key: cord-0723372-1w6q5ab6
authors: Goddard, Ellen
title: The impact of COVID‐19 on food retail and food service in Canada: A second assessment
date: 2021-04-15
journal: Canadian Journal of Agricultural Economics
DOI: 10.1111/cjag.12282
sha: 561597062dc9c8c120f9385e97bf5ded77085ff6
doc_id: 723372
cord_uid: 1w6q5ab6

COVID‐19 continues to impose a series of unique challenges on the food retail and food service sectors in Canada. In May 2020, the expectation was that the public health crisis shutdowns of the restaurant sector would be temporary. Although we may still be in a much longer temporary than was originally envisaged, it is becoming clearer that permanent restructuring may also have happened. Grocery stores have solidified their changed realities through an increased focus on multiple channel retailing rather than a complete choice between either bricks and mortar or online. Increased costs, resulting from the pandemic, are continuing to filter through the food system and we have a growing problem with food security for some Canadians given that employment in January 2021 was found to be at its lowest level since August 2020. Unemployment moves directly with lockdowns that are varied across the country.

Source : Statistics Canada (2021a) the rest of the supply chain. The second is the dramatic change in what form and where people want to buy their food. However, circumstances are changing since vaccination will allow Canadian society to return to some level of "normality," although the timeline for that remains somewhat uncertain and whether normality will ever look like 2019 or before remains unclear.

At this point, which is a year since the pandemic uprooted Canadian society, this paper will describe the changes that have occurred in food retail and food service and identify the uncertainties that preclude solid projections of where the sectors may be in another years time. Given the contributions of food retail and food service to the Canadian economy, in terms of employment and economic activity, understanding where the sectors appear to be heading is important but remains difficult.

Household expenditures on food retail and food service in Canada changed significantly in response to personal public health concerns and public health requirements for lockdown, which varied in severity and timing across the country. From Figure 1 (Statistics Canada, 2021a), the volatility in food service expenditures by households is transparent for the 2020 period, with the national lockdown in the second quarter of 2020 being most obvious and the second lockdown in the last quarter of the year also obvious. Food expenditures shifted from food service to grocery store purchases, unsurprisingly, on average across the year.

Examining the Canadian data in other ways, revenues generated by different industrial categories of retail trade and food service (Figure 2 ), illustrates the dramatic decline in revenues in food service and drinking places with contemporaneous increases in revenues for food and beverage stores, relatively flat revenues for convenience stores and small increases in revenues for beer, wine, and liquor stores in 2020 (Statistics Canada, 2021b). 1 Both food retail and food service sectors are significant in terms of employment within Canada as well. From data in Figure 3 (Statistics Canada, 2021c), the share of employees in food retail peaked at 3.6% of 13.7 million employees in May 2020 (previous peak of 3.7% of 14.6 million employees in 2009) ending the year at 3.3% of 15.98 million employees. Food service employee numbers on the other hand plummeted to 3.67% of 13.7 million employees in May 2020 (down from 6.7% of total employees, on average, over the F I G U R E 2 Food retail and food service sales, million dollars, seasonally adjusted, monthly, 2015-2020 Source: Statistics Canada (2021b) F I G U R E 3 Total employees and employee share in food service and in food and beverage store categories, 2019-2020 Source: Statistics Canada (2021c) F I G U R E 4 Google trend, Canada, "local food," 2019-2020 Source: Google Trends (2021) period 2017-2019), ending the year at 5% of the 15.98 million employees. The employment data mirror the revenue data, exacerbated by the overall decline in total employment in the country.

Prior to the pandemic, online grocery shopping had not been increasing as quickly in Canada as in other countries. As of April 2018, 28% of 1000 Canadian respondents had shopped for groceries online, (6% regularly) (Brown, 2018) . Recent data from the Canadian Grocer (Fitzgerald, 2021) suggests that 86% of grocery trips were in-person over the previous month, as of October 2020. For the remaining 14%, 5% of trips were buying online for curbside pickup, 4% were buying online for contactless delivery, 3% were buying online for in-person delivery, and 2% were buying online for in-store pickup. The pandemic has encouraged use of online shopping much more regularly, but Canadians still remain dedicated to instore access. PwC (2020) reports that in-person grocery shopping is one of the retail formats that Canadians felt most comfortable returning to after the first pandemic lockdown, particularly as compared to other in-person shopping. Only 7% of Canadians felt that online grocery shopping was easier than in-person shopping as compared to 21% feeling that nongrocery online shopping was easier. In-person grocery shopping is associated with significant additional costs for grocers, including masking and disposable gloves for employees, hand sanitizing stations, additional cleaning (e.g., grocery carts) and accommodation for distancing, all of which precautions were appreciated and seen to be important by Canadians (Fitzgerald, 2021) .

