Low food prices and competition from discount American chains is putting Canada’s food retailers under pressure, says a University of Guelph food chain expert.
“In food prices, we really are seeing almost no increases and in some cases, food price deflation,” said Sylvain Charlebois, associate dean and professor of food distribution and policy.
“I think we may well see more casualties, perhaps takeovers, in the food retail business this year.”
Last year, Canada’s second-largest food retailer, Sobeys, gobbled up the fourth-largest retailer, Safeway, while Loblaw, the country’s largest food retailer, bought Shoppers Drug Mart to expand its consumer reach.
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Consumer choices diminish.
Charlebois said much of the competition comes from the introduction of retail powerhouses Costco, Walmart and Target into the Canadian market.
“Of course, it is the competition, and these are low margin companies, so it really has affected profitability,” he said.
“Several staple products this past year have become loss leaders for food vendors, and that is usually a bad sign for industry.”
He said grocery stores have been discounting mainstream products, including dairy, pasta, coffee and spices, and food prices are expected to increase of only .5 percent this year.
That is good for consumers, but Charlebois said it makes the food retail sector less profitable and leads to pressure for consolidation and reduced choice.
“To reflect the true cost of distribution, food inflation’s sweet spot would be anywhere between 1.5 percent and 2.5 percent right now,” he wrote in a commentary about the high cost of low prices in food.
“Such a threshold would flush the industry with more resources to innovate while building a case for consumers that food is not inconsequential.”
Still, food prices are already not “inconsequential” for many consumers on low-income budgets.
