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Here’s how COVID-19 will reshape the grocery business

From a rise in e-commerce to increased salaries for front-line employees, the effects will be both wide-ranging and long-lasting, experts say

Shutterstock/eldar nurkovicShutterstock/eldar nurkovic

The COVID-19 crisis has the potential to fundamentally reshape nearly every aspect of the grocery business once the immediate crisis is over, resulting in everything from higher salaries for front-line workers (leading to increased automation), to a rise in e-commerce, increased demand for discount banners and even reduced product assortment.

The current situation is unprecedented in modern retail history, says Bruce Winder, co-founder and partner of Toronto-based consultancy Retail Advisors. “It’s a combination of the Great Depression, mixed with the flu of 1918, mixed with a world war,” says Winder. “You don’t shake these things off in a year or two; they take generations.”

The good news is that while Canada’s $97 billion grocery industry will likely be transformed by the crisis, it will be among the handful of sectors to escape relatively unscathed. “People are still going to need groceries and health and beauty aids,” says Toronto retail analyst Ed Strapagiel. He says short-term product shortages—one of the only real negatives to arise out of the crisis—will be resolved in a matter of weeks, depending on the item.

READ: Grocers respond to food shortage fears amid COVID-19 outbreak

Amar Singh, Toronto-based principal analyst with the global consultancy Kantar, says Asian markets such as China provide a possible roadmap for what might happen with North American grocery retail in the immediate future. Those markets have largely emerged from the worst of the crisis, he says, with the most visible manifestation being increased adoption of online grocery.

Singh says Canadians—particularly the elderly and other at-risk citizens—have become increasingly comfortable with e-grocery during the stay-at-home period, a trend that will continue once the crisis is over. Its adoption will be further driven by lingering fears around germs and overall health that will lead to reduced traffic at brick-and-mortar locations. “It’s going to become the norm, just as it became the norm in China,” he says.

The grocery industry has already implemented several measures in response to the current health crisis, from creating dedicated shopping hours for seniors, to reducing the number of customers allowed in the store at any one time.

Many of these measures will carry over, says Singh, combined with increased store sanitation and additional employee resources around issues such as their physical and mental health. “You’re going to see some labour unions pushing for those benefits,” he says.

Among the most high-profile measures implemented by grocers during the crisis is the institution of “danger pay”—often in the form of a $2 per hour pay increase— for front-line employees. This will likely be instituted on a permanent basis, Winder predicts. “When you give someone something, it’s very difficult to take it away,” says Winder.

“Society has realized over the past several weeks that we kind of have our hierarchy upside down. A lot of people that were at the bottom before, like grocery workers, nurses and truck drivers, have suddenly become the most important people. I think that grocers are going to have to keep paying them a wage or face a wicked backlash.”

Ontario’s grocery retailers issued dire warnings in 2017, when the then Liberal government implemented a minimum wage increase. At the time, Loblaw said it would be forced to seek out ways of cutting costs with the $170 million per year in additional expenses.

READ: Loblaw lays off 500 office workers in cost cutting efforts

But while the pay raise will likely impact profits in the short-term, it will ultimately lead grocers to reduce the number of overall employees and more aggressively pursue cost-saving initiatives such as self-checkout, which Winder says is “cleaner, easier and safer to use right.”

READ: Minimum wage increases could speed up automation, not relocation

Winder also expects grocers and food companies to cut down on their product assortment in an effort to shave costs. “Instead of having 20 different types of tomato sauce, manufacturers and retailers might sell their top five or 10,” he says.

Finally, Winder predicts stores will continue to limit the number of customers permitted to enter their store at any one time and will retain way-finding methods instructing them how to move through the aisles in order to minimize customer interaction. They will also likely keep items such as floor decals that show how far customers should be apart while waiting in line.

Customers will be inclined to follow such advice for the foreseeable future, says Winder. “[COVID-19] is going to spook people for a few years, if not a decade or two.”

 

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