It’s not your imagination — it really is getting more expensive to put food on the table. That’s why supermarkets are doing whatever they can to keep your business
As prices climb, grocers big and small are trying every trick in the book to lure consumers
It’s a classic charm offensive, this time employed by the appealing likes of chef Jamie Oliver on behalf of Sobeys.
Even as grocery giants across Canada battle for market share, with the muscled likes of Loblaws well in the lead, the charismatic British food icon is doing his best to cuddle with consumers. In a new, broadbased ad campaign, Oliver makes a convincing argument that grocery costs are cheaper in the western Canadian outlets of Safeway and Sobeys, currently boasting a new pricing regime. Featuring weekly “produce picks,” the campaign promises lowered prices on many fruits and vegetables compared to the regular in-store everyday prices. These include such staples as apples — selling for roughly 50 cents a pound less in a recent price check.
Teri Scobie, Sobeys communications manager in Western Canada, says the campaign is not in reaction to the widely touted produce crisis, which saw items such as the previously unglamorous cauliflower selling for upwards of $7 a head in January.
“(The campaign) is not reactionary,” Scobie insists. “Research shows what’s important to customers, and that’s quality products, and fresh products and meat.”
Coincidentally, or not, full-page ads touting grocery specials for Save- On-Foods, complete with coupons, have appeared in newspapers hard on the heels of the Sobeys campaign. At the same time, Lo- blaw (whose brand includes Real Canadian Superstore in Western Canada) is making noise about its latest offering — a click-and-collect service which lets Edmonton consumers buy groceries online and then pick up the goods at a halfdozen area Superstores for a fee of between $3 and $5.
These moves, say retail experts, are set against a backdrop of high food prices in Canada that sees consumers carefully selecting where to spend their protein and produce dollars.
In 2014, according to a survey by Canadian Grocer, total traditional grocery store sales in Canada rose to more than $88 billion, up from roughly $87 billion in 2013. That sounds like a lot of sales, but experts note that profit margins of a mere 1.5 to two per cent mean competitors must work every trick in the book to lure consumers through those automatic doors, empty cart in tow.
In December, Statistics Canada reported food prices increased at double the overall inflation rate. Canadians paid 3.7 per cent more for food in December than they did a year earlier, with a kilogram of stewing beef up more than a dollar a kilogram.
Fresh vegetables were among the stressors, rising in price more than 13 per cent, year over year. The declining Canadian dollar and weather conditions, including drought followed by floods in California, are responsible, in part, for the upward pressure.
But according to grocery retail expert George Condon, a consulting editor for Canadian Grocer with more than 35 years of experience in the field, prices have been rising behind the scenes for several years, with food manufacturers charging more to the retailers.
“Manufacturers of grocery products have had increases over the last five years and they have been trying to pass the prices along, but the retailers have been resisting and that’s broken through in the last few months,” says Condon.
More price hikes are expected in 2016, for products from meat to produce. The Food Institute of the University of Guelph says the average Canadian household will spend $8,631 on groceries and restaurant meals this year, up by $345, because of inflation.
The institute’s latest forecast pegs food inflation at between two and four per cent in 2016 — compared with 4.1 per cent in 2015. Those higher food costs put grocery retailers in a difficult position, especially in Alberta where the economy has been hard hit by the low price of oil, says Sylvain Charlebois of the University of Guelph’s Food Institute.
“The economy is shifting so rapidly, grocers are quickly adjusting to Alberta’s macro-economic reality,” says Charlebois. “Sales numbers are softening and so they are very careful in terms of setting the right price points for many, many products, especially for products that have seen volatile prices historically, such as produce. They are adjusting. Because grocers always know what the market will bear.”
COME FOR THE CHEAPER PRODUCE, STAY FOR THE NO-NAME STAPLES
There is a limit to what people will pay, say, for cauliflower (the price of which has dropped substantially in the last month as grocers try to unload the knobby plant).
The problem for grocers is that produce spoils, and must be moved out quickly. Retailers may be willing to take a bath — or a loss leader as it’s known in the trade — to sell a perishable product. They hope low produce prices will bring people into the store, where they will spend more money on canned and packaged goods, which can sit for a while with no harm done.
In particular, grocers hope consumers under financial duress will look toward private label goods, such as the Compliments line at Sobeys, because profits are tucked inside no-name packages of pasta and cans of peas.
Indeed, private label goods have anchored Loblaw for decades. Sales of President’s Choice, GREEN and now, Blue Menu items have helped secure Loblaw’s position as the top grocer in Canada. According to Canadian Grocer’s 2016 Annual Directory of Chains and Groups in Canada, Loblaw and its banners hold just over 28 per cent of the total grocery market, with Sobeys and its numerous brands in the number two spot at just under 22 per cent.
EXTRA PINCH TO BE LOCAL AND ORGANIC
If you think high prices for everything from berries to beef is hurting the retail giants, imagine what they are doing to the little guy. Danny Turner, co-owner of Edmonton’s The Organic Box grocery delivery service, says he’s feeling the pinch.
His cost for organic broccoli and cauliflower are up 18 per cent, says Turner, and the price of lettuce from the supplier has rocketed 38 per cent over last year.
“Salads are more expensive now because of the dollar and the weather, and because we are at the very end (of the road), we pay more freight, too,” he acknowledges. “It’s a perfect storm of circumstances.”
Turner doesn’t pass on 100 per cent of the food cost increases to consumers, because customers don’t like that. Last year, he opened outlets of The Organic Box in Fort McMurray, Grand Prairie, Hinton and Peace River, where customers pay the same price as those in Ed- monton, even though the further freight drives up Turner’s costs.
“In times like this, we adopt the philosophy of cheap and busy,” he says. “It’s better to have cash flowing, to be busy, even if you have to sell at a compressed margin. If I want to sell my potatoes, I’m going to have to take a hit on oranges to get them in the door.”
And while Turner does a roaring trade in local food, with 50 per cent local in the winter and 80 per cent in the summer, that doesn’t necessarily mean he can offer local stuff for cheaper. The short length of our growing season and econo- mies of scale enjoyed by southern growers mean American produce is still cheaper, even though it has to travel a great distance.
Plus, Turner has to get the best price possible for the local products he sells, because his farmers need to make money, too.
Prices in the organic sector are high anyway, due to a lack of supply. Turner hopes a recent move by the federal government’s Western Economic Development Department to support organic producers will ease the situation over time.