The state of the grocery industry
It's mid-April and parts of the country are grappling with a third wave of the pandemic with surging COVID cases, shutdowns, and more disruption. An appropriate time, we thought, to catch up with three of the industry’s leaders to get a sense of how grocery is faring in these unusual times. Canadian Grocer hosted a roundtable discussion with Diane J. Brisebois, president and CEO of Retail Council of Canada (RCC); Michael Graydon, CEO of Food, Health & Consumer Products of Canada (FHCP); and Tom Shurrie president and CEO of the Canadian Federation of Independent Grocers (CFIG). We asked them about everything from supply chains to workers to how to hold on to gains made during the pandemic, and the big challenges and opportunities ahead. Here’s what we learned:
How the industry is holding up
While the last 13 months have been marked by shutdowns, lockdowns and challenges aplenty, all three leaders agree the industry—now contending with a wave of COVID-19 marked by aggressive variants and surging numbers of infections—has done remarkably well. In terms of keeping goods flowing, the supply chain has been resilient, said RCC’s Brisebois. “I think we often take our supply chain in Canada for granted.” While the early days of the pandemic saw panicked shoppers clearing store shelves of essentials such as toilet paper, flour and pasta, shoppers have been more measured in subsequent waves and the supply chain has been able to keep up with demand.
That said, CFIG’s Shurrie noted there are still independent grocers in remote areas experiencing challenges accessing goods, a problem that they’re “working through” with the supplier community.
“There are the odd hiccups,” admits FHCP’s Graydon. “But for the most part, I think things have been pretty good. There isn’t a lot of volatility in order patterns. I also think a lot of the retailers have got a pretty good grasp with regards to forecasting” through the crisis, he said, adding that a lot of retailers (with a few exceptions) “have been very fair in regards to their application of compliance fines around fill rates.”
Despite the challenges grocery has faced over the pandemic, RCC’s Brisebois points to one “silver lining” of the crisis being the leading role grocers assumed. “What was challenging and remarkable was how quickly grocers pivoted, because all of a sudden they became the centre of the community. So not only were they selling grocery items as they did before, but they were also fulfilling some of the needs that no longer were available within the restaurant or foodservice sectors.”
Holding onto sales gains post-pandemic
With restaurants shuttered and consumers stuck at home for long stretches during COVID, grocery retailers have seen big sales gains as consumers shifted their spending. In the early days of the crisis, sales were record-setting with NielsenIQ noting that the week of March 21, 2020 saw nearly $3 billion in retail sales, translating to an increase of +54% compared to the previous period. While sales have levelled off over the course of the pandemic, retailers are still reporting healthy growth.
But as vaccines hold out the promise of a return to normal life for consumers and more food options open up, how do grocers hold on to some of the gains they’ve made? “Grocery will lose much of its 2020 momentum over the next decade if it doesn’t respond decisively to the persistent pressure and looming disruption in the sector,” Bain & Co. warned in a report last fall.
“I think you’re going to see a lot more indoor dining in grocery store environments,” said RCC’s Brisebois, when asked how grocers might protect recent gains. “A lot of great thought leaders in retail are talking about a retail Renaissance and smart grocers are really going to, I think, marry their role as essential food providers with a sense of community and entertainment.” We’ll see this reflected not only in store designs and layouts, but also in the kinds of services that will be provided, she said. “If I’m sitting in their chair and strategically looking at the next couple of years and saying: ‘how do I make sure to keep those dollars that I gained?’ then it’s about replicating that experience that would have existed in the other sector that was closed, and doing it better.”
Shurrie believes grocers also have an opportunity to woo customers with health and wellness and fresh offerings, much of it done with a Canadian-made, local push. “But we’ve got to be realistic, too; there’s going to be pent-up demand,” he said, among consumers who will want to get out of the house and socialize and visit restaurants. “And our grocers are going to have to do what they did before COVID. They’re going to have to innovate; they are going to have to continue to listen to what their consumers want, and work with the manufacturing partners to create a unique experience.”
