Customers turn to cheaper grocery options

Source: Globe and Mail, April 20, 2011

Consumers are finding ways to keep their grocery bills in check as food costs climb, trading down and changing how they feed their families.

This shift is showing signs of altering the competitive landscape for Canadian supermarkets.

Grocers have started to pass on to shoppers price hikes from suppliers whose own costs are surging. But they’re finding they can’t raise prices too much because consumers simply stop buying higher-priced goods and switch to cheaper alternatives. At the same time, discounter Wal-Mart Canada Corp. is pressuring its competitors with expanded food offerings, meaning their rivals must in turn bolster their own discount operations and promotions.

Statistics Canada reported earlier this week that food prices, measured by the consumer price index, are on the rise, but that inflation is only starting to help grocers, and only in limited ways.

Typically, a little inflation is a grocer's friend, since stores can pass on higher prices without much consumer resistance. But the rapid expansion of discount stores is moderating that. Supermarkets no longer have the luxury of just jacking up prices when their own costs rise, because discounters have trained consumers to hunt for deals. The retailers are racing to focus more on their own discount arms, straining their margins and forcing them to find savings elsewhere.

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