How inflation is influencing Toronto retailers and consumers

Inflation is the biggest worry for Toronto consumers, says Mike Mauti, managing partner for Execulytics, a consulting firm based in the Toronto region.

Though overall consumer inflation in Toronto was running about 6.3% in December, food inflation was still high at 11% year-over-year, Mauti said.

Beyond general food inflation, retail inflation for fresh vegetables was even higher, he said. 

“We are going to continue to see growth in staple categories as consumers continue to try and make their food dollar stretch,” Mauti said. There could be a renewed focus on value categories such as bananas and potatoes, he said. 

In addition, Mauti said he has looked at some data that seems to show that the space allocated to romaine lettuce is down while other leafy green alternatives have been given more space. A combination of weather and disease factors drove the fob for California romaine to as high as $100 or more per carton in December.

For example, consumers seem to be buying more arugula and iceberg lettuce, while romaine has lagged a little, he said. 

“There are a lot of leafy greens coming from greenhouses in Canada, so that's starting to take over a little bit of shelf space as well,” he said.

Another retail trend Mauti has seen is that some of the more exotic produce categories (including Asian vegetables and Italian vegetables), which grew in popularity during the pandemic when restaurants were shut down, have come back down to normal levels in recent months.

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Retailers are pricing fresh produce on ads at levels that have not been seen in the past, he said. But those levels are still lower than what they could be, considering fob levels, Mauti said.

“It is almost like it's a defensive strategy to protect these items that otherwise would have been priced out of the market,” he said. “I'm seeing things like cauliflower advertised for $4.99 or iceberg lettuce advertised for $3.99. These are prices that have never really been seen before; and the alternative, of course, would be a higher price for those products, which I think might be [pricing] it right out of the market.”

In terms of the retail environment, Mauti said there are no big changes this year for Toronto. Sobeys, Metro, Walmart and Costco are the big retail players.

One wrinkle at many retailers is an alignment with vertical farming operations.

“We've been hearing a lot about vertical farming over the last number of years, and it's slowly been making its way [to] retail [outlets],” he said. “I think we've come to the point now where it's almost a standard in most retail stores.”

Mauti said the trend reminds him of the fresh cold juice category a few years ago.

“Eventually [the fresh cold juice] category became standard,” he said. Now, many retailers have a small section for produce from vertical farms, such as herbs, microgreens and even some core greens.

The vertical farm produce is hard to find, though, because of very small retail displays, he said. In addition, Mauti said research indicates that many customers don’t really understand vertical farming produce or the primary attributes of the product.

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For consumers, it is hard to differentiate vertically farmed produce from everything else that is up against in the packaged, leafy green category.

“I think there's a way to go on that category for retailers,” he said. “And somehow the industry is going to have to explain to customers what the benefits are, whether that happens at the retail end or [from] producers,” he said. 

As with the fresh cold juice category of several years ago, Mauti said there is potential for vertical farms to make substantial inroads.

“People were looking at all these small bottles of juice in stores and thinking, 'Why would I spend that amount of money on such a small bottle of juice?'” Mauti said. “But then something happened, and it got into the mindset of customers, and they started to understand that product a little bit more.”

Low price premium 

Discount grocers are doing well in the inflationary environment in Toronto. Discounters may have lost a step at the start of the pandemic when consumers were looking for a one-stop shop, but Mauti said they are doing well now when inflation has taken center stage.

“Most certainly, the discount end of the business is thriving, and we see that with just about every major retailer,” he said. 

No Frills, FreshCo and Food Basics are a few of the major discount banners in Canada. Walmart occupies some of that space as well, Mauti said.

Perhaps the No. 1 strategy of consumers is to look for ad specials. Shopping at discount grocery stores is also increasing, and some consumers are “trading down” within their grocery stores. 

That could mean buying less protein and more produce or buying less fresh produce and more frozen produce.

“There is a gamut of strategies that consumers are using to combat this inflation,” he said.

Grocery e-commerce growth was strong during the pandemic, but Mauti said there has been a bit of a pullback in e-commerce sales as inflation has roared.

The click-and-collect model for grocery e-commerce started as the dominant model for Canada, Mauti said, but some retailers are moving into a hybrid model. While Sobeys has a strong home delivery model, other retailers started with a click-and-collect model and are now layering in delivery options as well. Instacart also is well established in Canada, he said. 

Some meal kit companies also are becoming involved with delivering grocery pantry products with their meal kits, Mauti said.