More discount or better conventional?
Operating a retail grocery business in Canada is a complicated endeavour. We have a relatively small population, spread across a huge geography. We also have a federal government, 10 provinces, 3 territories and countless municipalities all with their own agenda and tax systems. We have a complicated regulatory environment, some unions and 4 seasons that all make it more challenging to operate a grocery store.
When you consider all of that, you wonder why some retailers choose to make it even more complicated.
When we say more complicated, we are referring to the store formats they operate.
More complicated translates into more expensive to operate and more challenging for employees. It also translates into them having to charge higher prices, to pay for the complexity.
My father did a lot of consulting, in main frame systems and business process. I remember being on an airplane with him once and he asked me to look out the window. We were just getting ready to taxi to the runway at Pearson airport in Toronto. He asked me to count the different models of planes Air Canada had, as we went past the terminal. I believe we counted 11 different types of planes. His point was they need to maintain 11 inventories of parts, employ mechanics who are capable of servicing 11 different aircraft, pilots that can fly 11 different aircraft, you get the point. Yes, they might need 3-4 different aircraft because they are not going to put a big plane into small airports, but do they need 11?
Out of curiosity I checked Air Canada today and they boast about 17 planes in their fleet. Apparently, they still subscribe to a complex, expensive model.
Our Canadian retailers are the same. They have a lot of formats. There is a cost to these complicated structures with many formats.
Complexity in Canadian retailers
In the following table, we have captured the major formats operated by the 5 largest food and beverage retailers in Canada. They do have other smaller formats, but these do the majority of the volume. Other Canadian retailers like Save On Foods or Co op do have a less complicated structure.
Every format takes time and should occupy its own position in the market. They each require their own ad program, pricing model, signage, uniforms, you get the point. There is the argument they service the niche in the market, but I question if that is worth the complexity.
Loblaw have acquired a lot of formats like Provigo and Zehrs over the years. Sobeys continue to operate Safeway many years after that acquisition. It is a challenge to convert formats. Labour contracts impact the decision, consumers have loyalties and employees also have a connection.
Canadian retailers want more discount stores
We know we have been through a period of food inflation, we know consumers are focused on price. We would argue they are also focused on value, which brings other attributes into the equation.
Recently Loblaw and Metro have said they will be focused on discount. As reported in Canadian Grocer Loblaw president Per Bank said, “That’s also why we are building many of the new, small stores in our hard discount, because that resonates so well with our customers,” he said. “They're performing good and that's how we provide real value to Canadians, because those stores are much cheaper than the average store.” The majority of Loblaw capital is going into more discount stores.
Metro appears to be following this path. Also reported in Canadian Grocer Metro president Eric LaFleche said, “We see good opportunities in discount, mostly in both provinces,” La Flèche said. “We see opportunities for us to expand our network, grow our market share and grow our tonnage. Food Basics in Ontario is doing really well. It's been on a very good run for a few years, capturing share, and we see more opportunities. Same with Super C.”
Sobeys appear to be on a slightly different path. As reported by the Canadian Press, CEO Michael Medline did say FreshCo has been a “home run” but added this “But having said that, we are increasingly confident that full-service is about to come into its day again, and we want to be there for our customers,” he said. “So we’re looking at ensuring that we’re going to be taking market share in the next few years, as the economy hopefully improves a little bit.”
Be the best at what you do
We agree consumers want to see the lowest possible prices for food. There are different ways to achieve this. Discount stores are certainly one answer. Fewer items, less staff, more work done by consumers, less expensive store fixtures and lower rent locations all impact the prices they charge. For some consumers in the market, this is the grocery shopping environment they want.
Not everyone wants this environment. A great conventional store with more selection, better service, innovative new products and an enjoyable shopping environment can be a great place to buy the food for your family.
Does discount de-value food? We should be trying to educate consumers about how important food is and that it is worth it in terms of health and wellness. Perhaps our Canadian retailers are losing share because they could be better when operating conventional stores. A great conventional store should be able to showcase selection, bring innovation to the market and service consumers. This all takes work and it is not easy.
There are examples out there. If you are in the U.S. visit the following stores:
If you are in Europe there are other examples.
Perhaps it is time to reduce the complexity and operate great stores. In our table you can see Walmart and Costco each have one format. They know what their position in the market is and they work hard to deliver it. Yes, discount has a place, but it is not for everyone. Operating great conventional stores is tough, but hopefully some retailers will see there is room for selection, service and innovation.
Peter
SKUFood Recipes for Success Podcast
In this episode, we’re excited to feature Carzan Local Meats, a family-owned business from Southey, Saskatchewan, dedicated to producing premium grass-fed beef and jerky products. Founded on the principles of sustainability and regenerative ranching, Carzan has become known for its locally raised meats and innovative flavour offerings in their growing jerky business.
Join us as we delve into their journey with Carter and Carmen, from their family roots to their commitment to providing top-tier products that reflect their passion for sustainability and community.
Get ready to hear the inspiring story behind Carzan Local Meats.
Coca Cola to dial back sustainability commitments
Is it reality, lack of commitment or a different political climate driving the change for Coca Cola? One of the biggest producers of single use plastic in the world has announced they will not meet previous commitments and they are changing their position going forward.
It will be interesting to see if other large consumer packaged goods companies follow Coca Cola. Every country has different regulators and we expect Environment Climate Change Canada is watching this carefully.
I do have travel coming up to Toronto, Calgary, Lethbridge and Niagara Falls so if you want to connect or have an event in any of these locations give me a call or send me an email.
If you’re a food or beverage entrepreneur in processing or manufacturing, consider applying to join an FCC peer group. Connect, share and learn with people who get it.
Apply by December 15.