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01/06/2022

Rising grocery costs cause concern

The practical effects of food price inflation are set to hit grocery retail especially hard in 2022

It's been splashed across the newswires and picked up by major media outlets across the country: Canada’s food inflation rate is sitting at close to 5%. (According to the Agri-Food Analytics Lab at Dalhousie University, this number is more accurate than the 2.7% value proposed earlier by Statistics Canada.)

Which categories are driving the increase? For one, meat products, which Statistics Canada identifies as one of five main upward contributors to Canada’s Consumer Price Index over the last 12 months, with prices spiking nearly 10% since September 2020.

Canadians are by no means blind to the rising cost of putting food on their tables. According to Caddle’s 10,000-member Daily Survey Panel (September 2021), 86% of consumers believe food prices are higher now than six months ago—including 93% of baby boomers, 89% of gen Xers and 79% of millennials. What’s more, 52% of consumers believe the price of “meat products” have increased the most among seven distinct food categories. (Compare the next-closest categories: “groceries and others” at 16%; “vegetables” at 11%; and “fruits” at 9%.)

Regardless of whether increases have been driven by unseasonable weather, supply chain challenges or other proposed factors, retailers and manufacturers alike are already feeling the practical impact of rising food prices on Canadians’ spending habits. For example, half of consumers have reported a reduction in meat purchases in the past six months due to higher prices. (Particularly surprising, consumers in Canada’s largest beef-producing provinces—including Alberta and Saskatchewan—over-index on this measure by at least four points.)

Meanwhile, upwards of one in three consumers are taking concerted steps to save money during their grocery trip. Such tactics include using more coupons, purchasing more private-label/store brands and discounted goods, and shopping more weekly flyer deals.

The implications of such shifts in consumer behaviour will be far-reaching and are likely to cause downward pressure on various levels of Canada’s retail sector, from retailers all the way up the supply chain to product manufacturers.

  • For retailers: We expect to see an acceleration in consumer spending on private-label SKUs because of increased costs in major food categories.
  • For meat producers: Consumers are likely to continue to shift their eating habits away from premium-priced protein (e.g., beef) toward cheaper meat options (e.g., chicken). At the same time, as more meatless protein options become available—and as prices decrease, following the glut of products that hit the market either just before or during the pandemic—we expect more consumers will turn to meat alternatives to round out their meal planning.
  • For product manufacturers: This season of inflation could be “make or break” for national brands that may have rested on their laurels throughout the pandemic, in effect waiting out the situation and hoping that consumers will return to pre-pandemic levels of spending.

Pre-pandemic, Canadians were already overwhelmingly a nation of savings-seekers. The ongoing challenges of COVID-19 have only intensified this behaviour. As consumers continue to seek out value-conscious alternatives in the grocery aisles, the onus is on stakeholders at all levels, including retailers as well as producers and manufacturers, to more intimately understand the factors that drive consumer decision-making—so both the industry and the shoppers can win at shelf. 

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

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