Grocery sector in ‘recovery’ in 2013: report

The outlook for Canadian retailers is pretty gloomy with low growth expected in the outlook for 2012 second half, according to a new report, but food retailing remains the one bright spot.

Ed Strapagiel, executive vice president of Kubas Primedia, a Toronto retail consultancy, that published, “Retail Sales Outlook Canada Q3 2012,” said: “The 2.5 per cent increase we see for 2013 (in grocery stores) would be one of the better recent years. Year-over-year percentage changes have been 2.4 per cent in 2010; 0.2 per cent in 2011; and 1.5 per cent after six months of 2012. So 2013 at +2.5 per cent would actually be a ‘recovery!’ ”

He also noted that specialty food stores have somewhat out-performed conventional supermarkets and grocery stores for the last several years. Specialty food stores’ sales are projected to increase 5.4 per cent in 2013, said the report.

There are a number of factors involved with the grocery numbers.

Firstly, food price inflation should result in apparent sales increases as well as competition in the sector(which will only grow with Walmart expanding in 2012; and Target’s arrival in 2013), making it difficult for food retailers to pass on price increases to consumers for fear of losing share, said Strapagiel.

“As one counter strategy, food retailers use deals and discounts, whether advertised features, a manufacturer coupon on social media, or an in-store special – it all has the same effect of reducing dollar sales,” he said.

He suggested the second strategy is to introduce more private label products that earn higher margins to make up for the tighter margins on everything else. “But private label is usually at a significantly lower price point which reduces apparent dollar sales,” he said.

For 2013, Strapagiel said he sees more of the same except that perhaps food price inflation may be more difficult to combat.

“There's a limit to how many discounts you can run and how much private label you can put on the shelf,” he said.