March 2020 brought a seismic shift to the grocery industry, forcing Canadian supermarkets to completely change their everyday operations.
Before COVID, grocery stores were generally stocking fewer packaged goods and offering more fresh products, and prepared in-house meals were popular. Online grocery shopping had drawbacks and only made up a tiny percentage of grocery volume. This was all about to change.
“Our business model was broken in a nanosecond. We were dealing with a totally different environment,” says John F.T. Scott, economist and former CEO of the Canadian Federation of Independent Grocers, who now consults on Canada’s food distribution and retail sector.
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“We had a consumer that was frightened, a consumer that was concerned where their next meal was coming from, a consumer that didn’t know how to cook but sure knew where to get the groceries to make that happen,” Scott recalls, speaking in a keynote address at the 2021 Canadian Beef Industry Conference.
Many consumers stocked up on basic packaged foods, meat and frozen products out of panic. While sales of prepared foods plummeted, online service instantly jumped from three per cent to 28 per cent of sales volume. Before the pandemic, the average transaction in a Canadian grocery store was around $21 to $25; this rose to $75 in March 2020, but there were fewer shoppers. Grocery stores invested greatly to ensure the safety of staff and customers, and off-stage, they worked hard to remedy supply chain disruptions.
“What helped the beef industry from the start was that there were no sales in foodservice, so despite the fact that we had problems at the Cargill plant and other plants in this country, we were able to maintain the supply,” he says. “So the customer never really saw a shortage of beef products; they saw the maintenance and flow, although we were scrambling behind the scenes.”
Meat sales overall increased by 31.3 per cent, and sales of beef rose by 27 per cent. “We think that they went up partially because of the comfort the consumer had with that particular product,” says Scott. With many consumers not regular or skilled cooks at the time, they turned to products such as ground beef and steaks for ease of preparation. As more Canadians learned how to cook and began to enjoy it, they started cooking beef in different ways.
Overall, the pandemic had a major impact on the financial model of grocery stores, with changes to margins that Scott describes as “really dramatic.” The goal for a grocery store is to have a minimum overall margin of 20 to 24 per cent, which can result in a net profit of two to four per cent. With drastic changes in sales to specific departments, the contribution of each department to the overall margin didn’t allow for stores to meet that minimum margin needed for operations.
This has contributed to daunting financial challenges for Canadian grocery stores. Other challenges include supply chain issues, the costs of personal protective equipment and other safety measures throughout the supply chain and the costs of the changing business model.
At this stage, Scott can’t say when Canadians will return to pre-pandemic grocery shopping demands. “We’ve seen already the consumer isn’t quite ready to go back to where they were in 2019. There’s vestiges of it for sure, but there’s parts of it that we don’t think will return for a very long time,” he says.
One of the current trends he doesn’t see going away is the popularity of online grocery shopping. The demand for online service in the early days of the pandemic led some retailers to tackle the issues that previously kept some consumers from trying this service. For example, Sobeys partnered with a British company, Ocado, to launch its online grocery service in the summer of 2020. This model ensures that requested products are never substituted with other options, so the consumer knows exactly what they’re getting, and it offers precise delivery timing information.
Online shopping habits highlight the importance of recognizable brands. “What we found in online was people were buying meat products — particularly beef — when they knew the brand,” says Scott. “When you look at your product out there, you might look at where that branding is, because it’s going to become increasingly important.”
Canadian supermarket beef sales have been constant over the past year, Scott reports, though there is a flat, slightly downward trend. “I think you’ve got to do something about that. You’ve got to do it in branding, you’re going to have to do it in communications with consumers. You’ve got some great organizations that put information out to consumers, but you may have to do more of that going forward.”
Currently, demand for beef that is either marketed as local and grass-fed or free of antibiotics and hormones is outselling other beef products. “Don’t shoot A&W for their commercials — that’s where the consumer was going before regardless,” he says.
Scott adds that the average consumer doesn’t know what grass-fed beef refers to, but that’s not the biggest issue he sees. “If that’s the current trend, that’s the current trend. I’m less worried about that than I am worried about telling the consumer our story about the value of grazing and that kind of thing. I think that’s a much better story.”
As for upcoming consumer trends for beef, Scott is concerned about price sensitivity. “I think there’s a little bit of price inelasticity in beef, and I’m worried about consumption if the prices at retail get much higher,” he says, noting that wages aren’t rising alongside the price of groceries.
“That’s why consumers are so sensitive to price increases right now, and that’s why we’re keeping produce prices low and that’s why we’ll try to keep meat prices low.”
He also predicts brand recognition will be critical, especially with online grocery shopping. “Branding is going to be so essential in the future,” he says. “You want me to click on your brand because I have confidence in your brand.”
Finally, Scott anticipates the importance of beef industry messaging will become even greater in the immediate future as arguments against beef production and consumption continue to circulate in society. “This is not something we sit back and say, ‘Somebody else will look after this.’ We need to get active. You need to enlist the supermarkets and the support of those companies — it’s in their best interest as well.”
He sees opportunities for the beef industry to work with grocery stores to engage with consumers through in-store cooking demonstrations and special events.
“With the stuff that Canada Beef has done, you could partner with those major supermarkets and put on some really effective stuff going forward, some great consumer parties and some great interactions with the consumer,” he says. “It’d be great to have the primary producer in the stores in those demo labs.”
