Food prices and the pursuit of convenience

People are choosing to eat out despite higher cost, writes Sylvain Charlebois.

Food inflation continues to be an illusion in Canada. According to Statistics Canada, food prices have dropped once again over the last month, by almost one per cent.

Food prices are below the general inflation rate, just as they have been for most of the year to date. The food distribution landscape is much more competitive and cost-cutting measures are the priority for most players in the industry. But the restaurant industry is experiencing something very different. Prices are going up, way up.

Indeed, despite deflationary pressures, food service seems immune to what is happening with food prices in general. The cost of food purchased at restaurants rose by 2.7 per cent over last year. That is almost double the rise in food prices at retail. While food purchased at restaurants became 0.2 per cent more expensive in the last month, food prices in grocery stores dropped by 1.3 per cent in the same period. Menu prices are still moving up, while retailers are trying to figure out how to remain competitive. These are good times for the restaurant industry.

Essentially, this unique phenomenon can be explained by how consumers view and manage their relationship with food these days. People eat out, eat on the go, or eat at their desks more often than ever before. Meals in the traditional sense are slowly disappearing in Canada.

As a result, almost 30 per cent of our food expenditure is now devoted to the food service industry.

Last year, food service sales were up by almost four per cent while food retail barely moved, with a rise of about 0.7 per cent. This is the main reason retailers are looking at omni-channelling their goods, to reach the consumer any way they possible can. E-commerce, meal kits, ready-to-eat meals, food trucks all are ways retail is trying to adapt and keep up with an increasingly transient consumer.

Convenience is trumping price now as a key decision factor for an increasing number of consumers. So food inflation data may be hiding the fact that Canadian consumers are in fact paying more for food, not less. They just seem to be spreading their food budget around more.

Most grocers, including Loblaws, Metro and Sobeys, have laid off workers to cut down on costs. But to prepare for what is happening across the industry, grocers will need to think differently; in fact, they will need a paradigm shift in the way they think about food retailing.

To get there, grocers will have to take on new people — human capital — who believe the grocery business should embrace new ways, new technologies, and new methods in order to follow changing demand. This is what is happening right now.

It’s about consumers finding time to shop for food amid all the other daily tasks, and with their struggle to achieve a healthy work/life balance while still having high-quality options.

Catering to a new crop of demanding consumers is no easy task, especially in a context in which food deflation won’t go away. A stronger dollar has helped, particularly for consumers with an appetite for a healthy diet. In the last month, prices for fresh fruit have dropped by more than four per cent. Fresh vegetable prices dropped by a whopping seven per cent, in one single month this fall.

These are spectacular decreases which we have not seen in at least three years in Canada. The meat and seafood sections are also experiencing continual decreases in recent months.

In food service, we have seen some consolidation, but we also have seen new independent restaurants and new chains emerging with innovative approaches. We have seen grocers acquiring pharmacy chains, meal kit providers, and specialty stores.

We shouldn’t be surprised to see grocers search harder for inspiration from the food service industry.

If you are looking for savings, don’t go to a restaurant. Eating at home has always helped people save. These days though, it’s become even cheaper.

Sylvain Charlebois is professor in food distribution and policy and dean of the faculty of management at Dalhousie University.