Graydon, meanwhile, said he was optimistic a lot of consumers’ at-home eating behaviours will stick. While he agrees there’s pent-up demand, he said restaurants have taken a thumping, and with massive closures (about 10,000 have shuttered since the onset of the crisis, Restaurants Canada reported earlier this year) “there’s not going to be as many options.” He added that Canada’s grocers are innovative and have a knack for finding solutions, and will do everything in their power to hold on to as much of the gains they’ve made as they can. He sees categories such as breakfast, which has had a “massive rebound” at grocery, as just one opportunity post-pandemic. Breakfast was in decline at retail, he said, but categories like cereal are selling “tremendously” better than they did 18 months ago. Manufacturers have responded with a slew of innovative items to appeal to the at-home breakfast crowd. “We may not keep all the gains [made] but that doesn’t mean it has to go back to pre-COVID levels of sales for some of these categories.”
And a big question within all of this is what the future of work might look like. Scores of companies have announced their intention of either shifting to 100% remote work or offering a hybrid model where workers will be in the office only part of the time. “That will have a substantial impact on the grocery sector and on the restaurant sector,” said Brisebois. “I would not want to compete against the grocery retailers—they are tough, they’re very innovative.”
The workforce: vaccines and mental health
The plight of the industry’s workers was top-of-mind for all three leaders, and for good reason. A relatively slow vaccine rollout in Canada that saw only about 20% of the population receiving at least one dose of the vaccination by mid-April meant essential grocery industry workers in many areas of the country still didn’t have access to vaccines as governments stubbornly kept to their age-based strategies. “We need to make sure that they are on the front line of getting the vaccinations,” stressed CFIG’s Shurrie. “The vaccinations are crucial to make sure that the supply chain of food keeps moving forward in wave three,” he added, noting that prioritizing vaccines for grocery workers gives them “more security to come to work every day.” FHCP’s Graydon echoed those comments and said the government needs to “get its act together” and prioritize key retail and manufacturing employees. “We’re seeing some very concerning numbers in regards to the community transfer of COVID within manufacturing facilities and it’s starting to become difficult to continue, in some cases, full operations in some of the plants. As you start to see numbers [of infections] in the 4,000 range per day in Ontario, it is going to get into these vulnerable environments very quickly and it’s starting to have some impact.”
And in this age of anxiety, it’s not surprising that mental health has become a critical concern for grocers and manufacturers as they try to find ways to support a growing number of exhausted, burnt out, stressed out employees. “It’s not a new issue, but it certainly is an issue that’s now front and centre,” said Brisebois. The big question is how to keep employees healthy—not only are they dealing with anxiety related to the pandemic, she said, but they’re working differently and managing their personal lives differently. FHCP’s Graydon said the deterioration of people’s mental health would be one of the most important impacts of the pandemic. “When you look at the amount of people accessing benefits within their organizations for mental health support, it’s scary.”
And when you consider the hundreds of thousands of people employed in retail alone in this country, Brisebois added, “This is not a small issue; this is going to be probably one of the greatest employment challenges that our members will have in the next three to five years.” She said RCC has had a lot of calls from members asking them to benchmark who’s doing what. “Even the large insurance and health companies are talking to us about what are the other things that are not included currently in employee benefits that we need to think about. I think these will be great challenges, both from a human resources perspective and also from a regulatory perspective, because we’re already seeing some provinces looking at their Workers’ Compensation regulations, their labour regulations. I think there’s no playbook, this is why it’s going to be so challenging.”
The road ahead: pricing, rising costs and opportunities, too
When asked about other big challenges ahead for the nation’s grocers and manufacturers, Shurrie said keeping pricing in line would be a big one. Over the course of the pandemic, grocers have kept pricing in check, he said, with no big spikes and reined-in promotional pricing. “It [pricing] didn’t go up a great deal. It followed, basically, the overall inflationary trends.” Graydon agreed, adding that Canada’s retailers handled pricing well, compared to other parts of the world. “Here in Canada, I think our retailers really do understand their consumers,” he said, adding they don’t want to alienate customers with price hikes in the short term. “Because it’s a marathon, and they want them as long-term customers.”
