“Canada is transitioning towards normalcy following two years of rolling pandemic-related lockdowns, but a labour squeeze, skyrocketing food prices and rising interest rates are taking a toll on both consumers and businesses. Yet, there’s reason to be hopeful. We recently spoke with CIBC Capital Markets’ equity research analyst Mark Petrie about Canadians’ financial health and where the opportunities lie for in-store and online grocery sales. The interview has been edited for clarity and length.
There’s a sense of hope the pandemic has loosened its grip, but now Canadians are faced with mounting economic pressures. What is this doing to consumer confidence?
Consumer confidence took a significant hit through the pandemic and then recovered relatively quickly with a big boost from government assistance and then the trajectory towards reopening. Consumer confidence has taken another hit in recent months as inflation has accelerated and reached new heights. The interesting part – and the sort of dichotomy – is that consumer confidence has been impacted by rising inflation, but consumer spending remains strong, I think buoyed by a strong employment market more than anything. There is concern this may slow, but there hasn’t been any significant evidence of it yet.
COVID accelerated online grocery shopping in Canada. How does e-commerce fit into grocery’s post-pandemic future?
E-commerce got a big boost during the pandemic and now it’s finding a more normalized level. We follow web traffic data and through much of the summer these businesses were in significant decline, likely due to the summer season and also the loosening of COVID restrictions. But, in recent weeks, web traffic is returning to positive year-over-year growth. From that perspective, I think it’s fair to say e-commerce remains an important part of consumer preferences. I would expect that to remain the case, but it’s certainly going to be a challenge in an environment where consumers are seeking value because e-commerce is more about convenience than value.
Should grocers leverage value to grow e-commerce?
Online is challenging from a profitability perspective. You want to maximize the online spend, but you don’t want to pull people away from the store with aggressive promotions to drive volume. The solution for grocers is to build basket size as opposed to transactions. It’s difficult to discover items or to be inspired online, which is one of the best parts of being in a store. I think there’s room to bring more of that engagement that stores can provide to the online experience. There’s also room to improve targeted promotions or sampling given the access to consumer data and the ability to target specific consumers with specific promotions or product launches.
What do grocery shoppers expect from the in-store experience post-COVID?
We’re returning to a time of shopper engagement. I don’t mean retail theatre, but things that add value to the consumer. That could be product selection, an emphasis on local or sustainability, or elements of value. I think there’s room for continued product innovation, particularly as supply chains return to a more consistent state. I also think consumers expect technology to be layered into their shopping experience as a way to improve the experience. And I’d say electronic shelf labels and self-checkout are both great examples of innovations and investments that provide returns for the retailer, but also provide value to consumers, when used properly.
Where does Canada’s grocery industry go from here?
There are substantial challenges, but there’s a long track record of resiliency and bringing value to consumers regardless of the channel and in all economic conditions. I think we’re going to see further innovation from the grocers to deliver an engaging consumer experience with greater efficiency than ever before. I remain highly confident in the outlook for the grocery industry.”
*This article is excerpted from Canadiangrocer.com website, published 6th December 2022