For suppliers, the ramifications of consolidation and the increasing strength of the discount tier include reduced prices and lower margins. Since December 2013, when Sobeys instituted a retroactive price cut of 1 percent from most suppliers and froze prices going forward, the leading grocery chains have required vendors to cut prices and grant other concessions.
For produce vendors, “there’s a trickle-down effect,” says John Russell, president of J.E. Russell Produce Limited, a wholesale distributor operating in Ontario and eastern Canada, who explains the lower prices are coming at a time when costs have been rising. “There are both increasing costs and increasing responsibilities; there are new cost channels including food safety, compliance, traceability, and best-before dates on perishables. It makes the management of these commodities more difficult. And the decreasing Canadian dollar over the past several months has also been tough.”
Strapagiel points out that the Canadian dollar was down 10 percent in the winter months of 2014 and 2015 compared to the previous year, raising costs for suppliers during a time when they were importing many commodities from the United States and elsewhere. “With the competition, it’s very hard for retailers to pass those increases along to their consumers,” he says. “With the thin margins, there’s pressure on vendors to be more efficient, shave prices, and make other concessions.”
Barlow notes that consolidation intensifies these trends. “We expect to see food cost increases, combined with a reduction in manufacturer or producer investments in innovation and capital, due to margin pressures created by the buying power of the major chains.”
“Price pressures are always a factor,” stresses Lemaire, “but all in all, consumers are still demanding quality.”
The Premium Niche
At the other end of the pricing scale, the national chains also are testing and expanding premium formats, as well as adding premium features to their mainstream stores. Many are taking cues from successful high-end specialty grocery chains like Longo Brothers Fruit Markets and Whole Foods Markets. Longo’s, based in Toronto, and U.S.-based Whole Foods, both have a small footprint in Canada today, but are reportedly looking to expand their market share in the True North in the coming years.
Metro has been testing additions such as expanded and more diverse salad bars and hot gourmet take-out options, as well as enhancing the quality and range of its fresh fruit and vegetable offerings. Loblaw is taking similar steps in some of its stores in Toronto and Quebec, adding new fruits and vegetables to their mix. And Sobeys launched ‘Sobeys Extra’ in 2013 under a similar blue-print, with additional signage to explain the differences between varieties of produce, and more fresh-cut fruits and vegetables.
