What lies ahead?
A look at the trends that could shape the business of selling groceries in 2019 and beyond
The last few years in grocery retail have seen dramatic change and there’s every reason to believe the coming year will bring more of the same. What trends are gaining steam right now that could transform the business of selling groceries in 2019 and beyond? Here, we take a look at some big ones
Battle of the e-comm/delivery titans
“If there’s a list of trends shaping 2019, e-comm grocery and delivery has got to be at the top of the list,” says Robin Sherk, vice-president, Canadian market at Kantar Consulting. While a handful of Canadian grocers have been involved in grocery e-commerce for years—Longo’s with Grocery Gateway, for instance— the purchase of Whole Foods Market by Amazon in 2017 upped the ante, setting the ball rolling for more grocers entering the e-commerce and delivery space for the first time in 2018.
In the year ahead, competition is expected to intensify. In recent weeks we have seen Instacart slashing its membership and delivery fees to be more competitive with the likes of Amazon, and in December Uber posted a job opening for “head of grocery product” in Toronto. Industry watchers speculated on whether the company that disrupted foodservice delivery with Uber Eats is gearing up to make its mark on grocery delivery too?
“Now we’re realizing consumers want even greater flexibility,” says Sherk, noting, “it’s going to be the battle of the titans” when it comes to online grocery shopping in the coming year. “The differentiator will be what I call ‘the devil’s in the details,’ so the experience they provide,” she explains. “Execution is huge.” Details like whether the ice cream shows up melted or not are small but important things that can distinguish one retailer from another when it comes to delivery experience. “I think now is the time for disruption … it’s the time to disrupt people’s routines,” says Sherk.
A recent Dalhousie University survey asked consumers, “Have you purchased groceries online?” Just over 34% responded, “Not yet, but I’m thinking about it.” As more of these shoppers who are “thinking about it” decide to give online grocery shopping a try, Sherk believes 2019 is the time for grocers to get customers hooked on their particular online grocery service so it becomes a part of the customer’s routine.
High hopes for edibles
Canada grabbed headlines around the globe when it made recreational cannabis legal in October (only the second country in the world to do so, Uruguay got there first) and 2019 is expected to usher in the legalization of cannabis-containing edibles. How is this going to affect grocers? The specifics around regulation of edibles remain to be seen, but one thing is certain: grocers should all now be thinking about their strategies around cannabis and cannabis edibles.
“Will we see edibles in grocery stores in 2019? Highly unlikely, but I do think it’s going to happen eventually,” says Sylvain Charlebois, professor of food distribution and policy at Dalhousie University. A slew of companies are racing to develop cannabis edibles (and drinkables) from smaller brands like Neal Brothers Foods and Hill Street Beverage Company to larger players like Molson-Coors. Even Coca-Cola was said to be in talks with Aurora Cannabis on the potential of cannabis-infused beverages.
A recent Deloitte study found 51% of current and likely cannabis consumers were interested in trying cannabis-based baked goods, and Deloitte expects six out of 10 likely cannabis consumers will choose to consume edibles. Jennifer Lee, partner, consumer advisory & analytics and cannabis leader at Deloitte, says although there are many unknowns regarding how edibles will be sold, grocers still need to ask themselves some big questions. “They need to ask, do they want to be in this business?” she says. Grocers must decide if cannabis will be something their typical customer is looking for, and how selling it might affect their brand. “I think the question everybody needs to answer is: who is their customer? Does this fit within the category of customer? … And, most importantly, would this help us achieve our overall value proposition?” she says.
“I think cannabis is going to be one of those supertrends where people over-estimate the impact in the short term and underestimate the impact in the long term,” adds Kantar’s Sherk. A grocer can’t simply decide they’re not interested in the cannabis market and then ignore it, she says. They still need to think about the impact cannabis might have on their business whether they sell it or not. If consumers are using cannabis to relax and de-stress, for instance, “how are you helping them de-stress with your products and solutions?” Or if they’re using cannabis edibles to celebrate, it might present more competition for the beer and chips you’re selling in your store now. “So it’s about thinking through how is everyone using this, and then how do I either complement these products or compete against these products?” she says. “For that reason, I think this is something that matters to every single grocer and drugstore out there.”
