dramatic.”

In-store experience – B-

Despite the obvious and significant gains that have been made in grocery ecommerce sales since the onset of the COVID-19 global pandemic, much of the experience for most Canadians continues to reside within the traditional brick-and-mortar grocery store. There is still very much a sensorial happening that remains for many shoppers – one that takes place inside a tactile shopping journey. It’s all part of what continues to drive a significant portion of the in-store grocery experience and its allure. However, according to Caddle data, it’s an experience that’s set to change dramatically over the coming months and years, with technology at the centre of much of the innovation. And, it seems as though consumers are starting to demand its use as well.

Results of the firm’s research suggests that a whole range of technological enhancements to the in-store grocery experience are being sought by today’s consumer, from the inclusion of digital signage, price tags and kiosks that display product information, to tap-to-pay capabilities at checkout. Research also reveals that current use of in-store technology is on the rise, with 75 per cent of Canadians having used self-checkout during a grocery trip at some point during the last 6 months. Further, 85 per cent of those who have used self-checkout kiosks have reported to have been satisfied with the experience.

It’s a digitization of the Canadian grocery experience that Charlebois says is paying dividends for those within the industry that have embraced the change. However, he says that although technology is helping to increase interactivity for the shopper, the value of meaningful human interaction within the experience cannot be overlooked.

“The ways in which technology can be used to improve the grocery shopping experience and increase engagement with shoppers is incredible,” he says. “Over the next several months, I anticipate the introduction of even more digital screens and signage located throughout stores, informing consumers and providing them with content that will ultimately inform their purchases. However, at the moment, it’s the human element of the grocery experience and the ways in which consumers are being serviced in real-time that’s presenting the biggest challenges. There’s been huge investments made by the industry into technologies as a means to enhance the experience offered to customers. But we’re entering into a new era in which people are realizing just how difficult it is to recruit top talent and entice them to work for their companies. It’s the labour part that grocers have got to get right. And, if they do, marrying expert service with technological advancements, grocery within the country will never be the same.”

A passing mark (but with improvements required)

Servicing a market as diverse as the one that exists in Canada while pivoting and adjusting an offering that has to be reliable, efficient and convenient in order to satisfy the needs of an evolving omnichannel consumer, is no small task. And, given the turmoil and uncertainty that the industry’s been faced with over the course of the past two-and-a-half years, it’s a task that has taken on greater meaning, becoming that much more difficult to conquer.

However, as Charlebois points out, although he’s not one to freely dole out A+ marks, believing that there is still quite a bit of work to be done and progress to be made, he’s confident in the dedication of grocers across the country and the effort that they’re putting toward elevating the Canadian grocery experience for their consumers. And, he says that, considering the pace at which grocery moves, combined with shifting consumer behaviour, he’s not expecting innovation within the sector to slow any time soon.