However, online purchasing was absolutely critical for food service sales in Canada in 2020. The food service sector faced a 16% decline in in-person dining in December 2020 over December 2019 due to lockdowns. Canadians responded through significant increases in "dining out at home" with off premise orders representing 80% of food service sales by the end of 2020 (NPD Group, 2021). Online digital ordering faced a 142% increase in December 2020 over December 2019. In spite of growth in "dining out at home," overall sales in the sector are expected to remain below 2019 levels throughout 2021 and Restaurants Canada (2020) has reported that 10,000 restaurants have closed in Canada since March 2020.

As the pandemic unfolded in 2020, there was an increased interest in purchasing local food, initially because there were temporary shortages through grocery stores of specific items (possible risks in food supply) and secondly because consumers were interested in reducing the number of transactions between farm and final consumer (possible risks of pandemic illness in other countries and in the employees in food processing). By year end, the increased interest in local food was partly exhibited by an increase of 45% in newspaper articles about local food (from 2019 to 2020 Factiva) but also by a significant increase in online searches for information about local food, which continued throughout the year ( Figure 4 ). However, many things were challenging about the process of buying local food. First there were questions, ultimately resolved in different ways, about whether or not farmer's markets could open under lockdown conditions, in some provinces they were declared essential services but as the pandemic summer moved forward sometimes rules such as "only food could be sold" at farmer's markets were brought into play. Initially, for some local food suppliers who were concerned about the lack of farmer's markets, some farmers created zero contact direct to consumer sales from their farms. Recently, Helmer (2021) described some farmers who changed their business models when the pandemic hit-in PEI, a farm moving to farm gate sales and ultimately sales through other retail outlets, for example, and a CSA (community supported agriculture) focused farm in Nova Scotia, creating an online store and delivery model to accommodate reduced restaurant demand and lack of centralized facilities to drop off CSA boxes for customers. Through these examples it was clear that the initial spike in local food sales (response to unexpected short-term food shortages in grocery stores) has reduced somewhat but the new approaches to selling to customers may continue. Recognition of the problems faced by farmers supplying local food markets was recognized through various types of support including programs in British Columbia and Ontario created to support the development of online farmer's markets (Agriculture & Agri-food Canada, 2020; Macdonald, 2020) . More recently programs were created in BC to support business development (Western Economic Diversification Canada, 2020) and changes were made to regulations for on-farm sales, including changes to Alberta regulations about farm sales of meat (Bellefontaine, 2020).

With regards to economic fallout, there continues to be the pandemic issues of illness. In much of the country (as of March 1, 2021), there remain restrictions on the full opening of restaurants and bars. The Olymel pig slaughter plant in Red Deer, Alberta, was closed due to a COVID-19 outbreak for the period February 16 to March 4, 2021. Peel Public Health ordered an Amazon fulfillment center in Mississauga to close from March 12 to March 27, 2021. Amazon (originally reported as the largest seller of online groceries in Canada in 2018) was reported as the online provider of food, beverages, and meal kits that 42% of Canadians had shopped at in the last 12 months, over the period July to September 2020 (Statista, 2021) . This was by far the biggest single source identified by Canadians. Disruptions such as these due to illness will continue to provide challenges for food supply chains. In spite of the modifications food processors and farmers have made over the past year to be able to move farm products through different processing facilities (e.g., from restaurant to retail) any disruptions can impact revenues. These illness-related disruptions can hopefully be reduced through vaccination, although the schedule to have enough adults vaccinated to generate the herd immunity necessary for return to a pre-COVID-19 normality remains uncertain.

Other COVID-19-related challenges surround the changes in consumer behavior, which have developed through the first year of the pandemic. The most pressing questions surround whether these changes are permanent or transitory? For example, how will Canadians purchase groceries once there is a return to normality? One current expectation is that the pandemic has introduced many more Canadians to a variety of ways of obtaining groceries and that exposure will have generated a demand for "omnichannel" shopping (ability to be able to shop through different methods such as online, in physical store, or pick and collect) that is likely permanent (The Economist, 2021). As the initial ability to provide online grocery delivery to many Canadians (some of whom had fear of going to grocery stores) was needed, it initially encouraged some grocers in Canada to buy trucks and hire delivery people. However, the perception that some aspects of online grocery delivery will remain permanent has also accelerated the development of new models. Hansen and Mazzerole (2021) reported on the development of warehouses with robots and the increasing use of self-driving vehicles among the countries' major retailers, developments that may have been in long-term planning prior to the pandemic but were accelerated given the pandemic shifts in consumer behavior. In looking at the retailers that Canadians purchased food, beverage, and meal kits from in 2020 beyond Amazon, the other providers in the top six included Walmart, Costco, HelloFresh, Loblaw, and Instacart. Of note is that one of those is a meal kit provider (which has been used by more Canadians during the latter part of 2020 than have used some major grocers) and Instacart (a service that organizes deliveries from multiple retailers). The variety of forms and methods Canadians have to obtain groceries has increased considerably since the beginning of the pandemic lockdown. It is worth noting that many countries are reporting an increased focus on sustainability on the part of grocery consumers-evidenced by an increased focus on how foods are being produced and packaged. Fitzgerald (2021) noted the same trends in Canadian consumers surveyed in October 2020-with consumers identifying that donating food instead of throwing it out, reusable bags and sales of locally produced produce and animal products were important to over 40% of those surveyed. These and other sustainability initiatives were important enough to consumers that 64% suggested they were somewhat likely, likely, or extremely likely to switch purchasing to stores exhibiting a stronger commitment to sustainability. People may be linking the existence of the pandemic to issues related to environmental degradation in making these purchase decisions related to sustainability. How strong this commitment remains post pandemic remains to be seen.

