Changes in format impact the entire value chain
Formats such as discount, club, dollar stores and online options continue to grow market share. The one format that cannot seem to get any momentum, since the Covid-19 pandemic is conventional stores. This poses a challenge for Canadian based retailers who have significant investments in underperforming conventional stores. This also impacts producers and processors. Conventional stores have the biggest listing bases where some people depend on being the number 3 or 4 brand in the category. These brands do not make it to the shelf in some of the formats growing in share. Retailers with conventional stores will be looking for more price-based programs to drive traffic.
This is the fifth of our trends that we have published for 2026. Our SKUFood trends are different. We focus on the entire value chain and look for insights to help you as you navigate through another year in this challenging industry. There are several sources for trends to help you understand what is happening with consumers. They are important and we encourage you to consider how they impact your target market and your products.
As food prices rise consumers seek less expensive options
There is no arguing that food price inflation is real and it definitely impacts consumer behaviour. Shoppers are willing to pay a bit more for convenience, more selection, service and nicer stores. They also reach a point where they just believe they are paying too much and make an effort to switch stores. This switch is to discount, mass, club or dollar stores. This has been happening in the Canadian market and Canadian retailers are responding with more capital being invested in discount formats.
To give you a picture of the retail landscape most formats are included in the following table:
As reported in May 21, 2025 Grocery Business, “The discount grocery channel is on track to become the fastest-growing physical retail format worldwide, with IGD’s latest five-year forecast projecting global sales growth of $217 billion between 2024 and 2029. In Canada, IGD expects the discount channel to grow by 4.7 per cent on a compound annual growth rate (CAGR) basis between the same period. By 2029, Canada’s discount channel share is expected to be 19.0 per cent, up from the current 17.8 per cent. Globally, discount growth will see a sales CAGR of 5.2 per cent.”
In July 9, 2025 Grocery Business there was more detail about share in Canada “The discount channel in Canada is a new normal and key destination choice for shoppers,” says Mike Ljubicic, managing director, NIQ., sourcing data from NIQ Total Tracked Sales GDM (grocery, drug and mass) L52, L12 and L4 periods ending June 21, 2025. The discount channels continue to grow share, dollars and tonnage.”
This is a summary of the Nielsen results reported in Grocery Business:
If you recall our third trend related to tonnage growth you will recognize the major issue impacting conventional stores. For retailers with considerable investments in conventional stores this a a major problem. If you look at the retailers with conventional formats they are: Loblaw, Sobeys, Metro, Co op, Colemans, Georgia Main and Pattison Food Group. In other words, the Canadian based retailers. A 6% gap in tonnage (+3.3 vs -2.6) over 52 weeks is huge in the grocery industry. Mass, club and dollar stores are also increasing at the expense of the conventional stores.
Why there such a noticeable price gap
The simple answer to why there is such a noticeable price gap for consumers is simply that conventional stores are much more expensive to operate. Consider the differences:
Labour-One of the biggest costs for any retailer after cost of goods. It takes a lot more labour to operate a conventional store. The stores are built more for consumers whereas discount stores are built to reduce labour costs. Just the distance from the backroom to the front of the store makes a difference. Many conventional stores have backstock in the back room. Discount stores almost all inventory is on the floor. Perishable departments are much more labour intensive. Fixtures such as service meat and service deli take a lot of people and they are some of the more expensive employees. Discount stores eliminate these labour-intensive options and many products arrive at the store pre priced and ready to put on the shelf.
Inventory-The value of inventory in food stores is considerable. If the average conventional store has +/- 35,000 SKUS there is a cost to filling the store. Discount stores have about 17,000 SKUS and some even less. It is not just the holding cost for inventory. There is warehouse cost, transportation cost and the work to manage it and get it on the shelf.
Fixtures/refrigeration-Conventional stores are usually a nice place to shop. They are also much more expensive to build. No different than a house, the nicer the fixtures the more it costs. Those fancy deli cases and contemporary lighting all add up. With more perishable departments and more selection in the basics there is more refrigeration in conventional stores. It all costs more to put it in there and maintain it.
Real estate-Location is very important in retail. I started in this department at Loblaw and it was an eye opener for me how location can be the difference for a store. An ok store in a great location will do better than a great store in a bad location. Good locations cost more money. Conventional stores rely on convenience to draw people in. Discount stores have price which is a more powerful attraction. People are willing to make the effort to get to a discount store located on a less expensive piece of real estate that is not as convenient.
Service-This is related to labour but a slightly different issue. Consumers expect more in conventional stores. We see self-checkout in many formats now but it was as much availability of labour as it was cost that influenced those decisions. I remember in discount formats when people were put out they had to pack their own groceries.
Theft/shrink-There is more to steal in conventional stores and the layout of stores makes it easier to conceal items. The higher end items available in conventional stores also are more attractive to thieves. Shrink is anything that does not go through the cash register at the price in the system. Theft is part of shrink but also it is products that expire before BB date, spoiled products, broken products etc. It is higher in conventional stores.
