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Price pressure

As prices continue to rise in Canada, consumer habits are changing. What impact will this have on grocers?

Throughout 2021, Canadian consumers have seen a marked increase in the cost of groceries across nearly all categories. While price increases vary by product category and across retailers, the increasing cost of a trip to the grocery store is having a noticeable effect on the way consumers shop for food. Notably, consumers are seeking private-label products, are less loyal to grocery brands and are altering their purchase habits of food items like meat where prices have increased more rapidly. Ongoing global supply chain disruptions, continued concerns about COVID-19 and environmental issues all play a role in inflation, meaning food prices will likely remain elevated well into 2022. The implications are significant for both Canadian consumers and the grocery industry at large.

For Canadian consumers, particularly those living near or below the poverty level, inflation poses significant challenges. In addition to seeing higher prices at the grocery store, consumers are also seeing price increases in housing, energy, transportation and virtually every other category of consumable goods and services. Over time, sustained inflation will put additional pressure on families in need—many of whom are already feeling this. A recent poll from the Angus Reid Institute found that 45% of Canadians currently find it difficult to feed their family. Sustained inflation will likely cause that percentage to continue rising throughout the next year. To combat these pressures, consumer shopping behaviours are shifting, changing the outlook for grocery retailers in Canada.

Coupon clipping and bulk purchasing have been gaining popularity among Canadian consumers throughout the latter half of 2021. In addition to leveraging shopper rewards programs, consumers are turning to apps such as Flipp and Checkout 51 to find deals on groceries. Consumers have also favoured discount-focused store formats, leading to increased revenues for grocers focused on off- price grocery retail. While some grocers have seen revenues dip in 2021, discounters are among those likely to see strong revenue growth in 2022. Bulk purchasing has also become a popular strategy for consumers seeking to save money on grocery purchases. The trend towards bulk purchasing helps explain the success of Costco this year. Costco’s Canadian revenue has grown by upwards of 15%, and the company will continue to see revenue growth in the months ahead thanks to its focus on bulk retail and a highly competitive pricing strategy.

With pandemic-related supply chain issues continuing to linger into 2022, inflation will likely continue affecting grocery prices for the bulk of the year. Consumers will feel the pressure imposed by higher prices and seek out grocery deals via coupon clipping, bulk purchases and discounted-oriented stores. For retailers, pricing strategy and supply chain management will be crucial for driving revenue growth and maintaining customer loyalty. Retailers with discount store formats and those focused on bulk retail are poised for continued growth in the year ahead, but unforeseen developments in the broader economy could lead to sudden changes in the grocery industry. Only time will tell when inflationary pressures might subside, but Canadian consumers are eager for relief from the elevated food prices of 2021.

This article appeared in Canadian Grocer'December 2021/January 2022 issue.

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