The $118-billion retail food sector in Canada is becoming increasingly fragmented but it still shares one thing in common: a commitment to trust and transparency, a retail food expert told delegates at the recent GrowCanada conference.
That has repercussions that trace through the value chain all the way to the farm, John F.T. Scott said.
“Retailers are trying to make sure that whatever products are in their stores can be traced all the way back,” said Scott, an economist who is a food industry consultant and chair of the Canadian Agri Policy Institute’s (CAPI) board of directors.
“You can’t underestimate the value of this and the comfort it gives to the consumer,” he said as he showed an advertisement by a major fast-food chain that depicts the farmers who produced the food.
He noted Walmart set the stage in Nov. 2016 when it announced it was entering a new era of “trust and transparency” as a customer commitment and that would be a “point of differentiation” for the firm.
Traditionally, the retail food sector was differentiated along the lines of quality, quantity and its distribution. Nowadays, retailers across the board want to know where the food came from, the ethics of the production system, the food’s health attributes and whether it was produced sustainably before they agree to allocate shelf space.
“You need to be able to answer those questions about your products,” he said.
The decision by online giant Amazon to purchase Whole Foods sent shock waves through the food retail sector, but it was only the latest development in an increasingly fragmented marketplace, he said.
More services are focused on the convenience of online shopping, such as Amazon’s “click and collect” service, through which customers order online and pick up their order on the way home.
Walmart is testing a “scan as you go” service, allowing the shopper to scan the products they are putting into their grocery cart as they move through the store and then simply pay on the way out. One east coast retailer will not only deliver to its customers, it puts the food right into the fridge for them.
Eighty per cent of the food sold in Canada is through five companies, and 88 per cent comes from seven, he said. However, those companies distribute through smaller subsidiaries and the connection to the parent company isn’t necessarily obvious to the consumer.
So-called “food discounters” such as Walmart and NoFrills, currently sell 53 per cent of the groceries purchased in Canada. There is a middle tier of traditional grocers such as Sobeys and there are premium grocers that offer specialty foods and which are heavily invested in retail food services such as ready-to-eat foods. Along the sides are food stores such as Costco, which are set up to be a “destination” experience and then there are outlets such as Shoppers Drug Mart, which are increasingly stocking food tailored to serving specific markets and demographics. The availability may differ with the location.
Suppliers need to position their products according to the interests of each market tier. “If you want to sell products to these people, you can’t use the same strategy,” Scott said. “Each one appeals to a different psyche.”
Scott said consumers are also becoming more fragmented in how they shop. Many households choose to buy from discount suppliers for their pantry goods but will spend the money they save shopping in specialty markets for high-end foods.
Demographics such as the aging baby boomers and the millennial generation are both important drivers for food retailers. The baby boomers will spare no expense ensuring their grandchildren have healthy food. Meanwhile, the millennial generation works hard, but demands a work-life balance that older generations find hard to fathom.
However, Scott had a message for primary producers who often complain that retailers aren’t doing enough to defend their production practices with consumers. Retailers don’t see themselves as advocates for farmers; they are there to serve consumer interests, he said.
Natural, and organic foods rank No. 1 and 2 for profitability in food retailing, he said. He predicted the next big wave would be a shift from animal protein to vegetarian options.
“Consumers are not there yet, but I can guarantee you the retailers are looking at this very carefully,” he said.
The need to demonstrate trustworthiness is not just affecting how retailers operate. Processors such as the food-processing giant General Mills view transparency in their supply chains as key to meeting their sustainability commitments to consumers of their products.
Jay Watson, General Mills’ sourcing sustainability manager, told the Farm Forum event in Calgary December 6 that transparency “is the currency of trust,” as companies like his attempt to meet consumer demands for foods that taste good but also meet a growing list of value-based criteria.
“It’s not about science, it’s about values,” Watson said. “Facts don’t persuade people, people persuade people.”
What people mean when they say they want “sustainability” is a moving target, he said. But it’s clear to companies like his that committing to continuous improvement on environmental stewardship throughout its supply chain, and documenting that journey matters to its customer base. Trustworthiness is no longer assumed.
One consumer survey found that 62 per cent of shoppers sought information on sustainable practices within the past three months, he noted.
Many companies, including General Mills, have started to work directly with farmers to identify sustainable practices and document their use.
The question for farmers of course, is who pays? Transparency implies documentation, which means more paperwork. And many practices considered more “sustainable” by the consuming public such as improved animal welfare or protecting wildlife habitat are costly to implement and maintain.
Cargill is currently working with cattle producers and the industry’s traceability network to determine whether a production system verified as sustainable can capture a premium in the marketplace.
The emerging scenario in the not-too-distant future, however, is that being transparent, traceable and trustworthy may simply be the price of market access.