Sylvain Charlebois is dean of the faculty of management and professor in food distribution and policy, Dalhousie University.
A lot of attention in the latest consumer price index report was given to falling meat prices. To the delight of barbecue fans, beef, pork and chicken prices have actually dropped for the first time in six years.
Yet meat prices aren't the only food prices dropping. According to Statistics Canada, food prices declined in June across the board, in dramatic fashion. In fact, food inflation is now below our general inflation rate for the first time in almost two years.
Food price decreases are not influenced by one category in particular. One could argue that food distributors are winning their fight against vendors to lower prices for consumers. But beneath the numbers published by Statistics Canada lies a very different – and perhaps troubling – story for Canada's food-retailing establishment.
Aside from Newfoundland and Labrador, most provinces across the country have been experiencing food price declines. Even the territories saw decreases in many food categories. June prices fell the most not in Alberta, but in Quebec and British Columbia. For both those provinces, food prices dropped by more than 0.5 per cent in just a month. Both provinces were considered the realms of high-valued food products catering to more sophisticated consumers. But market data suggest that things may be changing. Ontario has always been considered the most competitive market in the country. In recent months, the price growth in industry square footage has plateaued. The main metric has become same-store-sales and margins.
Guess who's performing well these days? Wal-Mart. Their store sales are up 6.7 per cent from last year and have made significant inroads in many parts of the country, but mostly in Quebec and B.C. Indeed, eight of the 13 stores Wal-Mart bought from Target last year were in Quebec and B.C.
Overall sales are up more than 8 per cent at Wal-Mart Canada and customers are spending 2.1 per cent more per visit. The average Wal-Mart consumer is also visiting the store more frequently, which is another powerful indicator that food is making a difference. The numbers are confirming the impact of Wal-Mart Canada's strategy. While food prices are contracting, menu prices in restaurants continue to increase at 2.6 per cent over last year. This supports the theory that the food-retailing landscape is becoming more competitive.
Wal-Mart wants to become the No. 1 food retailer in Canada, as it is in the United States. Looking at the company's status in the Canadian food stratosphere, it's difficult to bet against the Arkansas-based giant. Its low-cost operating model is a significant advantage and its focus on food prices can no longer be ignored. Wal-Mart Canada now has food labs that allow it to develop and test new products. The company is fully committed to food, offering more fresh products and better merchandise. It went from a mediocre food retailer, at best, to a decent one where you feel like you are in a real food store. The process of legitimizing itself as a food retailer in Canada is almost complete.
Mind you, it's not just Wal-Mart. Costco is almost at 10-per-cent market share in Canadian food retailing, which is an impressive increase from a few years ago. What needs to be underscored is how both companies are capitalizing on our two-tiered food system.
While the haves – the foodies, the organic lovers and the fans of local products – advocate for more changes, the have-nots survive. The have-nots are not necessarily poor – they are the forgotten food consumers. They may have lost their jobs, or have recently run into some financial difficulties, or are trying to raise children while going through a separation. They may be working two or three jobs at once. What Wal-Mart and Costco are doing resonates with them. No matter how we feel about these companies, they are capitalizing on market demographics.
So yes, Loblaw, Sobeys and Metro are all putting more pressure on vendors to reduce prices these days. But if you think these measures are meant solely to protect consumers against higher food prices, you're kidding yourself. For these retailers, the pressure is on to protect themselves from Wal-Mart.