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Comment: The cost of convenience

Consumers are spending more of their income on outside food purchases which shrinks the farmer’s share of the pie

Canadians are poised to spend as much on food outside the home as they do in grocery stores.

More Canadians are eating out. In fact, according to some surveys, about 35 per cent of the average Canadian’s food budget is spent on food consumed outside the home. This would include restaurants, grab-and-go’s, and other portable food offerings. This is nowhere near what Americans spend on out-of-household food consumption, which is now estimated at 55 per cent, but some studies suggest that by 2030, or perhaps even sooner, Canadians will likely spend as much on food outside the home as that bought in a grocery store. But some wonder whether this significant trend is good for farmers. And, if we look at production and distribution costs, it isn’t.

According to the USDA, farmers receive on average of anywhere between 20 and 25 per cent of the total cost of a food product at retail. That percentage will vary, depending of how commodity prices fluctuate. Back in 2007, for example, when the prices of wheat, soya and many agricultural commodities were soaring, that threshold exceeded 25 per cent. With commodity prices being more stable these days, this percentage has gone down somewhat. This rule would likely apply to Canadian farmers as well.

Some may believe such an amount to be much too low and unfair to farmers, but transactional costs and the impact of distribution levies lessen the retail value of ingredients used to make a food product. Packaging, labour costs, assortment processes, all of these things add up — it’s simple economics. But the same report by the USDA also claimed that farmers will typically receive about four per cent of the food dollar spent away from home, at the restaurant. That is a significantly lower percentage, compared to the rate on the food we buy at the grocery store to cook at home.

The economics of food distribution and the effects of omni channels, offering food through different retail points, do not appear to be helping farmers. Given how highly consolidated the food-service industry is, companies like Sysco, Aramark, Cara, McDonald’s and Tim Hortons will negotiate the best they can to increase margins. The actual portion of ingredient cost can only shrink as the commodity gets closer to the consumer’s dinner plate.

And it’s going to get worse. A recent survey from Dalhousie University suggests that younger generations are going out more for dinner. Almost 40 per cent of Canadian consumers aged 38 and under dine out at least once or twice a week. The number of consumers enjoying food outside the home likely has never been that high. In some metropolitan areas, certain condos are now sold without a kitchen. Without a kitchen!

Kitchens are now part of the shared economy. Just like the principle of the Airbnb, owners will rent their kitchen to those wanting to cook dinner and host family and friends. It’s a new world out there.

Canadians are also increasingly “eating out at home,” so to speak. With meal kits, as an example, young generations are gravitating to quick solutions for themselves and their loved ones. Meal kits offer hassle-free solutions for consumers in a hurry, or for those who lack imagination with menu planning. Again, younger consumers appear to be attracted to meal kits, more so than others.

Across the country, meal kits are priced anywhere between $9 and $12 a meal right now. Expensive for many. Even if tips are not necessary with meal kits, costs for ingredients represent a small portion of the total retail price. Meal kits require significant overhead and the nature of meal-kitting makes for a very labour-intensive endeavour. But the reality is this: In time, the economic influence of the younger crowd will only increase, and less of our food bill will go to farmers.

Let’s do the math. The average Canadian family will likely spend about $11,700 on food by the time the year is over. In 2018, that same family will likely spend about $100 more on products offered by the food-service sector like meal kits, restaurants and food trucks. If the USDA rule applies, farmers will get four per cent of that $100. In other words, even if our food bill increases every year, the conversion rate of our food dollars, going from food retail to service, offsets gains made by increased sales in retail stores.

The most significant drivers for higher food costs are service and convenience, and farmers appear to get little financial benefit from this shift. Spending less time cooking and washing dishes and more time ordering ready-to-eat food products will cost more, but the money spent will be used to cover other costs, not including the ingredients our farmers produce. These numbers are likely stating the obvious, but as food gains more market currency and consumers long for new culinary experiences and new tastes, it doesn’t necessarily mean farmers will get a bigger portion of our food bill. This is the nature of primary production and being price-takers within the entire food chain.

But there is hope for farmers. With improved distribution technologies and methods through which anyone can transact, farmers can connect with consumers and increase margins by offering ready-to-eat solutions themselves. More farmers are doing it. They not only increase margins, but they can also assess consumer preferences daily and improve what they do. The pursuit of convenience can also profit farmers, but they need to seize the day.

About the author


Sylvain Charlebois is senior director, Agri-Food Analytics Lab, and professor in food distribution policy, Dalhousie University.



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