Slow economy and cautious consumer putting increased pressure on Canadian grocers

A combination of reduced consumer food budgets and escalating costs requiring grocers across the country to adjust in order to remain successful // By Sean Tarry

Beingone of a small group of players responsible for providing essential product to millions of people in hundreds of communities across the country is an important role to play for any business. And when that product is food – something that every Canadian requires on a daily basis – that responsibility tends to bear significantly more meaning. It’s what makes the Canadian grocery industry such a complex and dynamic one, and one that is, on the best of days, challenging, to say the least. However, considering current economic conditions and a volatile market, the job of today’s grocer is made that much more difficult. In fact, according to Sylvain Charlebois, industry expert and Senior Director of the Agri-Food Analytics Lab at Dalhousie University, those very factors are serving to place a tremendous amount of pressure on the purveyors of food in Canada.

“It’s not a set of ideal circumstances at the moment for grocery operating across the country,” he says. “Canada’s GDP per capita is shrinking. There’s less wealth. And, combined with this is the fact that consumers are spending less on food during their visits to the grocery store than they did last year, and the amounts continue to drop. The average grocery spend for individuals per month is an estimated $248, down from $270 12 months ago. So, from a grocer’s perspective, things are not exactly going in the right direction with respect to weekly and monthly consumer spend in their stores. This isn’t to suggest that Canadians are eating less. It means that people across the country are becoming creative and leveraging a number of different, sometimes unconventional, channels through which to find less expensive food. So, it’s a trading down market, which isn’t the best news for the industry.”

Code of conduct needed

When it comes to addressing these pressures, which seem to be driven and facilitated by current pervading economic factors and conditions, Charlebois says that there isn’t a whole lot that grocers can do, suggesting that, beyond providing Canadians with high-quality foods at decent prices, it’s beyond their mandate. He goes on to explain that, generally speaking, price increases and related volatility, is not often caused or created by grocers, leaving them powerless to any more affordability than they already do. It’s one of the reasons he believes a grocery code of conduct brought forward by the Canadian federal government could very well be the most meaningful way by which mounting pressures on the grocery industry, and Canadian consumer, can be addressed and alleviated.

“I think that the code that’s being proposed by the Canadian government would very likely be an incredibly important component of an overall roadmap that could help provide a more stable pricing across the country. Everybody is talking about the increases in price and the need to bring prices back down, but there’s nothing more destructive for grocers than price volatility. It’s the worst thing with respect to reputation, eroding trust and respect, and ends up pushing consumers away rather than bringing them into the store. There’s currently quite an aggressive battle going on right now between grocers and their suppliers over price. I firmly believe that a code of conduct will bring discipline to the market, empowering the entire system with some mechanisms to help address litigation, creating a level playing field on which parties can talk and negotiate properly. Right now, there’s just no negotiation happening at all. Suppliers raise fees and grocers raise their prices. A code would prevent this from happening, helping everyone in the end.”

Price perspective

The grocery industry expert continues by pointing out the fact that average Canadian consumer’s perspective of recent price increases at the grocery store are actually somewhat skewed, adding to the conundrum faced by purveyors of food across the country. He suggests that it’s a perspective that’s likely being driven by inflation fatigue and an extended period of financial strains and pressures on the Canadian consumer. But, nonetheless, it’s one that is, at times, significantly detached from actual price increases.

“There’s no question that it’s been an incredibly challenging last few years for Canadians in every province across the country,” he recognizes. “Their wallets have been squeezed and so their dollars need to stretch. They’re hyper-focused on price, and extremely critical of increases at the grocery store. However, in many cases, their perspectives are a bit off. We recently surveyed Canadians asking them how much, as a percentage, they believe food prices have gone up since the start of the pandemic. The answer we received, on average, was a 78% increase. The reality is that prices have increased 23%. Don’t get me wrong, there has certainly been a significant increase concerning the price of food over the time period in question, but that 55% gap in consumer perspective and reality should be a big concern for grocers.”

Increased education and effort

He continues by suggesting that it’s a gap that actually needs to be exploited by grocers in order to start to win back the hearts and minds of the Canadian consumer. Some education, he says, to help Canadians understand that they’re offering the best deals and prices possible, earning their trust and shopping trip. However, Charlebois goes to warn that attempts to educate and inform consumers must be supported by tangible actions reflected within their stores.

“All banners operating beneath every Canadian grocery brand needs to be doing everything they can in order to make things easier for the average Canadian visiting their stores. And not just the discount banners. They all have to make a strong effort so the Canadian consumer can see that they actually care about their wellbeing. Based on data and everything that I’ve heard, it looks as though 2024 is going to continue to be a challenging year for many. For retailers, things are going to tighten up again within their supply chains and consumers are going to continue to spend less. It’s an equation that is going to result in even more pressure on everyone involved. They are issues and challenges that will resolve over time. But, until then, it’s going to tough.”