From a manufacturers’ perspective, Graydon pointed to rising costs coming from multiple areas as a looming challenge. There are labour costs to consider and manufacturers have to pay more to attract and maintain people, not to mention input costs that “are just going through the roof.” Fundamentally, he added, these things are out of manufacturers’ control. As an example, he points to the cost of some oils required to make deodorant, which have increased by 40%. “And it’s just all the way across the board, the costs are getting higher and higher.” Manufacturers can’t assume all of those costs, he said, some of those costs will need to be passed on to the retailers who, in turn, will have to pass them on to the consumers. “And I think we’re in for some inflationary pricing over the next little while because of these factors,” he said. “We need to try to moderate inflation as much as possible, but it is a factor that I think is going to require a lot of discussion and work between retail and manufacturing as we start to move through the next 12 months.”
RCC’s Brisebois agreed that costs were going to be a challenge for retailers, too. Not only having to pass on cost increases to financially constrained, value-conscious consumers but to also contend with rising operating costs such as transportation and managing things like sustainability programs. “Grocery retailers will be under the microscope in regards to their environmental practices,” said Brisebois, and the cost associated with maintaining some of those—particularly regulated producer responsibility programs—will increase substantially, putting pressure on the bottom line.
One of the big stories to emerge from the pandemic is the acceleration of e-commerce. NielsenIQ Homescan data for the 52 weeks ending Dec. 26, 2020 showed that online shopping increased 98% versus the year prior, with online leading retail growth, fuelled by more shoppers (+17%), more visits (+66%) and more spending (+70%). Despite the remarkable numbers, e-commerce has certainly not been without its challenges, particularly for independent grocers, some of which had to act quickly to add or expand services like curbside pickup and delivery and invest in the required technology to support the effort. “Independents don’t have the deep pockets of some of the other competitors in the marketplace,” said Shurrie, adding they’ve got to find that extra money and grow that side of the business.
Of course, there are also opportunities to be seized. CFIG’s Shurrie points to a shifting population. With birth rates and immigration levels in Canada flat, “we’re not really seeing any growth of people, but you’re seeing a movement of people” from urban to suburban or rural areas. “That shifting dynamic is important not just for the retailers to understand, but also for the manufacturers to understand,” he said, noting that stores that once had a small footprint might need to expand as the communities around them grow. It’s an area where all can come together with insights and data and build a strategy, he said.
Brisebois sees diversity, equity and inclusion as an opportunity for the sector. It’s certainly an area that many companies in the industry say they are working to improve. “It behooves us to not only know how to serve our customers, but to reflect our customers within our workforce and to allow every Canadian an opportunity, regardless of where they’re from, to grow in our business.”
From a manufacturing perspective, Graydon said he’s excited about e-commerce and the innovation happening in that space. As an example, he points to Sobeys’ Voilà e-comm platform, which he describes as “world class.” As other grocery retailers seek to win in this area, they’ll be entrepreneurial and innovative, and he expects e-comm will continue to grow as more consumers come to enjoy the flexibility and convenience of having goods delivered to their homes. “And what it does for a lot of our smaller members is it gives them access to consumers, too,” he said, explaining that it may be easier for these companies to get listings on a virtual store. Meanwhile, the bigger players are looking at direct-to-consumer (DTC) models. “Do I think that [DTC] will get a ton of momentum? Likely not. I think there’s still some real value in consolidation, that’s why Amazon is so successful.”
And while all three leaders do not see eye to eye when it comes to establishing a code of conduct—or fair trading practices—for the industry, they all agree that it’s important to find ways to work together and fix strained relationships. “We have a responsibility to come together and figure out a way to develop best practices and guiding principles,” said RCC’s Brisebois, admitting the industry has not always been successful in this effort. Shurrie echoed that they must seize this opportunity to create a better future for the industry.
“It’s critically important,” Graydon said, for retailers and manufacturers to find solutions to enhance the stability of the industry. “We have to have strong manufacturing if we’re going to have strong retail, and we have to have strong retail to have strong manufacturing—we’re so interdependent. We could be significant change agents and leave behind a legacy of stability for this industry,” he said, “which to me would be absolutely delightful.”
