We need a Canadian solution - SKUFood
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We need a Canadian solution

We need a Canadian solution

If food inflation was the top industry news story of last year, lack of competition in the grocery industry was probably number two. They are related, but there was a lot of discussion about the oligopoly in the grocery industry. We had retailers being called to Ottawa for a reprimand and a lot of discussion that we need more competition to benefit consumers and suppliers.

We will take the first 10 weeks of the year to dive into our 2024 trends. We want to provide you with as much context to determine where to focus the efforts of your business. Everyone has a limited amount of resources and dollars so it is important to consider the best return for your investments.

2024 Trends

5. Support the underdog

It is true, there is not enough competition and we need more doors for suppliers to knock on. If Loblaw and Sobeys are not interested in your product, you are shut out of close to 50% of the market. That is a challenging environment to operate in for suppliers. We know when there are more competitors, the good stores will get better and that can be in price, service, quality and other attributes to entice consumers in. The challenge for regulators, the industry and consumers is what do we do about it?

A foreign discount chain is not the solution

It bothers me that we have an industry minister who believes the solution is to entice foreign grocery stores into Canada. It is a sign they really do not understand this industry and one would think their mandate is to grow Canadian based business, not bring a foreign competitor?

When you look at our industry, there is no doubt the examples of chains that have entered new markets recently and been successful, are Aldi and Lidl. They have opened a lot of stores and had an impact on many markets. These companies, based in Germany have opened 2,357 and 177 stores respectively in the U.S. Is it possible they could move into Canada? They could, but this is a different market than the U.S.

Obviously, Walmart was/is dominant in the U.S., but the discount segment did not have as many other competitors as we do in Canada. We already have +/- 30% of the market in discount stores like No Frills, Food Basics and FreshCo plus other regional chains. We also have Giant Tiger, Dollar stores. Not to mention we have Walmart and Loblaw’s Superstores. There is more competition in this segment than there was in some of the markets the discount chains have entered.

We also have some distinct regulatory issues for them to consider. All packaging has to be bilingual and meet Health Canada labelling requirements. Both of these chains have their own brand, so for a relatively small market (by their standards) they would need separate packaging.

Canada presents a challenging geography for food retail. They could focus on Ontario and serve that market, but it is already the most competitive and probably too many stores now. Building a distribution network for shelf stable and refrigerated food is not cheap and for small volume (by their standards) and low margins they might not get a return.

The model is very limited SKUS with only the top selling items in categories and their own private label. I am curious if the minister has investigated the impact on suppliers in countries where Lidl and Aldi have entered. It would be reasonable to assume existing players put a lot of pressure on suppliers for lower cost of goods to compete with the lower retails in discount chains.

One might also want to remember +/- 30% of our Canadian retail industry is being traded in U.S. based retailers. Walmart, Costco and Whole Foods Markets are close to 30% market share. They are all very good retailers and probably growing faster than the 3 major Canadian based chains. How much foreign based businesses do we need?

What should be done

We do need more competition in retail. We do not need more banners owned and operated by the 5 major players. More of the same will not change the landscape. We understand why it happens, but it is unfortunate when strong regional banners like Farm Boy and Longo’s are purchased by one of the 5 major players.

According to the competition bureau, the legislation as it is written today, would not enable them to prevent a move like Sobeys purchasing Longo’s or Farm Boy. They operate in the most competitive market and even after they become part of Sobeys, it is still the most competitive market. We need to change the legislation to ensure the competition bureau does have the ability to maintain a competitive landscape, with many options.

Attached is the competition bureau perspective:

Operating a food and beverage retail business is a challenge. If we want to grow stronger retailers to compete with the 5 major chains, help the existing Canadian based players. Find opportunities to help them get financing to grow, subsidize training initiatives to ensure they have qualified people, incentivize them to carry more Canadian produced products and look for other opportunities to support their growth and desire to stay in the business.

What suppliers can do

If you go back to our title, support the underdog. You have to support all of your customers but make sure you put the effort into every customer, not just the bigger ones.

Are you keeping the smaller, regional chains in stock so they can grow?

Are you spending the appropriate amount with these retailers to ensure they offer good value?

Are you teaching their staff? They often have to differentiate on service so the more informed they are the better they can deliver great customer service.

Is there an opportunity to try a new SKU in these stores first? They do need to be different so give them something to talk about.

You have to support all of your customersJust remember because they might not be doing the most volume today, they could grow and open more stores to sell your products.


Peter

Where is Peter Speaking?

Industry minister courting foreign retailers

It was very timely this week for our 5th trend for 2024 to be related to the retail landscape. We are sure the federal minister of industry was not on our schedule! It was an opportunity to provide some insights to media outlets who were looking for a different perspective.

We are excited to be working on this program with Food and Beverage Manitoba. Retailer's local programs are great opportunities for processors who can take advantage of their space on the shelf. This virtual and in-person program will help processors implement processes to maximize the opportunity they get in the store.

Really excited to have the opportunity to share the stage with Cathline James from Wise Bites and Lindsay O’Donnell from Piquant Marketing. Cathline will be sharing her real life experiences gained from developing and implementing strategies to get Wise Bites products off the shelf. Lindsay has a great process to help brand owners understand their ‘why’. I get to share insights on how to get your product on the shelf. A great day for food businesses in B.C. Thanks to FCC and BC Food & Beverage for hosting the event!

When we had an FCC Winning in retail session in Winnipeg there were a lot of requests to do another session about distribution. This is a challenging component of any food and beverage business. Join us for an informative day where we will explore how to find, work with and benefit from a distributor. If you are able to join us in Winnipeg February 15th it will be a great day!

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