Food and beverage manufacturing is one of the most important
sectors in Canada and the rest of the world, both in terms of
economic value and jobs. Although appealing at first glance, the
sector has become highly competitive and it is becoming
increasingly difficult for retailers, distributors and processors
to carve out a space for themselves. Major players who achieved
strong growth did so primarily via acquisitions, which has
accentuated retail concentration and changed the balance of power;
the market is in flux and the competition has become anomalous.
This is the first instalment in a series of blogs focused on the
dynamics of the food and beverage sector and the balance of power
between the players, which will offer a better understanding of the
stakes for all parties involved. The goal of these blogs is to
ensure food and beverage manufacturers can adopt a clearer vision
of their sector to make more strategic decisions and ultimately,
achieve their business objectives.
Food retailer context and challenges
The retail market for food distribution has become strongly
concentrated in the hands of a few very large players. This same
phenomenon is being observed all over the world.
Canada has three main food retailers: Metro ($11 billion),
Sobeys ($17 billion) and Loblaws-Provigo ($32 billion). These
retailers are engaged in fierce competition, accentuated by the
arrival of retail giants such as Walmart, Costco and Target to the
food market, none of whom have traditionally featured food as their
# of stores
Canada, United States
In global rankings of the world's top 250 retailers, Loblaws
is in 32nd place, Sobeys is 53rd and Metro is 83rd. It is
interesting to note the rankings of two of these large retailers,
namely Sobeys and Metro, who serve but a single territory, i.e.
Canada, with a population of only 34 million, and of Loblaws, whose
operations extend to only two territories, namely Canada and the
United States. This clearly illustrates how the Canadian retail
food market is dominated by a small number of retailers.
The world's top 250 retailers
Competition also comes from, albeit to a much lesser extent,
specialized stores, convenience stores, pharmacies and dollar
stores. Taken together, these account for roughly 15-20% of the
market. As a group, the large retailers therefore control more than
80% of the total market.
The demand for food and beverage products depends in large part
on consumers' disposable income, the consumer confidence index,
interest rates and demographic growth. Yet over the past five
years, Canada's population has grown by only 4%. Income, on the
other hand, has seen an average annual growth rate of less than 2%
since 2007. In Quebec, even though the cost of groceries has
increased by 25% over the past 10 years, it has decreased in terms
of proportion of income spent on food, from 15.2% to 12.7%.
In a market exhibiting such weak growth, consolidation and
maturity, the battle amongst retailers is fierce.
As evidenced over the final months of 2013, Metro lost market
share, Sobeys asked its suppliers to freeze and even reduce their
prices by 1% for 2014 and Loblaws posted weak growth, which it
maintained primarily through sales of gas and other goods.
Stay tuned for my next blog on this topic, which will focus on
retailers' differentiation strategies.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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