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New Normal: How COVID-19 could change Canada s grocery landscape forever

New Normal: How COVID-19 could change Canada s grocery landscape forever
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They are lining up to get inside stores, spending more money on food to prepare at home and expressing a new appreciation for the essential food chain keeping the country fed during this pandemic.

But the long-term effects of prolonged lockdowns and fear of public spaces could permanently shift how and where we shop, says Sylvain Charlebois, a professor of food distribution and policy at Dalhousie University.

“Grocers are doing very well right now, but the future is very uncertain. What the landscape post-COVID is hard to read right now,” Charlebois told CTVNews.ca in a phone interview.

It’s not that the grocery industry hasn’t served Canadians well during the pandemic. Charlebois, who studies the country’s food supply chain, has been impressed by how the system has responded to the surge in demand.

He compares the pandemic shopping rush to Dec. 23, a traditionally hectic shopping day before Christmas, and says grocers are seeing that level of demand “three times a day for a month.”

“To manage that kind of growth in such a short period of time is a miracle. There is no other way to put it.”

Virtually overnight, hitting the grocery store went from a routine outing to a surreal, experience requiring extensive pre-planning and hyper-vigilance.

That is bound to have a lasting effect, Charlebois says.

But for now, the massive hit to the restaurant industry is paying off for grocery stores.

Empire Company, the parent of Sobeys, announced April 15 that its same-store sales surged 37 per cent in the four-week period starting March 8. Metro said its second-quarter revenue jumped 7.8 per cent to CAD$3.99 billion over the prior year and estimated that more than 43 per cent of its CAD$287-million gain in sales was due to the pandemic.

Loblaw Companies Ltd., Canada’s largest grocery conglomerate, will report its fiscal first-quarter results April 29. But some retail analysts are predicting Canada’s major grocery chains will report higher earnings per share in 2020 than in 2019.

Charlebois says he believes Canadians now have a better understanding about all the elements of the food chain, including farmers, transportation companies, food processors, distributors and retailers.

“Something very transformational is happening. I think there is a new appreciation for the whole system.”

One result, the so-called hero pay bumping the wages of front-line grocery workers, is likely here to stay.

“We’ve heard that most grocers are going to be paying hero pay until May 8, but I don’t think the salaries will go back to where they were. It will be very hard to take that away now.”

But the grocery business is a high-volume, low-margin business, he says, and increased operational costs through salaries and stepped-up cleaning measures in stores will hit the bottom line. He expects that will likely lead to closures of less profitable locations and perhaps even the loss of certain banners.

Charlebois expects the fallout of COVID-19 will challenge the central business model in the grocery industry. At a 1 to 2 per cent profit margin, grocery chains have little room to absorb increased costs.

The average grocery store sells 15,000 to 18,000 distinct products (called SKUs in retailing). That has doubled or tripled over the last decade or so, he says, and contrasts with Costco’s strategy, which is to offer 3,400 SKUs at a 15 per cent margin.

“That choice for consumers comes at a cost. It’s more expensive to manage more SKUs but that has been the strategy for the grocery industry,” he said.

“So I think we could see retailers make changes going forward.”

One new normal from the pandemic will be that Canadian consumers and retailers alike will embrace online grocery shopping in a way they haven’t before, says Diane Brisebois, CEO of the Retail Council of Canada.

“I expect that we’ll see us catch up to the U.S. and to Europe,” she said. “There is a lot of thought going into what e-commerce means for the traditional grocery store.”

An April 15 survey commissioned by Dalhousie’s Agri-Food Analytics Lab, where Charlebois is scientific director, found that 22 per cent of Canadians intend to buy food online post-COVID-19. Compare that to the barely 4 per cent of Canadians who were even considering buying food online regularly a year ago. 

The lab also found only 24 per cent of Canadians are comfortable with going grocery shopping right now. When three-quarters of your customers see grocery shopping as risky, that’s bad for business, says Charlebois.

It will have a lasting effect on bricks and mortar stores, he says, in a country that has been quite slow to let go of the grocery cart in favour of online shopping. Fears about health and safety are driving new habits in a way convenience and saving time did not.

“Some of these effects will be permanent. Will 22 per cent buy their groceries online on a regular basis? Maybe not, but it certainly won’t go back to the 2 or 3 per cent it was before.”

