A runaway train, or a leisurely ride into profitability?
By Jana Manolakos
Fuelled by the pandemic, e-commerce has exploded onto the Canadian food industry. Social distancing, stay-at-home protocols and restaurant closures drove consumers to shop for their food online, and triggered unprecedented growth in virtual grocery stores and unique direct-to-consumer strategies – from boxed meals like Hello Fresh and Pepsi’s bundled pantry and snack shops, to home delivered groceries and artisanal foods. The phenomenon shows no sign of stopping, carving out a starring role for e-commerce in Canada’s food landscape.
A lead authority in the Canadian food industry and senior director of Dalhousie’s Agri-Food Analytics Lab, Dr. Sylvain Charlebois says that even this far into the pandemic, the food industry is struggling to predict what people will want, how they will live, where they will eat and what they will eat. “We still don’t know what the market will actually look like, which is both scary and exciting at the same time,” he explains. “There’s a great deal of speculation how the industry will emerge at the other end of the pandemic.”
Among the churning, however, major players are betting on e-commerce. According to a report released by Charlebois’ lab last year, an estimated $12 billion will be invested by Canada’s food industry players into online interface services for the next five years – much of it triggered by the coronavirus pandemic.
Continued growth is a sure thing if you consider how shopping behaviours have changed. According to the 2021 Canada’s Food Price Report, one-quarter of Canadian shoppers are currently, or are strongly considering, ordering groceries online for delivery. Of these shoppers, 86 percent would like their groceries delivered directly to their homes. Charlebois, who led the project, estimates that over the last six months, 4.2 million more Canadians are ordering food online at least once a week than before the pandemic.
So what foods do Canadians buy online, and why do they buy them? A survey of 7,000 Canadians, conducted by the Agra-Food Analytics Lab, found that fast food was the most popular online purchase (33.1 percent), followed by fruits and vegetables (22.0 percent), dairy products (21.5 percent) and baked goods (20.6 percent). A smaller number (8.7 percent) purchased alcoholic beverages online in the last six months. While it came as no surprise that convenience was a major factor in online purchases, concerns over COVID-19 and mandatory self-isolation also led to more Canadians ordering online.
Lacking faith in Canada’s food supply chain
During the pandemic, what took Charlebois aback was how people lost trust in the food supply chain. “A great number of people were concerned about food access, with reports of shortages. That, to me, was just surprising,” he says, “because I’ve always believed that Canada was well-resourced. The food industry is quite resilient and able to serve the market well. I was not ready to see the number of Canadians doubting our industry’s capacity to deliver.”
What stands out for Charlebois is that until the pandemic, Canadians were not concerned so much over where and how their food arrived on store shelves – they were more concerned over whether it was safe to eat. “Before the pandemic, a lot of people were wondering how food supply chains can become more transparent, but with COVID, I think it got people to try to better understand how food supply chains actually work,” he explains.
Our relationship with food has changed
Along with working from home, more people are spending time in the kitchen. “As soon as you do that, your relationship with food completely changes,” Charlebois notes.
Last summer, a study released by the University of Guelph looked at the impact of COVID-19 on health behaviour, stress, financial and food security among middle- to high-income Canadian families with young children. It found that 60 percent of Canadians reported making more meals from scratch, 70 percent spent more time cooking, 55 percent ate more meals with children and 50 percent involved their children in meal preparation more often. Participants also reported changes in eating behaviours like eating more food overall, eating more snack food and eating less fast food or takeout.
There also has been considerable growth in the consumer market for fresh delivered meal kits in 2021, such as HelloFresh, Chef’s Plate and GoodFood. Along with lockdowns, this has been a hard hit on the restaurant industry, explains Charlebois. “There’s been a huge shift away from the food service industry, with restaurants suffering the greatest hit from the pandemic. Before the pandemic, 35 percent of our money for food was spent on food consumed outside the home. It went down to nine percent at the beginning of the pandemic. Now we’re up to about 24 percent. That represents billions and billions of dollars not spent in restaurants.” To survive, some restaurants chose to partner with online delivery apps, like Uber Eats, Door Dash and SkipTheDishes.
Will restaurants bounce back after the pandemic? Charlebois believes it will take some time. “I don’t think it’s going to happen over the next couple of years. It’s going to take a while.”
Smaller grocers are determined not to be left behind
According to Mark Juhasz, research associate at Dalhousie’s Agri-Food Analytics Lab (also the author of the article on p.14), efforts to adapt to the new realities have significantly reshaped e-commerce. Businesses hoping to succeed in the sector will need to understand shoppers’ wants and overcome some challenges to meet their expectations. “Labour markets, products and consumer sentiments have changed how people are eating, and this requires important attention across the supply chain,” he says.
Juhasz points to Amazon, which responded to a surge in online purchases by allowing consumers to reserve a “virtual” spot in line during demand spikes when production runs low. He adds, “Pepsi launched direct-to-consumer platforms in 2020 to allow purchase bundling.”
