Consumers increasingly want fresh, unprocessed food. The middle of the store now sees less traffic and that’s clearly affecting sales for most grocery products
By Sylvain Charlebois
Senior Fellow
Atlantic Institute for Market Studies
HALIFAX, N.S. – LIVING – Skippy peanut butter and Dad’s chocolate chip cookies are gone from the Canadian marketplace. If you feel sad about seeing these iconic brands go, brace yourselves. It’s just the beginning.
Within days, two major U.S.-based food multinationals pulled well-known brands from the Canadian market. Mondelez International discontinued the iconic Dad’s cookies and Hormel Foods pulled Skippy peanut butter from the Canadian market.
National brands are losing ground to private labels and fresh products. Grocery retailers revamp stores to expand the perimeters where produce, bakery, deli, meat and seafood occupy space. This means companies such as Sara Lee, Kraft Heinz, Hormel, Mondelez and Kellogg’s are losing ground.
Consumers spend about 74 per cent of their time in a store’s perimeter, where all the fresh products are displayed. This trend is increasing as more consumers look for fresh, unprocessed food. The middle of the store now sees less traffic and that’s clearly affecting sales for most grocery products.
Grocers are desperate to generate more business in the centre of stores. They’re innovating and launching new product categories, some through their own brands.
But managing a food store is a merchandising nightmare compared to 30 years ago. The number of food items in a typical store has increased by more than 600 per cent over the last few decades. Consumers are bombarded with choices.
Recent food retailing miracles like coffee pods and gluten-free products have garnered some fascinating results. But such items can go only so far and both show signs they’ve reached their full potential.
Short of changing store design, what’s at stake is shelf space. Real estate in store aisles can be expensive for national brand owners. In addition to listing costs, companies pay a premium to effectively display their brands. Meanwhile, grocers try to promote their private labels since margins are much higher. Major food processors have had to pay more to get consumers’ attention.
Higher input costs and the will to build economies of scale have led to greater consolidation in global food processing, with more to come.
Several Canadian grocers are pressuring multinationals by asking them to reduce wholesale prices. Some of these requests have even been shared with media. They made the requests to reduce prices simply because they can. Unlike in the U.S., just a few players dominate Canadian food retailing. That means the main grocers dictate pricing across the system. Still, profit margins remain modest due to higher than average logistical costs and demographic issues. So this vendor-grocer tug of war will likely continue.
The Canadian market is tricky for major processors. With barely 37 million consumers in one of the largest countries in the world, logistical costs can be prohibitive. Companies need a comprehensive portfolio of brands and only large operations like Nestle and PepsiCo can afford to continue products in Canada while selling the same products elsewhere.
Smaller processors are becoming more strategic about what and where to sell. And a more targeted approach even has more merit for the big players. Many multinationals, like food-service giant McDonald’s, have learned that the hard way.
Seeing major national brands leave the marketplace isn’t necessarily undesirable. In fact, it could lead to greater opportunities for Canadian entrepreneurs. Canadian-based food processors could fill the void with local food products.
If we can just embrace food innovation, make more venture capital available to entrepreneurs, get more skilled labour and improve market access, domestically and internationally, we should see more domestic food processors succeed.
This won’t happen overnight – we have a lot of work to do. A strong food processing sector increases the chance for any nation to gain control of its food destiny. This is certainly worth pursuing.
Sylvain Charlebois is Senior Fellow with the Atlantic Institute for Market Studies, dean of the Faculty of Management and a professor in the Faculty of Agriculture at Dalhousie University, and author of Food Safety, Risk Intelligence and Benchmarking, published by Wiley-Blackwell (2017).
© 2017 Distributed by Troy Media
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