Canadians already feeling the squeeze of higher food prices will be downright sticker-shocked in 2022.
Food prices are set to increase 5% to 7% next year, according to the 12th edition of Canada’s Food Price Report, published annually by Dalhousie University and the University of Guelph, along with University of Saskatchewan and the University of British Columbia, which joined the research team last year.
The report predicts that a family of four (man, woman and two kids), for example, will have an annual food expenditure of up to $14,767, an increase of up to $966 compared to 2021. The 2022 report predicts the highest increase in both percentage and dollars since the report’s inception.
In grocery, dairy is expected to have the highest increases (6% to 8%); followed by vegetables and bakery (both at 5% to 7%); fruits 3% to 5%; and meat and seafood (both at 0% to 2%). Prices at restaurants are forecast to rise 6% to 8%.
Among the reasons for increasing food costs are: rising inflation, COVID-19-related supply chain issues, food transportation challenges, adverse weather, and labour market challenges. The report states that while the carbon tax will drive higher gas prices and transportation costs, “it remains unclear what the effect of carbon tax on food prices will be and more data are needed.”
Sylvain Charlebois, senior director of the Agri-Food Analytics Lab at Dalhousie University, says while food prices will go up significantly in 2022, grocers are being proactive in empowering consumers to save. “Discounts aren’t advertised as much, but if consumers look they will find good deals and that’s important for people to keep in mind,” he says. “For grocers, obviously it’s important to realize that they’re going to be dealing with a greater number of frugal consumers. They’re going to be more careful and they’ll probably trade down a bit more often. People will look for discounts, they will look for good deals, and they may compromise on quality a bit to save some money.”
Rise of the discount banners
It also looks like 2022 will be the year of the discount banner, as consumers seek ways to cope with rising food costs. Loblaw, for one, is welcoming “value-seeking customers back through its doors,” according to Loblaw president and chairman Galen G. Weston, who was discussing the company’s third-quarter results on a call with analysts. CFO Richard Dufresne said Loblaw had finalized plans to address 20 of its most unprofitable stores. Most of the stores will convert to Loblaw’s discount banners (which include No Frills and Maxi), some will be downsized and three will be closed.
“The entire industry is shifting over. We’re expecting more conversions and some closures even, and Loblaw did mention that,” says Charlebois. “We are expecting grocers to look at their real estate portfolio and they’ll have to adjust.”
According to Nielsen IQ, discount grocers’ share of wallet is almost at pre-pandemic levels (44% in 2021 versus 44.2% in 2019). While discounters offer lower price points than conventional grocers (about 14% less), they also carry about 10% fewer items. Speaking at Canadian Grocer’s recent virtual GroceryConnex conference, Carman Allison, vice-president sales development, North America at Nielsen IQ, provided some advice to discount grocers.
“If you’re going to have 10% fewer items, make sure you have the right items in that store because you need to focus on high-turnover items to drive retail sales and profit,” said Allison. “If you have products that are 14% lower priced, you have to sell 14% more items to make up for that lower sales potential as consumers shift over to discount.”
There’s another growing trend Canada’s Food Price Report says grocers can expect in 2022: rising theft. The report states there will likely be more reliance on food programs and food banks if incomes don’t rise to meet Canadians’ food expenditures and other basic needs. At the same, organizations that provide aid may have a hard time meeting demand.
“A growing phenomenon related to increasing food insecurity caused by high inflation is theft from grocery stores, which is anticipated to intensify in 2022,” the report states. “Grocers are anecdotally reporting an uptick in theft, particularly of items such as meat, cheese, over-the-counter medication and energy drinks. Unreported loss to theft could be as high as $3,000 to $4,000 each week in some Canadian grocery stores.”
METHODOLOGY: Canada’s Food Price Report uses predictive analytics models applying machine learning to support the analytical process of determining the future of food prices. In addition to the forecasting models, academics from the participating institutions provide input and expertise from their respective disciplines on the macroeconomic factors driving food prices, food trends and expectations for the food industry in the following year.