Retail Bogeyman Keeping Grocers up at Night

“Loblaw is playing defense against the boogeyman of retailing. But if they play their cards right with home food delivery, they will be able to deliver much more than food to Canadian homes.”

Loblaw is the latest grocer to commit to offering home delivery. Starting in December, the number one food retailer in Canada is looking at deploying this strategy from coast to coast. It intends to deliver food at home, for a fee of course --an ambitious plan indeed. After spending millions in making many of its stores cathedrals where food is adulated, like the Maple Leaf Gardens store in Toronto, serving up President’s Choice in people’s homes now seems to be good enough.

Basically, the socioeconomic fundamentals that have supported large, big-box stores are weakening rapidly. Real estate is not cheap, growing same-store-sales is difficult these days and finding good labour to cover large spaces is challenging. In fact, as higher minimum wages are adding more pressure, grocers need to think of ways to make their equity and human capital work more efficiently. What’s more, a good portion of the Canadian population will become less independent to some degree. By 2025, more than 8 million Canadians will be 65 or older. And if you add Canada’s unpredictable -- and sometimes horrid -- weather, these indicators point to one thing: the bricks-and-mortar model is becoming much less appealing for a growing number of Canadians.

Our modern lifestyle is also a factor. Quite simply, time-strapped consumers are looking for convenience. Those who can’t or don’t want to cook are also are looking for quick fixes, and that is exactly what the food retail industry is trying to offer. Grocers are increasingly attempting to chase down the money that is showing up at their doorsteps less and less often.

As a result, we are continuing to witness the slow death of the traditional grocery store. For one thing, an increasing portion of our budget is dedicated to eating outside the home. At almost 30% of all of money spent on food, Canadians are on track to breaking a new record this year. Secondly, most of us are online, shopping for anything and everything. And yes, food is part of that portfolio. About 5 years ago, barely 1% of our food purchases were made online. Today, some unofficial estimates suggest that number is now close to 4%. We are progressively catching up to the Americans, who are at 7%. And given Walmart’s recent results, online grocery shopping is expanding. Walmart’s online sales in the U.S. grew by almost 50% last quarter, a lot of which was food sales. Canada is seeing similar trends.

Even though grocers’ balance sheets in Canada are in fairly good shape, Amazon -- the boogeyman of retailing -- has become a legitimate threat since it took over Whole Foods this summer. Amazon is not just a business killer -- it destroys entire sectors. The bookstore was its first victim, and since its acquisition of Whole Foods, we can assume that the grocery store is in Amazon’s sights. It is all about digital transformation for Amazon. It is redefining how the food industry and consumers make transactions in a digitalized, borderless world.

Among scalable home delivery businesses, Grocery Gateway was really one of Canada’s pioneers. For years, this fleet owned by Longo Brothers delivered food products in the GTA, while barely making a profit. In fact, Longo’s acquired Grocery Gateway back in 2004 from a failed dot-com project, a victim of the bubble in that industry. For 13 years, the competition stood back and did nothing, for fear of cannibalizing a fellow market grocer. Several questioned the sustainability of operating a full fleet of trucks while at the same time charging a hefty premium of 15-20% on an order of 50$. But Grocery Gateway learned from this, and is now expanding. For Longo’s, it was about running a good business. For Loblaw, it is about fighting the Amazon effect, which is why we are about to see an evolution in home food delivery.

Leveraged by data, connecting food retailing with homes can be powerful. In some U.S. cities, Walmart is currently delivering food directly to the consumer’s fridge. Imagine coming home and everything is already done for you. But in 10 or 15 years from now, in a revolutionary digital world, there is no limit to what we can do with home food delivery.

As an example, we could even see companies owning the food we receive, and only pay for the food we use and consume. Food in concession, so to speak. Food waste? No problem. Leftovers can be credited, resold on our behalf, and used for something else. Zero waste. Similar gains can be achieved on the nutritional front. Consumers could be wearing a portable device automatically telling their fridge it is time to get replenished to satisfy a customizable diet. The “fitbitization” of our food could allow for companies to deliver to our fridges and cupboards the food we need to better our health. Home delivery makes grocers face up to a more informed consumer. All the data consumers need is readily available online, where they can also shop at their own pace. It makes consumers more rational, so impulse buying would be nearly impossible --a scary thought for many food companies out there. In return, grocers will need to embrace precision retailing practices in order to match higher expectations. All of this becomes more conceivable with home food delivery.

A blend between a digitalized food retailing industry and our homes can seem incredible, and this is only the beginning. Grocery Gateway was more of an experiment. Loblaw, and likely others, may be playing defense for its long-term survival, but the opportunities are endless.

The Amazon effect is real, and it is here to stay and is keeping most grocers up at night, including Loblaw. Well, at least, Loblaw had the foresight of acting now before it is too late.