The Retail Markets
Gary Fread discusses the impact of today’s complex retail market on food production in Canada
We’ve talked about innovation, productivity and sustainability and positioned them all as critical to being competitive in the market place. And then, according to the basics of strategic planning, we started to look at the market and what it needs/wants/demands, starting with consumers. Now let’s look at the distributor sector, our direct customers. We’d better be listening and responding to them too.
So how do our products find their way from our plants or our farms to the consumer? Well, there are the two obvious ways: food retailers and foodservice operations, supplemented by the wholesale distributor segment. So what are the needs of those sectors and what challenges do they face?
It’s a big market in Canada. Food sales are in the range of $130 billion to $150 billion per year depending on how you count it, with $40 billion to $60 billion of that in foodservice and more than $80 billion in retail grocery. But it’s not really that simple.
Structure and Complexity
Many decades ago I began my career as a manufacturer’s sales representative calling on the retail and wholesale grocery trade. Back then it was pretty simple. There were the grocery chains and independent grocers, some convenience stores, plus the independent wholesalers. In another division, the sales reps called on restaurants, both chains and independents, and institutional foodservice operators, plus the independent foodservice wholesalers.
Look at things today and you realize how much the market has changed. The “traditional” retail formats, for example the supermarket now includes grocery plus the fresh format, the grocery superstore, the warehouse format, and the limited-assortment format. We also now have warehouse club stores, supercentres with a lot of non-grocery items, dollar stores, and mass merchandisers focused largely on hard goods and other non-grocery items plus a grocery section. Drug store chains are also now into retail groceries. Plus there are still convenience stores and specialty grocers focused on such things as health foods or ethnic foods. Much of the wholesale market has become an integrated part of the chains, but there are still independent wholesalers.
And then there’s the foodservice sector. Although now a much higher percentage of the total food market than years ago, the foodservice sector has become much more complex with full-service restaurants broken into fine dining, casual and family categories; limited-service including quick-service, cafeterias, food courts, and take-out and delivery; contract and social caterers covering airlines, institutional, recreational and special events; and finally drinking establishments such as bars, taverns, pubs and night clubs. All of these different segments were there in some form years ago, but not as distinctly categorized as that. In addition, there’s the same issue about wholesaling as above.
Not too straightforward, eh? It’s now tougher for the food processing and production industry to service the customer market. Different segments have different needs, both from the standpoint of product type and format, as well as differing approaches to inventory and transportation needs to service the different formats.
All of this diversity leads to complexity in your operations, and often leads to making choices about which of these many segments you can serve and still be profitable.
Food Safety Standards
Beyond the diversity of the market we must serve, there are also many issues impacting those customers that cause “back pressure” on processors and producers.
For example, food retailers and foodservice operators are faced with the same food safety challenges as we are. It would seem like that’s a fairly straightforward issue, but it hasn’t been. The evolution of HACCP-based food safety has helped, but some retailers want suppliers certified to one food safety standard, while another wants certification to a different standard. And we all know that certification is costly.
That issue is being addressed with the emergence of the Global Food Safety Initiative (GFSI). GFSI has been able to establish that there is equivalency among many of the standards such as SQF, BRC, ISO 22000, IFS, etc. So if you’re certified to one, that’s probably good enough for your customers. But what about the rest of the supply chain? Transportation companies and warehouses now have HACCP programs. On-farm HACCP is emerging and becoming somewhat global in scope through the GFSI approach. And of course, the retailers/foodservice operators have had to develop their own HACCP approaches to in-store food safety.
So there may be hope. But is it traceable from farm to fork? Tough, but some progress is being made. Consumers are very sensitive to the food safety issue, and recalls can be catastrophic for a company, so we must find ways to address this.
With the emergence of more specialty food interests, the consumer market has become more diversified as well. There are now segments of consumers looking for healthier products – not health foods, but normal everyday foods in healthier formulations. There are consumers who want upscale and artisanal products. There’s the emergence of the ethical consumer concerned about the environment and the effect of the food production industry on it. There’s also the socially responsible consumer concerned about corporate ethics regarding treatment of workers, treatment of animals grown for food, governance issues, and so on. Add to this the organic and locavore shoppers, groups I call the label readers – just stand in the store and watch them shop. And there’s the ethnic foods segment, growing through Canada’s increasing ethnic diversity and the globalization of food tastes generally.
The widening of consumer demands leads to more niche/specialty markets within retail and foodservice sectors, with new formats emerging regularly. Retailers, as well as the rest of the supply chain, have to deal with all of this. So, which markets are you going to serve?
A More Complex Market
Complexity is natural and, in many ways, good for the market, but it leads to costs which either push up prices or reduce margins, making competitiveness tougher.
Making it even more difficult is increasing globalizing of markets; more retailers and foodservice chains being bought by foreign companies; and the decision to stay domestic or go after export markets. We need the equivalent of a GPS to navigate through it all – and we wonder why we always feel so stressed.
The bottom line is that the food industry continues to grow more complex, creating both opportunities and challenges. Strategic decision making is the key to determining what to focus on. What are the forces in the market that we must consider to make those decisions? And what are the implications for our processes related to innovation, productivity and sustainability? Next time, we’ll dig a little deeper into the strategic implications for the sector.
Gary Fread is president of Fread & Associates Ltd., consultants to the food industry. He has spent 25 years in management positions in the food processing industry, with a background in sales, logistics, purchasing and technical areas. He has worked with Procter & Gamble, Campbell Soup and Morrison Lamothe, and is the past president and CEO of the Guelph Food Technology Centre. He is active in many food industry associations and organizations, serving on the boards of several. Contact him at firstname.lastname@example.org