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The 2017 Annual Market Survey

What kind of year did Canada’s traditional grocers have?

Across the board, retailers had a rough go of it in 2017. The tumultuous year was marked by store closures (so long, Sears Canada!), changing consumer expectations and behaviours, rapidly-evolving technological advancements and, of course, the looming threat of Amazon and what it might do next.

Contending with all of the above pressures—along with unprecedented competition, oh, and let’s not forget a lingering price war—Canada’s grocery retailers also had a less-than-stellar year. Still, our annual Market Survey, based on Statistics Canada data with estimates from Canadian Grocer, reveals that despite all of this, the nation’s traditional grocers managed to squeeze out a 1.4% increase in total sales over the previous year. All tallied, traditional grocers rang up sales of $95.8 billion in 2017.

But how well grocers fared in 2017 really depended on where they were doing business. Once again, the survey revealed significant regional disparities. Ontario, for instance, led the pack with sales growing by 5.8% in 2017, while British Columbia saw a 4.2% increase. Quebec, which enjoyed the biggest sales increase in 2016 (2.7%), saw its sales grow by 2.6% last year.

In other areas of the country, however, the sales figures tell a less encouraging story. In Atlantic Canada, total grocery store sales plunged by 9.1%, the result of store closures, a slow economy and competition from non-traditional food stores. In Alberta, grocers’ woes also continued and sales slumped by nearly 7% as the province struggled to emerge from a recession. On a bright note, things appear to now be turning around for the beleaguered province, with the Conference Board of Canada reporting that Alberta’s economy is growing again, thanks to rising oil production and increased drilling. We’ll have to wait and see if this good news will translate to better sales this year for the province’s traditional grocers.

Click to enlarge.

Click to enlarge.

Canadian Grocer’s Market Survey looks at sales generated through the traditional grocery industry (chains and voluntary franchise groups), independent supermarkets, major banner convenience stores and unaffiliated independents. For the purposes of the survey, chains include any grocer with four or more stores, which means a number of independent grocers are included in our analysis, along with the likes of the big corporate chains—Metro, Sobeys and Loblaw. It’s the independent chains such as Longo’s and Farm Boy that helped boost Ontario’s chain sales figures by 9.3% last year.

Not included in this analysis are food sales through mass merchandisers, warehouse clubs, drugstores and specialty stores. But growing sales in these channels continue to impact traditional grocers’ bottom lines. CIBC Capital Markets estimates Walmart’s food and grocery sales have increased 4% year-over-year, while Costco’s are up 12%—considerably better than the 1.4% growth experienced at traditional grocery.

Looking at the grocery industry at a national level, chain supermarkets and major banner convenience store chains increased their dollar sales by 1.5%. They managed this despite a slight reduction in the number of supermarkets (eight fewer) and also a decline in convenience stores (35 fewer) last year.

Voluntary group stores, which are primarily franchised grocers, increased in number by 10 stores in 2017. This appears to be mainly from former chain stores being converted to franchises. As a result, over- all sales of this group grew by 1.7% last year.

Unaffiliated grocers also saw a boost in store numbers (by 50) during 2017. This growth, however, was not reflected in sales, which dropped by 3.3% in 2017 to $3.1 billion. Unaffiliated grocers are independent operators, including many small mom-and-pop type stores that have no permanent affiliation with a wholesaler.

Commenting on the plight of independents, Tom Barlow, president and CEO of the Canadian Federation of Independent Grocers, says: “Independents do not have the ability to leverage their scale the way the large corporate grocery retailers can, and this is impacting not only their revenue and margins but also their ability to stay in business.” In other words, they don’t have the clout to force their suppliers to help offset rising costs from higher energy prices and minimum wage increases.

Still, all independent stores, both franchise and unaffiliated, managed to maintain their 39.1% share of the total Canadian market. Supermarket and major banner convenience chains also maintained their 60.9% share from a year ago.

Marc Fortin, who until recently was the president of Distribution Canada Inc. (and who has now assumed the role of president and CEO of the Retail Council of Canada, Quebec), says 2017 was a rollercoaster of a year for independents. Along with a rainy, cool summer in parts of the country, he says 2017 also saw the introduction of new government legislation, financial restructuring by both suppliers and retailers, and a changing consumer.

“These changes have shaken up all parts of the supply chain and had a major impact on all independent retailers across Canada,” Fortin says. “It is now time to review our strategies and action plans to ensure we are well positioned for growth and success in 2018.”

Part of those strategies for all retailers—and not just independents—should include an overhaul in their approach to pricing. At Canadian Grocer’s Thought Leadership CEO Conference in November, Carman Allison, vice-president of consumer insights at Nielsen, said the ongoing price war with aggressive promotions that retailers are engaged in has curtailed growth. Faced with pressures such as rising labour costs (in certain provinces), retailers face the predicament of shuttering stores or cutting jobs if they don’t get more strategic and start taking prices up, he warned.

Canada’s Food Price Report 2018, a recent joint release from Dalhousie University and the University of Guelph, also brings up the pricing issue and contends that the major grocers’ aggressive discounting cannot continue indefinitely. The report forecasts that prices will rise between 1% and 3% this year. But it also warns that as Amazon gathers strength, it could pose an even bigger threat to Canadian grocers this year. Restaurants may also steal away sales, according to the report, as this channel is expected to grow between 4% and 6% this year.

Faced with intense competition coming from all directions, as well as higher costs and deal-seeking consumers, it looks like Canada’s traditional grocers may be in for another challenging year in 2018, with sales growth expected to hover around just 1%.

This article appeared in Canadian Grocer‘s February 2018 issue.

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