Changing channels
Our plan was to start 2025 with a focus on each of our 10 trends each week. We are continuing this week with a focus on consumers 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.
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.
Any shelf is not the right shelf
There is no doubt it is tough to get a product to market and on the shelf. One issue we see with suppliers, is taking any shelf they can get on. Yes, it is good to be on the shelf, but you really need to focus where you have the best chance of success. This starts with understanding who is most likely to buy your products and prioritizing the stores where they shop. This is changing and always important to take a step back and make sure your products are in the right stores. If you do end up in a store where the target market does not match you target market, you might have to invest in more trade spend dollars to be competitive or your product will not sell because the value proposition does not work for these shoppers.
The shift away from conventional stores
During the pandemic conventional stores did well. People wanted to shop at Sobeys, Safeway, Loblaws, Zehrs, Co-op and other full-service offerings. These stores felt safe because they are closer to home. Conventional stores had what people wanted to buy when they were stuck at home, cooking and baking at home. People were willing to spend a little extra on indulgences because there was not a lot else going on.
In 2023 and 2024 as we experienced significant food inflation people were frustrated with conventional store prices and looked for less expensive options. Discount stores, dollar stores, mass retailers and club stores all have a lower cost structure so they can operate with lower margins that result in lower prices.
One thing about buying food and beverage, consumers can change their choice of store quickly. If they believe they are paying too much and they have an option, they will switch. Our experience would say when consumers perceive their bill is more than 10% higher than another option they will switch. They do not like to switch because they have to learn a new store but when it gets to 10% people move. Obviously not everyone shifts, but many will.
Your success as a supplier is directly related to the success of your customers. If you are selling 80% of your volume in conventional formats, it is likely you are challenged to deliver year over year growth. The number of people shopping in these stores, overall, is declining. We would say if you are showing positive year over year tonnage increases, that is a good performance in these stores.
Where consumers are going
People are shifting their grocery shopping to discount, dollar stores, mass retailers and club stores. If you follow the announcements from the major retailers, they all say they will be opening more discount stores in 2025. They believe the trend will continue.
Suppliers need to decide if they should be in the shelf in discount and how to compete effectively in these and other stores. Doing business in this segment of the market is different. If possible, you might consider a different size package. This will allow you to offer a lower retail in discount with a smaller size or better overall value in mass and club with a big package. It also makes it more difficult to make a direct comparison to conventional retail.
Many of the retailers operate a separate division for the discount stores or you will need to approach Giant Tiger or other dollar store banners. Make sure you understand how they compete and the category in this environment. You also need the resources in your business to sell into these stores. A customer like Walmart can be very demanding and expect suppliers to do a lot of the work.
If you have plans to grow your volume by 10%, you need to consider where your product is being sold. Unless you have something unique or innovative this target in conventional stores could be a challenge.
The more perplexing shift
We have talked about price and the fact people will change stores when they see their total bill being 10% more than they think it should be. Understandable. What is tough to understand is the shifting of food dollars to food service and online shopping with delivery. Everyone knows it costs more to eat out. It also costs more to have someone else select your groceries and deliver them.
We do understand the shift to e-commerce for groceries when the store will select your groceries for $1.00-$5.00. If it takes an hour to get in, get groceries and get back out $5.00 is not a high fee to save the time and effort. Retailers like Loblaw and Walmart offer click and collect where people order online and go to the store to pick up the order.
Perhaps it is the treat of avoiding the kitchen or opportunity to try something new. Certainly, food service does benefit when people travel and you almost have to eat in restaurants. Food service are offering more loyalty programs and delivery services such as Uber Eats, Skip the Dishes and Door Dash make it easy to order take out from almost anywhere. Restaurants do not need a person with a car on their own payroll.
Suppliers should consider food service. Close to 45% of food dollars are being spent in this channel now. It is different but can reduce the risk of too many sales in conventional stores or with one traditional retailer. Make sure you have the resources to manage this channel if you plan to enter.
Food retailers are all working to grow their online sales. They see the omni channel approach as the right answer. Walmart wants consumers to buy from them, regardless of whether it is in store, click and collect or delivered to your home. They know one week it will be one method and could be different the next week. They just want consumers to think Walmart first. Suppliers need to embrace this and monitor your items online and in store. Learn how your items go through a Walmart fulfilment centre vs a more conventional style warehouse. There is this company called Amazon that generates massive online sales. More general merchandise but they are growing in food and every dollar is one dollar less in food stores.
You need to produce a great product, but you also need to get it on the right shelf. Take a look at your customer mix to ensure you are in the right place to deliver the sales growth you need in your business with the appropriate level of investment.
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.
Tariff threat remains
We continue to operate in a very uncertain world. The likelihood of 25% tariffs from the U.S. administration changes from definitely to maybe but the best answer is probably ‘do not know’.
As Canada was approaching the first deadline, a list of retaliatory tariffs was created. If the U.S. imposed the tariffs, Canada would respond. All indications are from the government of Canada they will use the same list on March 4th if there is a tariff imposed by the U.S. Here is the list of products for round 1 which totals $30 billion in imports. If you are producing products in any of these segments you might see increased demand because Canadian retailers might be looking for alternatives.
N.S. legislation to eliminate inter-provincial trade barriers
A lot of people talk about the need to eliminate inter-provincial trade barriers. It seems to be all talk and no action until this week. N.S. government introduced legislation to reduce or eliminate these issues with provinces that enact identical legislation.
We do need to give producers and processors access across the country. Our regulatory environment is a challenge and right now we need to make it easier to do business. Some sectors will lose significant sales and jobs if these tariffs are imposed. We need to give business every chance to succeed.
I do have travel coming up to Toronto so if you want to connect or have an event in any of these locations give me a call or send me an email.