The downside of grocery wars

Short-term benefits for consumers may have long-standing negative effects

GUELPH, ON, Apr 13, 2014/ Troy Media/ – As consumers, we’re always on the lookout for bargains. It’s our nature, and we have been spoiled of late while shopping in grocery stores.

Ever since Target entered the Canadian market more than a year ago, the food distribution landscape has significantly changed in our country. Walmart is deploying a much more aggressive strategy with its Super Centres, Loblaw’s purchase of Shoppers was recently approved by the competition bureau, and Sobeys grabbed Western-based Safeway. And there is reason to believe more consolidation is on the horizon.

These recent schemes and mergers have subsequently triggered a price war in food retailing, particularly in large Canadian urban centres. Welcome news, obviously, for consumers with fewer means. But short-term benefits for consumers may have long-standing negative effects.

It is not surprising that many consumers view food price wars positively. They save many of us money on items we absolutely need to buy for our survival. Who can blame the average consumer? But since we are expecting lower prices, it has put a momentous amount of pressure on food supply chains.

Food processors are being asked by food giants like Sobeys, Loblaw and Metro to retroactively change price lists. Food distributors are essentially bullying suppliers up the food chain to increase their razor-thin profit margins. This is happening because they are running out of options.

Most of us are oblivious to the tension that has been created in the food industry as a result of these depressed food prices. Over the last few years, food inflation has been barely over 1 per cent, and it is the food industry which has suffered the fallouts – until now.

Should grocery wars continue, value-add choices may decrease for consumers. In this tense environment, innovation does not get the attention it deserves in processing since the business case for any new products gets weaker as grocery wars influence price points at retail. The legacy of a prolonged price war may result in the disappearance of a wide selection of counter-ready food products, less service, more private labels, and less choice and variety overall. Lower margins for food distributors and retailers may simply mean that the customized experience we have enjoyed with an in-store baker or a butcher may be compromised.

Local sourcing of products may also be a less attractive proposition with lower food inflation. More and more, consumers are looking for locally-grown food products. At least, that was the case for a while. From 2008 to 2012, when food prices increased significantly, demand for “terroir” (country of origin) products and farmers markets skyrocketed. Consumers were encouraged to rethink their investment strategy in nutrition and opted for different choices. Nutritionally speaking, grocery wars are regrettably bringing us back to the Stone Age, to a time when the quest for the cheapest calories was king. This is a real slump in our national trajectory, seeing as Canadians already have access to one of the most affordable food basket in the world.

We may expect price hikes for certain items in food stores over the next coming months, so things may change soon. Tight supplies for livestock-related products like beef and pork may result in higher prices for some products this spring. This could create an opening for retailers to slightly increase prices for some categories this year. But, essentially, it is really up to food industry leaders to think strategically about how to grow the industry.

In recent years, health-focused crusades like gluten-free, low-sodium and low-fat products have been pillars of growth strategies. These products have been pushed onto store shelves for the purpose of enticing consumers to buy into these fads at a premium. But such food fads only represent a temporary boost in the well-being of our complex, and currently, compromised food system.

Given an unfavorable macroeconomic environment, consumers are looking for affordable products out of necessity – a predicament that is not in sync with the industry’s strategy. Ultimately, as a society, we are stuck with the inconvenient truth that extended grocery wars come at the cost: to us.

The appreciation of valuing and celebrating food cannot be overstated. The delicate balance between domestic food security for all consumers and a vigorous food industry is based on a renewed focus on nutrition and food innovation. And the path getting there will not unfold without some major shifts.

Dr. Sylvain Charlebois is Associate Dean at the College of Business and Economics at the University of Guelph in Ontario.

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