Loblaw is the latest grocer to commit to offering home delivery. Starting in December, the No. 1 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 of dollars making many of its stores into cathedrals of food, such as Maple Leaf Gardens, serving up President's Choice in people's homes now seems to be good enough.
But, basically, Loblaw is just the latest grocer to realize that the socioeconomic fundamentals that have supported large big-box stores are weakening rapidly.
Real estate is not cheap, increasing same store sales is difficult 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 eight 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. Grocers are attempting to chase down the money that is showing up less frequently at their doorsteps.
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. According to a coming annual report by Dalhousie University and the University of Guelph, Canadian families spend almost 30 per cent of their food budget outside the home, which would be a new record. Secondly, most of us are already online, shopping for anything and everything.
And yes, food is part of that portfolio. About five years ago, barely 1 per cent of our food purchases were made online. Today, some unofficial estimates suggest that number is now close to 4 per cent. We are progressively catching up to the Americans, who are at seven per cent. And given Wal-Mart's recent results, online grocery shopping is expanding. Wal-Mart's online sales in the United States grew by almost 50 per cent 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 last 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 per cent to 20 per cent 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, Wal-mart is currently delivering food and placing it directly in the consumer's fridge. Imagine coming home and everything is already done for you. This is just part of a digital revolution in home food delivery that we can expect in the next 10 to 15 years.
As an example, we could even see companies owning the food we receive, and we might only pay for the food we use and consume: 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 defence 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.
Sylvain Charlebois is professor in food distribution and policy and dean of the Faculty of Management, Dalhousie University