But not all e-commerce newcomers have the infrastructure in place to deliver a world-class customer experience. It isn’t easy for smaller grocers who need to invest in new infrastructure, such as websites, inventory management, staffing and delivery capacity, to fulfil online orders. There’s also the spectre of ongoing consolidations in the Canadian grocery retail landscape, explains Juhasz. In March, Canada’s second-largest grocery retailer, Empire, announced its purchase of a majority share in Longo’s and its Grocery Gateway e-commerce business. Empire operates Sobeys, Safeway, IGA, Foodland, Farm Boy, FreshCo, Thrifty Foods and Voilà.
Around the same time, Empire announced it was working with Food, Health and Consumer Products of Canada on a proposed grocery code of practice designed to address unfairness in the market.
Juhasz notes that while large grocer consolidations can lead to improved customer experiences, at the same time, “there’s an upward pressure on costs for smaller grocers. The bigger companies can invest in advanced technology, but it puts pressure on smaller food companies to find digital platforms to help them keep up with these changes.”
An answer, he says, lies in banding together. For example, 2020 saw the creation of Best of Calgary Foods, a new owner-operated collaboration between 24 of the city’s chefs and food artisans. “Initially, members of the group tried to go it alone,” Juhasz explains, “with the associated third-party logistics and delivery costs, but they then combined forces under one banner, and now deliver bundles of products to customers.
“What is interesting about this is that they don’t necessarily have the volume or ability to list in large grocery chains. They found that selling to buyers as individuals was cost prohibitive. So, they combined forces and now have a suite of options consumers can buy if they want to buy from local artisans and producers. It’s a solution for smaller companies and allows them to deliver to people in the Calgary area using a direct-to-consumer business model, which is more feasible for these smaller companies. By teaming up, they have better economies of scale.”
Digitizing the Saturday morning farmers’ market
E-commerce also works for farmers who are looking to sell directly to consumers. The pandemic led to a surge in direct field-to-consumer online sales of boxed meats and produce, with some farms reporting up to 400 percent increases in sales. User-friendly e-commerce platforms like Local Line are making it easier to set up digital farmers’ markets.
But in the virtual world, the vibrancy and ambience of a bustling Saturday morning market is lost – presenting a hurdle for e-commerce, explains Juhasz. Researchers at the Agri-Food Analytics Lab found that when shopping online for groceries, Canadian consumers felt uncomfortable about purchasing food without seeing it first and had concerns over food quality. “Not being able to see their food before they buy it online means savvy grocers will need to improve their website presentations with detailed product descriptions and superior photographs.
“All of these brands across the sector need to be thinking about the e-commerce platform and how they represent themselves to consumers, whether it’s direct-to-consumer or online – more so now, as the pandemic has really accelerated the need.”
Timing of food delivery also was a concern that led retailers to rethink how they can get their products out quicker, notes Juhasz.
Rising food prices and the low-income consumer
With food prices expected to rise by five percent, well ahead of Canada’s inflation rate, Charlebois says, “Engaging in e-commerce will also put some pressure on food prices. Food affordability is going to be an issue.” For 43 percent of Canadians, price isn’t so critical, according to Canada’s Food Price Report. They’re able to pay extra for online food retail services, delivery services, meal kits and the fees many of them charge. The report cites apps like Instacart, an online grocery delivery service, which includes delivery fees, service fees and tip options. As grocers increasingly invest in e-commerce platforms, consumers also can expect to see fewer food bargains and discounting.
Juhasz explains that’s going to be hard for lower income earners, among whom “there is a sensitivity to the cost of service and delivery fees.” Research from the Agri-Food Analytics Lab found that delivery and service fees are a big barrier for many Canadians when using online services, with almost half not willing to pay any fee. Another consideration is those consumers who do not have online banking access or credit cards.
The e-commerce boom
Even before the pandemic, grocers were responding to consumer demand for convenience by launching online delivery services like Longo’s Grocery Gateway, which was Canada’s first in 2004. And while there was some interest in the Longo’s strategy, the real wakeup call for the industry came in 2017, according to Charlebois, when Amazon bought Whole Foods. But even after this, “most grocers really didn’t want to embrace e-commerce until COVID happened. COVID created a market that really needed e-commerce, and so grocers needed to adapt.”
The shift from food service to food retail also impacted food distributors. For example, surplus food initially intended for restaurants was redirected to retailers; foods were repackaged for food retail rather than food service; and there was reduced bulk demand.
“Right now, Sobeys is ahead of the curve with Voilà, and Walmart is trying to find its e-commerce footing. Walmart is deploying a very aggressive strategy along with Costco as well,” says Charlebois.
So how will e-commerce in the food industry change in the next decade? “It’s going to grow,” Charlebois predicts. “We don’t know to what extent, but it is going to grow because there are two things going on. There’s tremendous investment in e-commerce, for one. And secondly, I think that grocers are starting to better understand, or better appreciate, how to make money with e-commerce.”
With the data that’s out there, and the investments made by industry, Charlebois believes that even after the pandemic subsides, Canadians will continue to appreciate the convenience of shopping for their food online. Most likely, we can consider this a permanent part of the new normal.