A protein shake-up
Canada’s Food Price Report 2019, a collaboration between the University of Guelph and Dalhousie University, identifies “the protein wars” as one of the biggest trends to affect the food business in 2019. As more Canadians seek to reduce their meat consumption for personal health and environmental reasons, plant-based proteins are surging in popularity. In fact, new and innovative plant-based foods—from vegan jerky to meatless burgers to dairy-free cheeses—have been showing up with greater frequency throughout 2018, and are predicted to grow throughout 2019.
As the price report notes, in 2018 “many local butchers closed their doors due to lack of demand, and this trend is expected to continue in 2019.” Animal protein suppliers will need to respond to these shifts, the authors explain. Many are already on it; for example, in the past few years, Maple Leaf Foods has acquired two plant-based protein firms and has invested in a cricket protein business, and the firm now positions itself as a “sustainable protein company.” The price report also highlights the success of U.S.-based Beyond Meat—known for its meatless burger that looks and tastes like a beef burger and is now distributed to more than 25,000 restaurants worldwide (including A&W Canada)—as “a palpable example of this shake-up.”
Dalhousie’s Charlebois says many grocers are starting “to consider plant-based protein products to be the same thing as all the meat products we’ve been buying for decades,” often merchandising them alongside steaks and chickens, rather than giving them their own section.
Another survey from Dalhousie, released in October, revealed that 51% of respondents said they’re willing to reduce their meat consumption, with nearly 24% saying they’ll probably cut their meat consumption in the next six months and 8.5% saying they fully intend to reduce the amount of meat they eat during the period. Meanwhile, Mintel’s Meat Alternatives Canada 2018 report showed a burgeoning interest in protein alternatives: 31% of consumers surveyed for the report said they would be interested in trying pea protein, 26% were interested in trying spirulina, and 12% were interested in trying insect protein (such as crickets).
“As demand for protein in foods outside of meat and other animal-based products grows, the spectrum of proteins that consumers are interested in, or at least willing to eat, appears to be broadening, with many citing interest in emerging ‘buzz-worthy’ proteins ranging from insects to algae,” said Joel Gregoire, Mintel’s associate director of food & drink, in a release.
No longer simply the stuff of sci-fi books and films, artificial intelligence (A.I.) is very real and it’s continuing to transform retail both on the front lines and behind the scenes. While there’s no shortage of news about deep-pocketed retailers rolling out flashy applications in the form of in-store robots or “just walk out” technology (more on that later), for most grocers, the experts believe A.I. will have a big impact in more “invisible” ways.
“There are a lot of shiny bauble technologies,” says Gary Saarenvirta, founder and CEO of Daisy Intelligence, a Toronto firm that works with retailers in the A.I. space. And the business case for some of this expensive tech is uncertain, he says, adding that grocers with more “practical motivations” are going to use A.I. to focus on things like merchandising planning to allow them to be smarter around pricing and promotions. “That’s where we can augment the merchant’s expertise with some insights.”
Deloitte’s Lee agrees. “I think there’s a huge opportunity in the market, particularly in the merchant area, to use A.I. machine learning and external data sets more effectively in areas like forecasting and [in] areas such as basket analysis and customer journey,” she says, adding that while it’s great some organizations are starting to do this, it comes down to how much are they willing to invest and actually stay committed to A.I. “This is the key—to develop short-term wins, because the organization needs to see that this can happen while they build up a long-term strategy.”
