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Opinion: Amazon and Whole Foods – one year later

The blockbuster deal has forced domestic grocery giants to adapt quickly

One after the other, grocers are going virtual. All of them, at some point over the last 12 months, have announced some sort of commitment to an e-commerce strategy.

Costco launched its home delivery pilot in Ontario, while Maxi’s, Loblaw’s discount stores in Quebec, were the latest to jump on the virtual bandwagon with their Click and Collect program. In other words, grocers are no longer content with waiting for customers to walk through the door, ready to spend money on food. Grocers are now accepting that they must increasingly go after and work harder for the money.

The proverbial wake-up call for food retailers came a year ago when Amazon purchased Whole Foods in the U.S. in August 2017. The biggest concern among grocers was that it would drive down prices, even in Canada. This has not yet happened, at least not in any direct way. Food inflation is not strong, but neither is the sector experiencing any deflationary pressures.

What is happening: consumers gradually walking away from the average traditional grocery stores. Some are drawn to specialty stores, but many are buying online, and often from suppliers selling unique products not available through the major outlets.

Habits are changing. Some estimate online food sales to be at about 1.5 per cent of all food retail sales in Canada, with some grocers seeing online sales growth reach double digits. Given that we are one of the most connected nations in the world, the current 1.5 per cent of sales could go up to seven per cent within the next 10 years, which equates to approximately $10 billion in sales. This would represent over 800 decent-size stores in today’s food distribution landscape.

Canada is essentially catching up to several other industrialized countries. Ireland and the United Kingdom are at 7.5 per cent in online grocery sales. France is at just over 5.5 per cent. Canadians are nowhere near that level, as most of us never considered online food shopping until just recently. Now, it’s in the media almost every week, enticing Canadians to think differently about food outlets and how they might want to shop.

Grocers weren’t overly enthusiastic in embracing e-commerce either. Other than Sobeys in Quebec and Longo’s Grocery Gateway in Ontario, not much virtual shopping was going on. Reluctant grocers were concerned about lost foot traffic and reduced same-store sales, precious metrics in the business. But Amazon’s clear commitment to food retailing changed everything.

The sector is now playing defence and retailers are trying to embrace their new reality. Basically, an online shopper is more rational and strategic. Senses and emotions can trick you into buying certain products you don’t need or “shouldn’t” be buying in the first place. In a physical store, want overpowers need, much more often than you might think. Online, however, impulse buying is almost impossible. Grocers are slowly having to learn how to add on sales while transacting with a customer who has access to neatly presented information in real time, all the time — a scary thought for the conservative type in the industry.

For some Canadians though, saving money through online shopping is not that easy. On the one hand, free applications allow the tech savvy to save. On the other hand, the process excludes certain consumers. It involves some research, knowledge of software use, and especially time. Some are comfortable with this, but not everyone. But since the internet and social media have become so prominent in our lives, chances are that, over time, the number of shoppers willing to buy food online will outnumber those reluctant to do so.

Location means something different in food retailing now. More competition will only make things more complicated for grocers. If it’s death by a thousand cuts for the industry, everyone wants to be the one holding the blade. Loblaw and Wal-Mart have very dissimilar approaches — no surprise — driven by in-house thinking. While Metro has been a little quiet compared to others, Sobeys has entered a partnership with U.K.-based Ocado, a powerhouse in online shopping. This could make for an interesting duo in the sector. Costco has now announced it wants to play in the online space which could also be damaging for the establishment.

Everyone wants in, but in the end, only a few will deploy an e-commerce strategy that will “click” with Canadian consumers.

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