Metro bakery manager Gaynel Walkes prepares bags of bakery goods being sold at a discounted rate with the service Too Good To Go Toronto, a mobile application being used at the College Park location in Toronto, on Dec. 22, 2022.Tijana Martin/The Globe and Mail
Kelly-Anne Hollingshead is getting creative with cabbage.
Seven bags of shredded cabbage mix, to be exact, which she bought on the Flashfood mobile app at two-thirds off the regular price and picked up at her local Real Canadian Superstore. One night, she will make salad. The next, she’s thinking yakisoba, and after that, soup.
The 66-year-old Edmonton retiree regularly uses the app, which allows grocery chains to post and sell food close to its sell-by date at deep discounts. She says the products are generally in very good condition.
“There is no reason it should go to the landfill to feed the seagulls,” Ms. Hollingshead says. She and her husband have noticed the difference the app makes in their grocery budget. “I’d really like it if they’d expand to other stores.”
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That’s something Toronto-based Flashfood Inc. also hopes for. In Canada, it only sells from stores owned by Loblaw Cos. Ltd. – which indicates just how competitive this small niche of the grocery industry has become.
Rival app makers have been vying for similar partnerships. In Quebec, Montreal’s FoodHero sells discounted food from Metro Inc., and from Empire Co. Ltd. banners such as IGA. Denmark-based Too Good To Go launched in Canada in July, 2021, and now counts 4,300 partners here – including Empire-owned Longo’s stores, some Ontario Metro stores, and others, including bakeries, restaurants, hotels and some Tim Hortons and Pizza Pizza locations.
In an era when companies are touting their environmental, social and governance (ESG) bona fides, reducing food waste has become a bigger priority for grocers. Tech companies are taking a cut by helping them sell what would otherwise go in the bin.
“This is found money in a low-margin industry on what used to be a waste line-item,” said Flashfood chief executive Josh Domingues, whose sister, a chef, inspired him to start the business when she had to throw out $4,000 worth of food after a catering event. “The environment is winning, because you’re reducing the effect of food waste. Shoppers are saving 50 per cent on their groceries. And we can build a financially viable business on the back of it.”
Food-recovery apps have never had a better opportunity to recruit customers. Grocery prices rose by 11.4 per cent in November compared with the previous year, a rate not seen in Canada in decades and well above general inflation.
“When we launched in 2019, we were potentially more appealing to the environmentally conscious crowd,” said FoodHero CEO Jonathan Defoy, who has seen his business double over the past year. “Nowadays, who doesn’t need to save on groceries?”
Canadians seem to have an appetite for these services. Too Good to Go had its briskest start here of the 17 markets it serves, selling its one millionth order just 400 days after it launched.
“We are on a bit of a rocket ship with regards to partner adoption and usage,” said Sam Kashani, the company’s country manager for Canada.
All the apps work on similar models: Retailers and other partners list food for sale – either individual units or mixed bags of items – at discounts that can top 50 per cent. There is no fee for consumers, who search nearby stores and pay for purchases through the apps, then pick them up in person. Retailers pay a commission on each sale. Many users are repeat buyers.
But adoption has not been seamless. During the peaks of COVID-19, consumers shifted from discount-hunting to one-stop shopping, and many retailers were too busy managing the crisis to focus on other projects. FoodHero launched in spring 2019, only to lose 75 per cent of its revenue when the pandemic hit.
“It was terrible, terrible,” Mr. Defoy recalled. “But then it picked back up. 2022 is a really good year.”
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Usage can also vary widely by store. On Flashfood, some locations sell thousands of dollars a day – but the median is around $100. Mr. Domingues said he believes the company’s annual revenues could be four times the current US$12-million if the slower sellers among its 1,550 North American locations were to list more items.
“Store managers have a thousand things they’re worried about. We have to figure out how to make sure this fits within their needs, is simple to use and brings them value,” said Chuck Templeton, founder of the online restaurant reservation service OpenTable. His San Francisco-based S2G Ventures led a US$12.3-million investment in Flashfood last year.
Usage among Canadian retailers is growing. Empire plans to expand its use of FoodHero beyond Quebec soon. Metro, which also works with FoodHero in Quebec, is running a test with Too Good To Go at 20 stores in the Greater Toronto Area, with a larger rollout planned in 2023. Flashfood has expanded from 400 Loblaw stores in 2019 to more than 720, a number that continues to grow.
