SKUFood 2025 Trends
Each year we use what we learn and observe from our work to develop a set of industry trends. Our perspective is unique in that we are looking at the industry from the perspective of what is happening between suppliers and retailers. Certainly, our trends are influenced by consumers, but they are not consumer trends. There are a number of great resources for consumer trends we encourage you to consider. We trust you find our conclusions useful in your planning and execution for 2025.
1. Focus on food and beverage prices
Food inflation continues to make the news. Despite a return to more acceptable levels, consumers, customers, the media and others will continue their focus on food and beverage inflation. It is true, prices have increased, in some categories close to 20%. These prices are now incorporated into supplier’s and retailer’s results. They are not going to go back. Consumers will continue to look for opportunities to reduce their grocery shopping bill. They are doing this because they think food prices are too high and because they see the cost of living in other sectors increasing. If they can save $20 on their grocery bill it might offset an increase in the cost of gas for their car or a cell phone bill. This will continue in 2025 and the results will be trading down in the category, more focus on temporary price reduction, shifting to less expensive private label and more dollars being spend outside conventional grocery stores.
2. Volatility in U.S. policy
In all likelihood, we are entering a period of instability and protectionist trade policy with the United States. The volume of food and beverage going to and coming from our largest trading partner dwarfs all others. The Make America Great Again thinking could have a significant impact on the Canadian food and beverage industry. The people in charge are not as predictable and seem to relish in putting our own government on its heals. This results in decisions being made differently and with influence coming from different sources. We will have to adapt because we cannot change what they are going to do.
3. Code of conduct
After several years of negotiation, the implementation of the industry code of conduct is almost anti climatic. It should be an important milestone in our industry. We will see the final version and begin to see the impact on supplier-retailer relationships. Throughout the negotiations, we maintained the most important feature will be the dispute resolution. We have laws to govern how business is to be conducted. The challenge has been to maintain a level playing field between the entities in the value chain. Retailers could impact a supplier if they did not believe they were being treated fairly or perhaps even the way they wanted to be treated. Hopefully we will see some shifting in this dynamic.
4. Shift to discount
Retailers are investing in more square footage devoted to discount formats. There are a few reasons for this change; consumers want lower prices and this is the best vehicle traditional retailers have, a stronger presence might keep a foreign retailer like Aldi or Lidl out and these are the cheapest stores to build and operate. This will have a significant impact on suppliers. The listing base (items carried in the store) is significantly smaller. If you are the #3 or #4 brand in a category you will probably not get to the shelf. The stores are smaller with less space for refrigerated and frozen items. Value will be the priority over innovation, sustainability and line extensions.
5. More work on suppliers
Retailers continue to shift more work to suppliers. If you want to sell into the large Canadian retailers you need to be prepared to get them what they want, when they want it, where they want it. This requires resources and people who know what they are doing. The model of portals and supplier driven data entry requires a certain type of work force. Retailers expect suppliers to have the ability and time to do this work for them. It does not make it easier because they are not great at showing you how to do it and they themselves do not always know how to do it.
6. Artificial Intelligence
The impact of this technology on our industry is not news. The challenge is how do you incorporate it into your business and where you draw the line. We have seen everything from AI developed products to entire media campaigns developed with this technology. The success of these examples might be questionable, but it is happening and costs a lot less than the more traditional methods. In our business we have chosen to use AI where we can automate proven processes and reduce repetition. We do not want it to replace critical thinking and give you content that comes from the same resource everyone else has access to.
7. Sustainability and local fall in importance
Consumers only have capacity to consider so many attributes when they make the decision to buy. With the rise in awareness and focus on price, sustainability and product origin have been pushed aside a bit. They continue to be on the radar, but just less important. The challenge for suppliers is that regulators continue to demand change in packaging and other initiatives and that all costs money. These can be a point of differentiation but if you can tie it to value there will be a better response from customers and consumers.
8. Local/small Supplier programs
These have been in place for some time. One retailer is revamping their program and others are working to ensure the effort is paying dividends. It is great retailers provide an opportunity in their stores for smaller or regional brands to succeed. There is still a lot of work required to generate the sales and prove the product belongs on the shelf in this environment. Every supplier selling into the major retailers should have an expectation for sales and a plan to deliver them. Getting on the shelf is a great achievement, getting into the shopping cart is the only thing that will keep you on the shelf.
9. Distribution
The cost and complexity of moving food and beverage products from the point of production to the point of sale are more challenging than ever. The options are do it yourself, find a capable, invested distributor or get into the retailer’s network. Each one of these strategies is different and requires a different skill set and resources. They also have an impact on your cost of goods. Distribution will probably be 20-30% of the price you sell your products. This is significant and it is very difficult to make it a reasonable point of differentiation. Conversely, it is one of the factors that can have the biggest impact on your relationship with your customers. You need to be very good at getting the product they want, when they want it where they want it.
10. Changing channels
Consumers desire to find the best value is leading to change and in some respects, confusing behaviour. Some shoppers are choosing to leave conventional stores and spend their food dollars in discount stores, dollar stores, warehouse club stores and mass retailers like Walmart. This is understandable given the focus on prices and food inflation. We also see more people eating at food service and spending food dollars in e-commerce. This is more interesting because most people would say these are more expensive channels. Perhaps it is the small indulgence or the convenience of delivery, but the conventional retailers in bricks and mortar are having a challenging time delivering comparable store sales increases. Suppliers need to ensure their products are available where people want to buy them.
Always interested to hear your feedback on the trends and if you have any other insights. We did get a few comments about our newsletter last week. One person reminded me I should have included Longos and FarmBoy with Sobeys banners and T&T with Loblaw banners. Definitely a miss on my part. Another person shared some dollar store results and the growth happening in that channel. Certainly, something impacting food and beverage sales and strategy. Thanks for the feedback!
We hops you have scheduled some time in your calendar to get into the stores these holiday shopping weeks. You see different things and can also let your customers know you are out there!
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.
Kroger Albertsons merger seems to be a no go
It has been interesting to watch the process in the U.S. and compare it to Canada. We know consolidation in the Canadian food and beverage industry is a challenge for many suppliers. A lot of the consolidation is a result of mergers and acquisitions. The U.S. Federal Trade Commission is more aggressive in terms of blocking consolidation in different sectors. Our Canadian retail landscape would look very different if our Competition Bureau had the ability and conviction to take action.
With the U.S. being more litigious one retailer is now suing the other which grabs the headlines. It is as important that the FTC was against the merger and the courts supported the decision.
This would have been a huge company. Albertsons operates 2,273 stores in 34 states, including brands like Safeway, Jewel Osco and Shaw's. Kroger operates 2,800 stores across 35 states, with brands including Ralphs, Smith's and Harris Teeter. Must have been a challenge to operate these businesses while this has been on the table. People wondering about their job and it is tough to work with so much uncertainty.
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.