But plenty of consumers trying to use delivery services for the first time have been frustrated by weeks-long waits for delivery windows, crashing platforms and orders that are cancelled or disappear.

Brisebois says delivery services couldn’t handle absorbing a year’s worth of growth in a matter of days. Instacart, which serves 300 Canadian cities, said it was hiring 30,000 full-time shoppers in Canada just to keep up.

“There has been substantial investment by the great majority of grocers in the country, but it was still in its infancy stage. So the huge demand that ramped up overnight made infrastructure a challenge.”

Brisebois doesn’t expect Canadians will hold a grudge. She predicts many will embrace online shopping for staples and that grocery stores will focus on offering an experience by showcasing new products and ingredients, along with offering learning opportunities in cooking and nutrition.

FORMING NEW HABITS

Eugene Ace also foresees a huge uptick in consumers ordering groceries and prepared food online. He is founder and CEO of office coffee and snack delivery service GoJava. Its operations in Toronto and Ottawa saw revenues tank by 90 per cent in a matter of days when lockdown measures were imposed.

To keep his business alive, Ace lined up some new suppliers and began using his drivers, vans and warehouses to offer next-day delivery of produce, meats, cheeses, baked goods and prepared foods, finding immediate traction with house-bound consumers. He buys from wholesalers, local producers, and markets to fulfil orders.

“We can’t compete with traditional grocers on price and selection, but we can carve a niche in offering premium and local products,” he said.

He’s also focused on quick turnarounds, offering next-day service on orders placed before 4 p.m. That sets him apart from many home delivery services that can only offer deliveries weeks down the road.

“We had 20 to 30 orders a day right away and now we are doing 50 to 100 orders a day,” he said. “New people are finding us every day.”

Ace says he has capacity to ramp up even further and he is concentrating on offering a great experience to customers because he intends to keep offering the service even after the pandemic is over.

“I think after COVID blows over, some people will return to stores, but others will not. I think there is a step-change in home deliveries happening and that we’ll see it double from before. People are forming new habits and if they like it, they’ll keep doing it.”

Charlebois agrees that Canadians won’t stop visiting grocery stores or markets any time soon, but he forecasts that 20 per cent of all food will be sold online in a few years, which is as much as a seven-fold increase over pre-pandemic days.

That would amount to a $50-billion market between restaurants and retail.

That sea change could result in food retailers investing in a system of automated micro-fulfilment centres dedicated to serving online ordering, he says.

A widespread shift to online ordering doesn’t mean only the established giants will benefit, says Charlebois.

In fact, he expects to see a post-pandemic “democratization of the supply chain” that could come in the form of more consumers buying directly from farmers, signing up for subscription-type services to stock up on staples from regional suppliers and supporting niche markets in their neighbourhoods.

“We had some fish and seafood delivered to us from a local retailer we didn’t even know existed a few weeks ago,” said Charlebois, who lives in Halifax. “It was a little more expensive, but incredibly fresh.”

COVID-19 has encouraged, and in some cases, forced Canadians to look beyond the “oligopoly” of the big-label grocery chains to get what they need, says Charlebois.

“I think consumers will consume food differently and that will force people in the food industry to adopt a different perspective.”

One potential casualty is paper flyers advertising grocery specials. Digital versions have been gaining in popularity for a long time but fears over transmission of the virus led Loblaw brands to pull in-store flyers in March.

Then the company announced it would permanently axe paper flyers for several of its chains.

More consumers are using their phones to comparison shop through platforms like Flipp, Salewhale, and Flyerify, and retailers are reaching out to consumers with promotions through apps linked to loyalty cards.

Plus, the pandemic is leading to a "pivot or perish" instinct as retailers search for ways to eliminate costs.

"We haven t seen anything like this before — no one has in any industry," she said. "But if you re not flexible and nimble in the way that you do business, you re not likely to survive.”

Jane Devito says her approach to grocery shopping has definitely changed for good.

During the pandemic, she’s ordered online for curbside pickup for the first time. The experience wasn’t flawless — her first order was deleted, and when she modified it, at least a third of what she ask for was out of stock.

Regardless, Devito said she appreciates the convenience.