One thing is for certain, A.I technology is advancing quickly and giants like Amazon and Walmart are investing heavily in it. TechCrunch recently reported that Walmart, in its latest move, is setting up an Intelligence Retail Lab to explore all the ways A.I. can be applied in its stores, from replenishing inventory to tracking the number of carts available for shoppers. Determining the best strategy for applying A.I. tech in their operations is something retailers will need to figure out quickly.
More cashier-less stores?
Amazon sent the grocery industry into a tizzy at the beginning of 2018 when it unveiled its first Amazon Go, an 1,800-sq.-ft. store in Seattle that has no cashiers or checkout lanes but a whole lot of expensive tech.
As we enter 2019, it’s clear Amazon is serious about the format and its “just walk out” technology. There are now seven Amazon Go locations and in September, Bloomberg reported the company may be considering opening as many as 3,000 Amazon Go stores by 2021. And in December, the Wall Street Journal reported that Amazon was testing its cashier-less tech in a larger-format store, begging some analysts to question how long before the technology makes an appearance at its Whole Foods Market locations. While no details on expansion plans have been confirmed by the behemoth, Amazon Go’s “just walk out” technology, and cashier-less stores in general (Amazon’s the biggest, but by no means is it the only player in this space) will continue to be a topic to watch through 2019.
Future-proofing with experiential retail
The continued rise of online shopping and click-and-collect services is changing how customers regard the grocery store visit, so grocers must now consider what each square foot of their store is doing to drive engagement and sales.
According to the recent BDO report Grocery Retail Trends in Canada 2018-19, experiential retail is identified as one tactic grocers can use to future-proof their business, transforming an otherwise humdrum shopping experience into something wholly unique.
The key, says BDO, is to extend the brand with the customer in mind and use technology to capture information that can be fed into CRM or data analytics programs to better determine future sales and assist in product development. Some supermarkets are taking the experiential concept to extraordinary lengths. In 2017, for example, the 150,000-sq.-ft. Nations Experience opened in Toronto’s Stock Yard Village.
Nations Experience is billed as a “foodtainment” experience, complete with a 4,000-sq.-ft. indoor playground and arcade, a 300-seat food court, and aisles stuffed with hard-to-find products that adhere to its “where East meets West” philosophy.
Italian market hall concept Eataly, which is reported to be opening its first Canadian location in Toronto’s trendy Yorkville neighbourhood next year, has achieved success with its “grocerant” concept and unique features such as a “vegetable butcher.” Sales per square foot for Eataly’s New York location have been pegged at US$1,700, an unheard of number for grocery retail.
But grocers don’t need to invest in a ball pit or arcade games to bolster the in-store experience—the BDO report suggests even smaller events such as tastings or cooking classes can directly impact sales. According to a report from EventTrack, 85% of consumers are more inclined to make a purchase after participating in an event.
The last straw for plastic?
Pressure is mounting on all of us to kick our plastic habit, particularly single-use versions of the ubiquitous material.
In October, the European Parliament voted to ban single-use plastics by 2021. The sweeping move was made to help curb ocean plastic pollution; about 150,000 tons of plastic each year gets dumped in European waters alone and this is just a fraction of the global problem, according to EU research. The ban targets common items such as plastic cutlery, plates, straws and drink stirrers.
One month later, the Canadian government announced it is pushing forward with a zero-plastic waste strategy with an action plan still to come.
Meanwhile, businesses and municipalities are implementing their own policies around single-use plastics. Over the past year, Vancouver has banned straws, Prince Edward Island has moved to ban single-use plastic bags and IKEA Canada and A&W have also taken a stand against single-use plastic. As more consumers get behind the cause, we can expect the issue will be a big one in 2019 and businesses will need to respond.
“I think this will become a massive issue and I do believe it’s an initiative retailers and suppliers should work together on,” said Walmart Canada CEO Lee Tappenden at Canadian Grocer’s recent Thought Leadership conference. “It’s a very important issue to address.”
This article appeared in Canadian Grocer’s December/January issue.