Competition for retail partners is fierce. Flashfood had its first month of profitability in October, but, aside from its sizable presence with Loblaw, it has hit a wall here and is focusing on the U.S.
“It’s been disheartening that we haven’t had more scale within Canada,” Mr. Domingues said.
Store manager Toulla Colomvakos with a bag of bakery items provided at a discount rate via Too Good To Go Toronto.Tijana Martin/The Globe and Mail
Sometimes, even a dent in the icing can make all the difference.
Cakes occasionally get knocked slightly as they’re put in a display case. “That’s not something that we want to serve to our customers,” said Toulla Colomvakos, manager of a Metro store in downtown Toronto. But does it belong in the garbage?
These duelling priorities – not wasting food, but also maintaining high quality on shelves – present a dilemma for retailers. Shoppers want value for their hard-earned dollars. They check best-before dates; they reach to the back of dairy fridges; they buy the freshest products possible. Whatever is left is harder to sell as time passes.
Ms. Colomvakos’s store uses Too Good To Go to offer $5.99 bags containing $18 worth of baked goods, and a “cake surprise” for one-third its regular price. They consistently sell out. She hopes to add products from other departments soon.
Waste is both a financial problem and an environmental one: Food in landfills generates methane, a greenhouse gas. Roughly 58 per cent of all food produced in Canada is lost or wasted, according to a 2019 study by Value Chain Management International and Second Harvest, a charity that distributes unsold food to non-profits.
Grocers are a visible part of the supply chain, but most food waste in Canada happens during production and processing. Retail accounts for 4 per cent of overall waste; households represent 14 per cent. The volume in stores is still significant: Loblaw says it has saved more than 18 million kilograms of food through Flashfood since 2019.
But the picture is incomplete: Loblaw does not yet report how much of its food goes to landfills. Instead, the 57.8 million kilograms of “food loss and waste destinations” in its 2021 ESG report include “responsible” disposal methods such as composting and anaerobic digestion, as well as diversion strategies, such as repurposing waste for animal feed, or redistributing food through Second Harvest and food banks.
Not everyone is sold on the apps: Walmart Canada, for example, does not work with them. Instead, it uses its own in-store discounts to sell food quickly. Most grocers also work with organizations such as Food Banks Canada and Second Harvest to donate unsold food. Loblaw committed more than $1-million for Second Harvest to build its own app to co-ordinate donations.
The commercial apps are just one of many waste-reduction options. Loblaw created a food-waste committee in 2021 to oversee various waste-reduction strategies, with a goal of sending no food to landfills by 2030. “We’re very vocal, very loud and proud of what we’re doing,” said Jonathan Carroll, the Loblaw senior vice-president of operations who launched the committee.
Food-recovery apps are not just about diverting waste. They are also a marketing tool for retailers.
When pitching their services, app providers stress they can drive traffic to stores. Flashfood has said one-quarter of people who visit a store to pick up an app purchase are not regulars at that store. Too Good To Go says 76 per cent of customers who visit a new location return to that store.
Another selling point is that these apps can bifurcate customers: Instead of regular shoppers impulse-buying discount-stickered items, markdowns are listed separately on the apps, whose users are less likely to buy at full price.
“When you have a stickered item – ‘50 per cent off,’ ‘eat it tonight,’ et cetera … you cannibalize your full-paying customer,” Too Good To Go’s Mr. Kashani said.
This introduces a burdensome prospect for inflation-weary shoppers: having to work harder – not just clipping coupons but checking multiple apps – to get breaks on their bills. The apps’ users are highly motivated: The companies say they consistently sell 75 per cent to 90 per cent of what retailers post.
The purchasing data these apps collect is also a potential growth driver: James McCann, a former grocery executive who sits on Flashfood’s board, said the app could use analytics in the future to change prices automatically, based on how quickly items sell. Such “dynamic pricing” would maximize margins and keep perishable items moving.
Strategies like these will be crucial as food-recovery startups max out on adding retailers and seek growth by selling more through existing partners.
“The demand side is not where the challenge is,” Mr. Templeton said. “It’s making sure the supply side is there.”