“I think once everything calms down, the service will get better,” said the Flamborough, Ont. resident, though she added she isn’t relying entirely on online shopping.

She and her husband take turns hitting the stores. They have taken advantage of seniors’ hours and hope they become permanent, noting that aisles are well-stocked and less crowded.

Through hunting out options, the couple has also discovered some farmers’ markets in their area they hadn’t noticed before where they have bought eggs, meat, baked goods, preserves and vegetables.

“It’s kind of fun to shop that way and we can stick close to home.”

Julie Melanson thinks in-store physical distancing should continue even after the threat of COVID-19 has passed.

“Maybe it doesn’t have to be six feet, but people should stay further apart anyway.”

The mother of three teenagers has both asthma and a heart condition that required surgery. She has found grocery shopping difficult and stressful during COVID-19, but delivery options to her home in a rural area of Hamilton, Ont. are limited.

While Melanson doesn’t expect to continue wearing a mask once the crisis has passed, she expects her other new grocery shopping habits – using hand sanitizer, wiping down the cart, using debit instead of cash, and disinfecting or washing what she buys when she’s home — are here to stay.

Her family has adopted a “back to the basics” approach in planning out meals, shopping for a couple of weeks’ worth of provisions, baking bread and making do when they run out of something.

All of that may endure, she says, but the pandemic won’t convince her that online shopping is an answer.

Aside from scant delivery, Melanson, an elementary teacher in a French school, says it makes shopping for sales and evaluating quality difficult. Plus, she says, the selection isn’t as extensive as what’s available in the store.

‘SOLID AND RESILIENT’

For Heather Ferguson and her husband Cam Turner, of Victoria, B.C., COVID-19 has temporarily changed their shopping habits — but they don’t expect many permanent effects.

“Really, it’s not changed our buying behaviour a bit, except we are going shopping a lot less,” said Ferguson.

They were already doing much of their shopping in neighbourhood independents and using a subscription for cleaning products that automatically sends a new order after a set amount of time.

“We may look at using subscriptions for more staple items, but I don’t think we will do much else online,” said Turner.

“I do hope the stores adopt the habit of limiting the items people can cart off. That was a huge mistake early on,” he said. “Who needs six

Costco-sized toilet papers? That would last a year.”

Though panic buying has tested the industry, small and large grocery chains have made investments in logistics and inventory control that are paying off right now, says Brisebois.

“Our supply chain has proven to be very solid and resilient. It adapted very quickly when it came to responding to empty shelves and suppliers were amazing in shifting production to important products.”

Brisebois says retailers of all kinds are working with the RCC to institute best practices that will endure – at least for the foreseeable future. They are consulting with governments and learning from experiences in other countries and in Canada’s grocery stores.

“This virus has changed everything about the way we live our lives and the way we interact. The measures that we are seeing in place in grocery stores we will see in other environments.”

That includes physical distancing markings on the floor and special sanitizing stations. She says retailers will certainly listen to customers about other measures they want to see carried forward, whether it’s one-way aisles or hours for seniors.

All the extra cleaning and disinfecting going on is hardly a bad thing, either.

Viral pandemics aside, a study in 2017 found shopping carts at food stores carry hundreds of times more bacteria units per square inch than bathroom surfaces.

Many Canadians have never had to contend with empty shelves in grocery stores or worried about adequate food production. But plant closures as growing ranks of workers fall ill with COVID-19 and fears about labour shortages in farm fields have rattled complacency.

Canada is among few self-sufficient nations in the world when it comes to food.

Others include the U.S., France, Australia, Russia, India, Argentina, Thailand and Burma. The organization doesn’t measure whether a country does feed its own population – after all, Canada exports much of its food production – but whether it could.

According to the 2016 census, Canada produces about 1.5 per cent of the planet’s food while consuming about 0.6 per cent of global production. What that adds up to is that, in most food categories, the share of imports is below 20 per cent, with notable exceptions in fresh fruits and vegetables.

Brisebois hopes Canadians will continue to appreciate the country’s food chain long after COVID-19 has been conquered.

“I hope one thing that comes out of this is that Canadians realize how proud we should all be of our farmers, processors, distributors and retailers. The availability and affordability we have is not found in many parts of the world.”
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