Local grocers adapt to new buying habits

Over the past decade, consumers have made significant changes to the type of food they buy and where they buy it. In response, traditional grocery stores have made a number of mergers and acquisitions and changed up their product offering in order to compete in this new landscape.

“The story about consolidation in the grocery (industry) is that it is continuing,” says John Scott, board chair of the Canadian Agri-Food Policy Institute. “There were some big mergers in traditional grocery stores in recent years, and they are still struggling to find the kind of success they had in the past because people simply don’t buy all their food in one place anymore.”

One of the big changes consumers will notice in their local grocery stores is that the middle of the store is getting smaller due to shifts in buying patterns. “Consumers now treat packaged goods like a commodity,” says Scott.”For consumers, it’s all about price when it comes to packaged goods. Because of this, people are moving to discount stores for their centre aisle purchases.”

Just over 50 per cent of all packaged goods are purchased at discount stores like Wal-Mart, Costco or Real Canadian Superstore, says Scott. To reduce the risk of stocking too many products that fail to move off the shelf, traditional grocery stores will typically sell the top-two product brands together with a premium and a lower priced private label (store brand). While this might reduce options, Scott says consumers aren’t looking for variety as much as they are considering price.

Fresh and ready

Despite this change in how space is used, grocery stores aren’t suddenly becoming smaller — they are simply reallocating that space to prepared foods, fresh fruit, vegetables and meats. “This works particularly well in a country like Canada, which draws from many cultures and culinary experiences, so different cooking habits become integrated into our stores,” says Scott.”You see a richness in the fresh food sector in Canada that you aren’t likely to see in other parts of the world.”

The recent rise in demand for freshly prepared foods is also influencing what’s on grocery shelves. Not only will you find freshly prepared meals that you just heat and serve at home, you’ll also find fresh meal kits that include correctly portioned ingredients that you put together and cook at home. Despite what you might have heard, says Scott, consumers are willing to cook, but are pushing convenience as a motivating factor in their purchase decisions.

“Anybody who is meeting that demand for fresh food and freshly prepared food is generally doing okay in the retail grocery industry,” he says. “Stores are able to turn over their products and make money. It’s those in the traditional market attempting to sell lots of packaged foods at a premium price that are being left behind.”

In order to address changes in consumer demand, some mainstream grocery stores are consolidating their business with smaller, niche grocers that meet those needs. In Canada, Sobeys purchased Farm Boy, a leader in fresh prepared food in Eastern Canada. Loblaws partnered with T&T Foods in order to meet the needs of its Asian clientele. In the U.S., Amazon purchased Whole Foods in order to meet online demand for high-quality fresh foods.

It’s different in Canada where, even though the retail grocery industry is worth $120 billion, currently less than a single percentage point goes to online sales. Scott says that retailers still have time to figure out the online marketplace, because until the delivery portion of that business meets consumer demand for convenience, it won’t be a replacement for bricks and mortar stores.

“Online retailing is definitely coming, and grocery stores need to be careful not to walk away from this piece of the business. But they have to figure out how to deliver fresh food safely and efficiently,” he says. “Retailers are currently looking at different robotic systems that will allow for faster delivery but we still need to figure out what to do with food when it gets to the front door.”

What’s in it?

It wasn’t that long ago that labelling was the dominant issue in food sales, but that focus has shifted. While consumers still demand answers about what’s in their food, it is less of a concern in packaged food where volume and price tends to drive sales. But for other fresh and freshly prepared food, knowing what’s in it is critical.

“People will look at a product and if they don’t know what’s in it, they will immediately pick up their phone to get answers,” says Scott. “If they can’t find an answer, then they will just as quickly move on. It is critical for everyone to be transparent if they want to retain customer loyalty.”

Not only does information need to be readily available, it has to be trustworthy. “If consumers don’t trust the source, they won’t believe what they are reading,” he says.”For example with meat, consumers want to know where it’s from, what that animal was fed, what its living conditions were like and how it was treated right up to and including slaughter. They need to see the whole picture before they will decide whether or not a product is trustworthy. ”

Food produced by Canadian farmers tends to be thought of as more trustworthy in the eyes of many Canadian consumers, which works to the benefit of primary producers in this country. In the past, farmers’ responsibility ended when they delivered to their client, but it’s not that way anymore, says Scott. To better market themselves, producers have to make sure they have information readily available for all they grow or produce.

Price is important but not for much of what people are buying these days, says Scott.”In the end it all comes down to trust. If consumers know what’s in the food, where it’s from and who is behind it, you’ve gone a long way to earning their trust. Transparency is the bottom line as it is what creates trust and it is the biggest thing consumers are looking for. Transparency isn’t nice to have — it’s a must have in today’s food market.”

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