Nearly 4 years into a pandemic-induced hangover, the Canadian grocery industry continues to undergo enormous shake-ups, evolution, and corrections. Since 2020, the food sector has experienced a history of negative unit growth due to food inflationary wars. Taking the 3% increase in Canada’s population in 2023 into consideration, the Canadian grocery sector achieved a -1% volume decline this past year.[1] A study conducted by the Canadian Hub for Applied and Social Research out of the University  of Saskatchewan revealed, that nearly 20% of respondents reported skipping meals or reducing meal sizes to save money,[2] This is supported by the average weekly spend per Canadian household on typical FMCG products (Fast-Moving Consumer Goods) for 2023 as outlined in Chart 1, a modest 1.65% increase in weekly spending.[3]

Chart 1

Canadians Average Weekly Spend on FMCG Products

These strong headwinds continue to plague the Canadian grocery sector moving forward:

1. 69% of categories experienced a unit buy decrease in 2024 Q1 vs, YAGO.
2. 51% of categories experienced a dollar buy decrease in 2024 Q1 vs. YAGO.[4]

So what is to be made of this phenomenon, and what is the ideal path forward considering:

1. In 2023, 49.2% of all dollar sales were sold on promotion, a +11% increase vs. YAGO. [5]

This topic was discussed at the IFT First, the annual Food Science and Innovation Expo held July’2024 in Chicago. As noted by Sally Lyons Wyatt, Global Executive Vice President and Chief Advisor, Consumer Goods and Foodservice Insights, Circana.

“Promotions have not seen the same kind of lifts in the last 18 months,” Lyons Wyatt continued.

“They don’t feel like a deal because you’re starting at that 30% or more higher prices. There’s got to be a recalibration in the consumers’ mindset”.”[6]

The panelists agreed on 2 strategies as a way to get consumers excited and help boost sales:

1. Innovation, and 2. Premium Products.

INNOVATION

“Innovation is the process of bringing about new ideas, methods, products, services or solutions that have a significant positive impact and value”. It involves transforming creative concepts into tangible outcomes that improve efficiency, and effectiveness, or address unmet needs”.[7] In recent years most CPG brands have offered line extensions as innovation. I do not feel line extensions fit the definition of innovation. As noted by Diana Frost – Kraft Heinz CMO, When asked what sparked this interest in innovation and disruption: “The need for growth. This stems from truly understanding where consumers are going. We need to get out in front of those potential trends rather than waiting for them to happen”.[8]

What Impact Does Innovation Have on Sales Growth?

Innovation remains an important driver of incremental growth. Brands who innovated

outpaced the sales growth of those who did not by a ratio of 1.8x.[9] 52% of innovations grew sales in Y2 vs. Y1.[10]

What are 3 Different Styles of Innovation?

There is no one-size-fits-all approach to innovation. As part of his presentation titled: Value vs. Volume: Changing the Conversation, Carman Allison, VP Thought Leadership, North America, Nielsen IQ, identified 3 different styles of innovation:

1. Create Buzz with Rotating Ltd Offer:

Limited-time offers create urgency and drive engagement. These product offerings are not permanent. Kraft executed this strategy to perfection with the launch of their purple ketchup.

2. Grow the Brand:

Cheetos is an extremely popular line of cheezie snacks. Pepsi took the brand to a new level with the introduction of Cheetos Mac’ N Cheese.

3. Disrupt a Category

 Cat litter has been a category staple. There was traditional cat litter, then came clumping cat litter. Pretty Litter was introduced that helps track the cat’s urine which may be an indicator of common health problems.

PREMIUM PRODUCT

What is a Premium Product?

Premium products are typically priced higher. The extra value associated with luxury products is attached to the overall brand image itself.

What is the Justification for Premium Food Products?

As noted by Jeff Grogg, Founder and Managing Director, JPG Resources at the IFT First, the annual Food Science and Innovation Expo:[11]

“Food is an affordable luxury compared to other things”. “I can’t buy the house I want to buy. I can’t buy the car I want to buy, but I can invest that extra 20 bucks and have a better experience … I’m going to go out less, but I want it to be better. You need to deliver on the premium. You can’t just price it there, you need to deliver there.”

An Example of a Premium Food Brand

As part of their private label offering, Loblaws introduced a premium line of foods, President’s Choice Black Label. Their offering offered a more distinguished selection             to traditional supermarket aisles, and at sharper prices than what most gourmet shops charge. Their offering was designed to migrate people up the food chain to pay a little bit more.

Innovation Key to Success

Getting the word out through education is one of the biggest challenges brands face when launching a new product. The top three keys to success:

1. Generate excitement.
2. Generate a buzz.
3. Educate and embrace the consumer with what they’re trying to do.

I leave you with this quote from Steve Jobs: Co-Founder of Apple Inc.

“The Secret to Innovation comes from Saying No to 1,000 things”.

In other words, he was as proud of what Apple chose not to do as he was of what Apple did.

 

References:

[1] Value vs. Volume, Changing the Conversation, Carman Allison, Grocery Business, March-April 2024.

[2] Survey Shows Nearly 20% of Canadians Skipping Meals to Cope with Food Costs, www.atlantic.ctvnews.ca

[3] New Canadian & Multicultural Insights, Numerator, 2024

[4] New Canadian & Multicultural Insights, Numerator, 2024

[5] Value vs. Volume – Changing the Conversation, Grocery Business, January / February 2024

[6] Cracking the Code to Reignite Consumer Spending, www.foodbusinessnews.net, July 2024

[7] What is Innovation, www.ideascale.com, July 2023

[8] Why Kraft Heinz Made Diana Frost its Head Disruptor, www.stretegyonline.ca, March 2022

[9] Value vs. Volume, Changing the Conversation, Grocery Business, January / Febri

[10] Value vs. Volume, Changing the Conversation, Carman Allison, November 2023

[11] Cracking the Code to Reignite Consumer Spending, www.foodbusinessnews.net, July 2024