An uphill battle

As competition heats up from all directions, Canadian grocers must prepare themselves for continuing challenges

It’s no secret traditional grocery sales aren’t exactly booming. Last year’s sales through chain and franchise supermarkets, major banner convenience stores and unaffiliated independents rose by only 0.4%, according to Canadian Grocer’s annual Market Survey, published in our last issue. Canadian Grocer calls those channels the “traditional grocery” universe to facilitate comparisons with previous Market Surveys, and to separate them from non-traditional grocery outlets like mass merchandisers, warehouse clubs, drugstores, and specialty retailers.

But when one digs deeper into the numbers, the news is even bleaker for chain and independent supermarkets. According to Statistics Canada, supermarkets alone increased their sales by just 0.2% last year over the previous year. At the same time, convenience store sales increased by 5.9%. That’s a whopping difference in sales growth.

So, what’s happening with Canadian supermarkets? Intense competition is often blamed. Competition comes from other grocers—but more and more, it’s competition from those non-traditional food retailers that’s making a greater impact. CIBC World Markets estimates food sales growth through Costco at 9.2% and Walmart at 8.5%, for example. Compare that with supermarkets’ growth at 0.2% and we can see the competition is not only real, it is severe.

CIBC has also looked specifically at the big three retailers (Loblaw, Metro and Sobeys) rather than the larger universe of grocery that we used in our Market Survey, and found a sales increase of 2% after removing inflation of 0.8%. Two per cent is not bad in tough times, but it isn’t enough to offset the weaker sales of all other traditional grocery retailers.

Notably, it’s not just giants like Walmart and Costco that are heating up the competition: there’s been a general increase in the type and number of non-traditional stores that are also selling food and groceries, including dollar stores, drugstores, meat markets, bake shops, and fruit and vegetable stands. Some of these fall into the category of specialty food stores. Over the past eight years, specialty stores have increased their sales by 62%, and last year alone their sales were up by 8%, according to Statistics Canada data.

And, of course, there’s the ever-present competition from the foodservice industry. According to Restaurants Canada, foodservice sales were up 5.3% for 2018, although that was primarily driven by rising menu prices rather than an increase in traffic. The traffic increase at food- service was about 0.8% in 2018 and is forecast to be 1.4% this year.

If this outside competition wasn’t enough, shoppers continue to actively seek the best deals and favour promotional pricing, making margins more difficult. Then there’s another potential blow to grocers on the horizon: as consumers increasingly turn to healthier diets based on fruit and vegetables, this could affect centre store sales of packaged goods—products for which retailers charge manufacturers fees. These fees are not insignificant, and any reduction could adversely affect sales growth.

Smart retailers already know times are tough, and they’re implementing various ideas to help them keep their sales growing. From a focus on personalization and “experiences,” including in-store restaurants and entertainment, to cutting-edge technology providing improved online delivery, more convenience and even cashierless stores, there are certainly solutions in the works to keep traditional grocery customers coming back.

But until these things become commonplace, grocers may very well be facing an uphill battle for their sales.

This article appeared in Canadian Grocer’s March/April 2019 issue.