Urban core-based food retailers to face significant challenges as foot traffic declines

The establishment of hybrid work as a long-lasting trend is evident, as supported by a recent global report. Since mid-2022, office attendance has reached a stable state across developed nations, consistently maintaining a 30% decline compared to pre-pandemic levels. Naturally, this phenomenon has substantial implications for the food industry.

The newly released report from the McKinsey Global Institute sheds light on the potential consequences of remote work, warning that it poses a threat of devaluing office buildings in major cities by a staggering $800 billion. The survey encompassed cities such as Beijing, Houston, London, New York City, Paris, Munich, San Francisco, Shanghai, and Tokyo, but Canadian cities were not included. Nevertheless, anyone who has visited major cities throughout Canada would have observed a decline in local foot traffic. According to the report, foot traffic around stores in metropolitan areas continues to remain 10-20% lower than pre-pandemic levels, and this trend is expected to persist.

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Municipal governing bodies and business organizations, such as city councils and Chambers of Commerce, are actively seeking strategies to revitalize downtown areas and entice individuals to return. A notable example is the installation of a large ring structure in Montreal, designed to attract both tourists and workers. However, the outcomes of such initiatives have been varied, yielding a range of results and impacts on the desired objectives. Unions have also recognized the increasing prevalence of remote work and have made it a central topic of negotiation during the reopening of collective agreements.

This fact holds critical importance for food retailers and restaurants. The report highlights that urban core retailers face significant challenges in attracting customers, particularly in comparison to their suburban counterparts. As of October 2022, it was observed that foot traffic near suburban stores had recovered to a level 16% lower than January 2020, whereas foot traffic near urban stores remained considerably lower at 36%. These challenges are further magnified in office-dense neighbourhoods within urban cores. The underlying reason for this trend appears to be the reduction in office attendance, resulting in less frequent shopping near the office. Survey respondents who only worked at the office for one day per week reported significantly lower retail spending in proximity to their workplace compared to those who worked at the office for two to five days a week.

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Urban core-based food stores and restaurants will inevitably face the impact of reduced traffic. There is concern that this could contribute to the emergence of food deserts in urban areas. Urban food deserts refer to areas with limited options for affordable food for city dwellers. If real estate values decline in downtown cores, it is possible that urban spaces will become more appealing for establishing downtown markets. The report also emphasizes the variations between different cities. Toronto, Montreal, Calgary, Edmonton, Vancouver, and even smaller urban cores like Winnipeg, Victoria, Quebec City, Saskatoon, Regina, Charlottetown and Halifax are adapting to the hybrid work environment.

To navigate these challenges, pop-up food stores, mobile farmers' markets, e-commerce platforms, grocers, and restaurant operators must actively seek out areas with market potential instead of relying solely on existing foot traffic. The industry requires a paradigm shift in thinking. It is important to acknowledge that downtown areas are undergoing transformation. While some may perceive this as negative, it is not necessarily the case. Positive developments can arise from such shifts. More affordable rental space downtown could actually bring new opportunities to the food industry. However, urban food deserts remain a genuine challenge for certain neighbourhoods, and specific demographics may be left behind. Previously, growth in urban centres occurred effortlessly. Today, the growth of downtown areas, supported by food establishments, will necessitate innovative retail strategies.