FOOD:
The Amazon effect in food retailing.
Loblaw is the latest grocer to commit to offering home delivery. Starting in December, the number one food retailer in Canada is looking at deploying this strategy from coast to coast.
It intends to deliver food at home, for a fee of course — an ambitious plan indeed. After spending millions in making many of its stores cathedrals where food is adulated, like the Maple Leaf Gardens store in Toronto, serving up President’s Choice in people’s homes now seems to be good enough.
Basically, the socioeconomic fundamentals that have supported large, big-box stores are weakening rapidly. Real estate is not cheap, growing same-store-sales is difficult these days and finding good labour to cover large spaces is challenging. In fact, as higher minimum wages are adding more pressure, grocers need to think of ways to make their equity and human capital work more efficiently. What’s more, a good portion of the Canadian population will become less independent to some degree. By 2025, more than eight million Canadians will be 65 or older.
And if you add Canada’s unpredictable — and sometimes horrid — weather, these indicators point to one thing: the bricks-and-mortar model is becoming much less appealing for a growing number of Canadians.
Our modern lifestyle is also a factor. Quite simply, time-strapped consumers are looking for convenience. Those who can’t or don’t want to cook are also are looking for quick fixes, and that is exactly what the food retail industry is trying to offer. Grocers are increasingly attempting to chase down the money that is showing up at their doorsteps less and less often.
As a result, we are continuing to witness the slow death of the traditional grocery store.
For one thing, an increasing portion of our budget is dedicated to eating outside the home. At almost 30 per cent of all of money spent on food, Canadians are on track to breaking a new record this year. Secondly, most of us are online, shopping for anything and everything. And yes, food is part of that portfolio. About five years ago, barely one per cent of our food purchases were made online. Today, some unofficial estimates suggest that number is now close to four per cent. We are progressively catching up to the Americans, who are at seven per cent.
And given Walmart’s recent results, online grocery shopping is expanding. Walmart’s online sales in the U.S. grew by almost 50 per cent last quarter, a lot of which was food sales. Canada is seeing similar trends.
Even though grocers’ balance sheets in Canada are in fairly good shape, Amazon — the boogeyman of retailing — has become a legitimate threat since it took over Whole Foods this summer. Amazon is not just a business killer — it destroys entire sectors.
The bookstore was its first victim, and since its acquisition of Whole Foods, we can assume that the grocery store is in Amazon’s sights. It is all about digital transformation for Amazon. It is redefining how the food industry and consumers make transactions in a digitalized, borderless world.
Leveraged by data, connecting food retailing with homes can be powerful. In some U.S. cities, Walmart is currently delivering food directly to the consumer’s fridge.
Imagine coming home and everything is already done for you. But in 10 or 15 years from now, in a revolutionary digital world, there is no limit to what we can do with home food delivery.
A blend between a digitalized food retailing industry and our homes can seem incredible, and this is only the beginning. Loblaw, and likely others, may be playing defence for its long-term survival, but the opportunities are endless.
The Amazon effect is real, and it is here to stay and is keeping most grocers up at night, including Loblaw. Well, at least Loblaw had the foresight of acting now before it is too late.
Sylvain Charlebois is professor in food distribution and policy, and dean of the faculty of management at Dalhousie University.