Retailers have done well financially throughout the pandemic with stable or increasing sales, share values, and dividends paid to investors of the major companies. However, the significant growth the sector faced in 2020 is unlikely to be sustained in the future even if the pandemic continues to constrain Canadian lives into the future.

In the food service sector, online restaurant shopping has changed considerably from pre-pandemic to post pandemic. Outside of major metropolitan areas such as Toronto, pre-pandemic restaurant ordering was largely by phone (or online) directly to a particular restaurant if they chose to have delivery options. Post pandemic, the majority of dining at home restaurant purchases are now through third party services (e.g., UberEats, Skip the Dishes, DoorDash), which coordinate online delivery services across a broad range of restaurants and are funded through charges on the restaurants (drivers are funded through delivery fees). Given that the majority of restaurants needed to quickly find some way to deliver food during the pandemic lockdown, many single site restaurants felt the need to use third party services rather than set up their own delivery systems. One innovation associated with the pandemic shutdown has been the development of ghost kitchens (delivery only restaurants), some of which are also supported by third party delivery services.

Morgan and Stanley Research (2020) remind us that independent restaurants have exhibited "persistent regeneration" in the past, due to the high level of sunk costs in facilities (e.g., plumbing, air conditioning, and specialized kitchen equipment), which encourage new owners to recreate restaurants in spaces that have closed. In spite of that, Morgan and Stanley Research (2020) also noted that, in the United States, the physical footprint of the restaurant sector post pandemic is uncertain. This assessment included the fact that the growth in online delivery models and ghost kitchens could change the need for eat-in space.

Food service in Canada was one of a set of industries (arts, air travel, etc.) particularly severely, negatively affected by pandemic lockdowns. However, insolvency statistics (Innovation, Science & Economic Development Canada, 2020) show that, in the accommodation and food services sector, insolvencies were 16.2% lower in December 2020 than in December 2019 (also lower in the 12 months of 2020 than in the 12 months of 2019). Caranci and Bushmeneva (2021) note that insolvencies in the accommodation and food service sector were already high in 2019 and that 9% of the businesses in that sector were already planned to be sold prior to the pandemic. Whether this suggests that the sector has weathered the pandemic is uncertain. There are continuing government programs throughout most of the country that are buffering companies negatively affected by the pandemic. Given those programs, the long-term effects of the pandemic on the food service sector in terms of number, type (independent or chain) and size of facilities remain questionable, although it is hard to deny the massive difficulties faced by firms within the sector, including increased debt. Caranci and Bushmeneva (2021) also point out that insolvency data is related to firms that close due to debt; some firms without high levels of debt may have decided to close during the economic downturn and those closures would not be included in insolvency data.

Campaigns such as that by Restaurants Canada (2020) for Canadians to "imagine life without restaurants" suggest that the sector is vulnerable. Although recent job growth in Canada suggests positive trends, it is hard to imagine that the country will be back to pre-pandemic employment figures in the near future, suggesting a harder recovery for the food service sector (larger price elasticity of demand) than for the grocery sector. Persistent unemployment will generate food security issues for many more Canadians than normally worry about food.

