In wide-ranging report, Brookfield Institute highlights innovative shifts and industry challenges
The past year and more has been a wild ride for the grocery sector, and retailers should stay buckled up. A new report, “Shake-up in Aisle 21: Disruption, Change and Opportunity in Ontario’s Grocery Sector,” says the food retail industry is transforming more rapidly than it has in a generation, and some shifts will have lasting implications for the sector.
The 43-page report by Brookfield Institute for Innovation and Entrepreneurship (BII+E), an independent economic policy institute based at Ryerson University, has two parts: part one outlines four major trends reshaping the grocery sector. Part two covers key trends in food retail work, particularly how the major trends may impact demand for skills and talent on the frontlines.
The trends were identified through interviews with industry insiders, industry publications, and labour market and census data. Here’s a look at the four trends reshaping food retail (part one), as summarized from the report:
1-The Rise Of E-commerce
Brick-and-mortar stores are here to stay, but so is e-commerce, even if it’s currently only a small fraction of sales (roughly 3% to 9% of total grocery retail sales). While investment in this area will be vital to keep up with consumer demand, e-commerce is expensive. Only a few national players have the opportunity and capital to move online and capture large portions of the e-commerce market.
Canadian food retailers have approached the fulfillment of online orders in two distinct ways: store-based and warehouse-based. When store-based, retailers can draw inventory, labour, and space from existing stores that are simultaneously open for traditional shopping.
On the other hand, a warehouse-based model can entail a higher level of automation, different models for supply, inventory planning, and delivery, as well as a large number of e-commerce fulfillment jobs concentrated in a single location.
2-Driving Loyalty With Data
The shift to e-commerce both in recent years and as a result of the pandemic has led to an increase in loyalty program memberships and the data the programs generate. Even if online transactions aren’t officially part of a loyalty program, they do boost retailers’ data, as well as the benefits and capabilities data affords. However, explicit rewards programs remain important, especially for larger retailers.
Good loyalty programs make customers more likely to recommend products, to continue to engage and shop brands, and to modify their spending to maximize points and benefits. Internally, the ability to use data-driven insights to more accurately predict customer needs and behaviours can not only drive sales, but also improve inventory and supply chain management.
3-Market Power + Consolidation Keep On Growing
A few large retail companies command a high and growing proportion of Ontario grocery sales and consumer data. While scale can provide opportunities for innovation in data and customer services, it can also lead to practices and behaviours that limit healthy competition and innovation.
Due to the level of consolidation, retailers are increasingly able to set terms, fees and requirements when doing business with suppliers. This has left suppliers feeling increasingly pressured and, in some instances, “bullied” in their relationships and contract negotiations with grocers. In Canada, calls for a code of conduct have been voiced by retailer and supplier associations, as well as by individual companies.
4-Beyond Hyper-Efficient Supply Chains
In recent years, supply systems were designed for just-in-time functioning. Disruption at any critical point in the supply chain can have profound implications, some of which were seen in the form of shortages as the pandemic hit. As a result, COVID-19 introduced a need for redundancy in inventory, distribution and labour to maintain and adapt operations. Some employers signalled a potential need for a larger pool of workers in retail, transport, and equipment maintenance to absorb both the increased demand and the potential risks of absences.
The pandemic also highlighted the importance of building supply chains that are less reliant on international links. A shortened, local supply chain can result in capitalizing on consumers’ preferences for local products as well as a reduced need for expensive tracing and safety data.
Overall, one key takeaway of the report is that the food retail industry—by virtue of its scale and conditions—can be a powerhouse for innovation. “While grocery may not be top-of-mind when Canadians think of the innovation economy, recent investments show that Canadian food retailers are rapidly innovating—alongside evolving consumer expectations and demand,” the report states. “At the same time, the industry faces calls for restraint to ensure its power does not result in an environment that constrains innovation or healthy competition, or that fails to deliver fairly for key stakeholders including suppliers and staff.”
One the labour side, one call-out in the report is that while the food retail industry employs hundreds of thousands of essential workers in Canada, many jobs have low pay, insufficient hours or precarious employment, and tend to see high turnover.
“The COVID-19 pandemic has underscored the important role of food retail and food retail workers,” the report states. “There is a disconnect between the value of these roles, the risk associated with front-line work and the relatively low wages and job quality experienced by many workers. The industry is being challenged by many to find a better balance between profitability, price, and their responsibility to essential workers.”
The full report can be found here: https://brookfieldinstitute.ca/wp-content/uploads/BIIE-Pathways-food-report-FINAL-2.pdf