For all of these reasons it costs more to operate conventional stores. Higher expenses require higher gross margins to cover expenses. Higher gross margins result in higher retail prices. There is just no other way for retailers operating these stores to deliver a bottom line. You can argue more staff should lead to better sales and more selection a higher average order. Sounds good in theory, not always the outcome.
What does this mean for suppliers
There are a number of impacts for suppliers and others in the value chain (brokers, distributors, construction etc etc).
Probably the biggest impact will be for suppliers who are the #3 or #4 brands in the category. Conventional stores just have more selection. As these formats lose share to others the brands that might only be available in these stores will struggle. Retailers are converting locations to discount banners. Even if you do a great job as a #3 brand if they convert 10 stores to discount you will lose the volume in those stores. This can also impact lower volume SKUS in a category. You might keep the listing for your top selling SKUS but lose the lower volume which impacts deliveries to the warehouse and your own production.
Regional and local products will be challenged as the volume shifts to discount, mass and club. Usually, the opportunities for these brands are best in conventional stores. There is more space, more staff to help and they want this point of differentiation. Discount, mass and club are more ‘cookie cutter’ models with less discretionary space.
If your products are in conventional stores now you will probably be pushed harder on temporary price reductions to drive volume with in store specials or larger reductions for the ads. Retailers need to get people into these stores and quality or selection are not powerful enough. Be prepared for them to ask for more.
Suppliers should do more than ever to drive traffic into conventional stores if this is where you are listed. This is your responsibility as much as the retailer. Use your social media and other communication to encourage consumers to find you in there. If you don’t contribute, they might convert the store to discount and your product will not be available at that location.
It is a big shift that will impact the entire value chain. With food inflation continuing to move up the move away from conventional stores will continue.
If you will be at the Future of Food event in Ottawa February 10 or the CFIN event the following day let me know. I look forward to seeing a lot of people in the industry those two days.
Peter
SKUFood Recipes for Success Podcast
In this episode of SKUFood Recipes for Success, we sit down with Jake Karls, the unapologetically authentic and refreshingly relatable Co-founder & Chief Rainmaker of Mid-Day Squares, the good-for-you chocolate brand that went from a Montreal condo kitchen to tens of millions of bars sold across thousands of retail stores.
Jake brings a no-BS approach to brand building. For him, the real differentiator isn’t just product innovation—it’s human connection, consistent storytelling, and having the courage to be fully yourself in a crowded category. As Mid-Day Squares scaled from idea to retail reality, Jake played a pivotal role in building community first, leveraging radical transparency, and turning everyday snackers into loyal superfans.
Widely recognized as a rising star in business, Jake has been a finalist for EY’s Entrepreneur of the Year, landed on Forbes 30 Under 30 (Food & Beverage, 2023), and has become a familiar voice in media across North America.
In our conversation, Jake takes us through the creative and chaotic early days of the brand, how daily content evolved into a trust-building machine, and why vulnerability became their most powerful marketing strategy. We explore how the founders navigated rapid growth without compromising authenticity, how they intentionally built a movement rooted in empowerment and inclusivity, and what their journey reveals about the future of food brands that resonate on a human level.
This episode offers an inside look at how Mid-Day Squares disrupted an entire category simply by showing up as themselves.
If you would like to be a guest send us a note. We are always working on the upcoming episodes.
A great opportunity for SME businesses who need to do work to export their products. The time has never been better. People want Canadian products and there is support there to make it happen. No doubt it is work but there can be some real rewards and export can have a very positive impact on your business when you do the work up front to develop products for the market and relationships that are solid.
15% reduction is price is a big number
On Tuesday PepsiCo announced they will be reducing the price of their snack items by 15%. It is not clear of this will be in Canada too but one would assume Canadian retailers would be looking for the same decrease. It is a significant change. You might recall the battle between Loblaw and PepsiCo a few years ago when these products disappeared from Loblaw shelves.
This will have a big impact in the category. One could ask the question, ‘have you been over charging for long?’ or even within PepsiCo, ‘why did we fight hard to get price increases and now you are sliding back?’ or if you are a retailer, ‘who else is overcharging by 15%?’ It is also interesting to see them announce this in the public media. It forces the retailer to pass along the decrease as opposed to keeping it for extra margin.
With the focus on Canadian food and beverage we wanted to share a program we have developed with Alain Bosse, the Kilted Chef. We partner to share insights about Canadian food and beverage at conferences and events. We talk about where products come from, share insights about some hidden gems and of course Chef Alain has great tips for using the products at home. This is designed to be entertaining and engaging. Not just for food industry audiences, it works for everyone.
I do have travel coming up to Toronto and Fredericton so if you want to connect or have an event in any of these locations give me a call or send me an email.