One factor that may influence the food retailing and food service industries post pandemic may be how the public's trust in the sectors is affected throughout the pandemic. There are three major issues that have arisen during the pandemic year that may have generated some longer term concerns from the public. During the early days of the pandemic most retailers increased the wages paid to employees in their role as front line workers necessary to keep the grocery stores open (Goddard, 2020) . Given the fear that captured the majority of Canadians near the beginning of the pandemic, the wage incentives may well have encouraged people to continue to go to work in the affected stores. However, the wage incentives were withdrawn (Walmart, Loblaw, Metro, and Empire) near the beginning of June 2020 as the first peak of the pandemic eased (CBC News, 2020a). Saba (2020) noted that although Loblaw revenues increased by 7.4% in the second quarter of 2020, net earnings dropped by 29% over the same quarter in the previous year. Saba (2020) also noted that this drop in net earnings was due to an increase in pandemic-related costs of $282 million, $180 million of which was due directly to the wage increases. Public concerns were voiced about this withdrawal of wage subsidies (termed hero pay) and representatives of the various companies were called to speak to the House of Commons Industry Committee in July 2020 about the withdrawal of the payments (Major, 2020) . Empire Co. brought back the wage subsidy in November 2020 in lockdown areas during the second wave of the COVID-19 pandemic (CBC News, 2020b) . Other retailers such as Walmart and Dollarama made announcements of one time payments to staff later in December 2020 (Belmonte, 2020) . A second issue arose with grocery retailers when concerns were raised by grocery retail suppliers about the introduction of higher slotting fees (fees charged to suppliers to have their products on retailer shelves and in retailer warehouses) at the start of 2021, announced by some of the major retailers (Walmart, Loblaw, Metro) during the summer of 2020 (Canadian Press, 2020) . Empire Co. did not announce an increase in their slotting fees and supported calls for a Code of Conduct for retailers that began to be heard throughout the industry. Towards the end of November 2020, it was announced that the agriculture ministers from across the country would investigate retailer slotting fees in the country (Financial Post, 2020) . Although it is likely that concerns about slotting fees would have been articulated any time the slotting fees were raised, the issue of the pandemic and the noteworthy increase in revenues earned by the retailers during the pandemic made the issue of increased fees a more public issue. Although it was clear that the steps taken by retailers to make stores safer, and to accommodate omnichannel shopping trends, were expensive and unexpected for Canada's retailers, the slotting fee increases imposed on suppliers may have raised discomfort among the public about the motives of retailers.

The third issue that arose was focused more on the food service industry. As previously stated much of the increase in dining out at home was fueled by an increase in the use of third party delivery companies (funded through fees charged by the third party companies on restaurants). Fees were widely believed to be high by restaurants (30% of the cost of the order by some estimates). Initially, Skip the Dishes had reduced their fees to assist the decimated restaurant industry. As the pandemic went on, various provincial governments responded by capping the fees that could be charged to restaurants (Ontario, more recently Quebec, British Columbia, and some discussions in Saskatchewan) (e.g., CBC News, 2021). In Toronto, an "Open for Business" program was implemented to allow retailers to make free use of an online ordering platform Ritual One, in an attempt to facilitate more online business (Liu, 2020) . Governments were responding to concerns from the sector and from the public that restaurants might go out of business before the pandemic is sufficiently over to encourage the majority of the population to participate in restaurant dining once more. This issue may also have raised discomfort on the part of the public about the motives of third party service providers who are making their lives easier on one hand but may not be helping the long-term existence of their restaurants.

Food retailing and food service sectors remain important economic sectors in Canada. Prior to the pandemic, the food service sector had been growing considerably, representing over 30% of the average Canadian's food expenditure. Actions taken under the states of emergency imposed to deal with the pandemic in Canada have changed the reality of food purchasing. The shift in consumers' food buying back to grocery stores from restaurants happened quickly causing disruption in food supply chains. Beyond that though, it is clear that consumers now have different expectations about food shopping then they had pre-pandemic. Canadian consumers like the idea of omnichannel availability, although they remain loyal to in-person grocery shopping and they have high, and to October 2020 realized (Fitzgerald, 2021) , expectations of safety measures being implemented in grocery stores to protect the safety of employees and customers. However, the fact that there has been some recovery in food service sales suggest a pent-up demand for eating out that will likely be realized when sufficient vaccination has occurred for the adult population to again feel safe in restaurants. What is unknown is whether the food service sector will be as large as it was in the past, post pandemic, and what the structure of the sector will be. Innovation in food service associated with ghost kitchens and accelerated delivery options may change the sector, even given past history that shows the sector usually recovers with new owners after recessions, due to sunk costs in facilities. It is somewhat uncertain if the sector will face more rationalization once the industry and consumer support from the government ends. This will likely be related to the timing of sufficient adult vaccination and the speed at which the economy rebounds to fuller employment. Although the concerns about the availability of food and non-food grocery items being available in grocery stores have subsided over the past year, the empty shelves are likely not completely forgotten. At the same time, issues arising from decisions made by companies in food retail and food service support companies may also have raised concerns in the minds of Canadians that will continue to affect where and how Canadians buy their food going forward.

I would like to acknowledge the Co-operative Program in Agricultural Marketing and Business, University of Alberta for providing support for this article.

Goddard https://orcid.org/0000-0002-5638-0562

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support-for-business-to-help-maintain-over-11-000-jobs-in-british-columbia-804565865.html How to cite this article: Goddard, E. The Impact of COVID-19 on food retail and food service in Canada: A second assessment