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CART TO CART
How retail competition is
intensifying across the provinces
BY KAREN RAUGUST
S
upermarket chains and independent grocery
retailers in Canada operate in an extremely competitive landscape. The big three national food
retailers—Loblaw, Sobeys, and Metro—face continuing
pressure from Walmart and other discounters, as well as
specialty stores and the rollout of Amazon’s e-commerce
push. Though Amazon is just beginning to enter the
Canadian market, its popularity with millennials may
signal an all-out battle for grocery dollars.
In a report released in June 2014, Euromonitor found
the big three continued to dominate the Canadian grocery
sector in 2013. The leading chain in terms of sales,
Loblaw, commanded 29 percent of the total sector, down
2 percent from 2012, followed by Sobeys with a 25
percent share, up 6 percent thanks to its acquisition of
Safeway in 2013. Metro ranked third in terms of store
locations, but the bigger news is the fourth largest player,
Walmart. Walmart has not only expanded steadily
across the country, but vowed to open as many as 40
new supercenters in 2015 in the wake of Target’s highly
publicized withdrawal.
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Bolstering their positions, the
key national players have been
involved in a number of acquisitions,
with the continued consolidation impacting smaller regional chains and independents. Loblaw completed its purchase of
Shoppers Drug Mart in 2014 and pledged $1.2
billion in expansion funding for 2015; Sobeys
expanded westward by taking over the smaller Safeway
chain; and Metro moved into the upscale bakery market
with the acquisition of the Québecois chain Premiere
Moisson. “Acquisitions are still on the agenda,” comments
senior research analyst Svetlana Uduslivaia at
Euromonitor. “We’ll see this as more and more of a trend,
especially for building business in urban areas.”
The consolidation, it turns out, was both boon and
bane to independent grocers as the big chains got bigger,
controlling more of the market. Tom Barlow, president
and CEO of the Canadian Federation of Independent
Grocers, explains: “In 2014, we actually saw an increase in
share, driven mainly by the acquisition of new stores,” he
says. “Most of these stores came from Sobeys as part of the
Safeway acquisition; they were forced to divest stores as
part of the purchase agreement.”
That said, continues Barlow, “consolidation has had a
major impact on the industry. The centralization of power
to a few big players is putting pressure on suppliers to
move support dollars from medium and small retailers to a
couple of large ones.”
Canada: Far and Wide
On the plus side for suppliers, some of the
acquisition activity is expanding the shelf
space for produce. “There is growth in produce available at nontraditional retailers,
which are creating new food hubs in areas
where they don’t have a presence,” says Ron
Lemaire, president of the Canadian Produce
Marketing Association. He notes that Loblaw
is piloting basic produce sections in its newly
acquired Shoppers Drug Mart stores, particularly in urban areas.
Canada, are taking steps to address the competition from Walmart. “The four incumbents are
not standing around while Walmart and
Amazon are expanding,” says Ed Strapagiel, an
independent retail consultant in Toronto.
For suppliers, the ramifications of consolidation and the increasing strength of the
discount tier include reduced prices and
lower margins. Since December 2013, when
Sobeys instituted a retroactive price cut of 1
percent from most suppliers and froze prices
going forward, the leading grocery chains
have required vendors to cut prices and grant
other concessions.
For produce vendors, “there’s a trickle-down
effect,” says John Russell, president of J.E.
Russell Produce Limited, a wholesale distributor operating in Ontario and eastern Canada,
who explains the lower prices are coming at a
time when costs have been rising. “There are
both increasing costs and increasing responsibilities; there are new cost channels including
THE DISCOUNT WARS
Most of the national retailers’ success stories have come on either the discount or the
specialty end of the market. “There are two
polarizing tendencies, first the move toward
discount formats of some kind that can compete on price, and second toward more of an
upscale specialty retailer that appeals to an
urban demographic,” says Uduslivaia.
Sobeys, Metro, and Loblaw are repositioning and rebranding many of their stores
into their most successful formats, she says.
“As opposed to having a gazillion banners,
they’re now focusing on a few key banners.”
Many of these are discount formats, including Loblaw’s No Frills, Sobeys’ FreshCo, and
Metro’s Food Basics.
Uduslivaia points out that Walmart’s
strong inroads into the market have driven
many consumers to the discount tier and
raised the stakes on the produce front by
merchandising fresh fruits and vegetables at
the front of the store, putting freshness at a
premium, especially in urban formats.
Unlike Walmart, Target, which entered
the market in 2011, did not fare well and
withdrew from the Canada retail landscape
altogether in 2015. “They did everything
right in terms of preparing to enter the country,” Uduslivaia says, “but after they opened,
it was another story.” Not only was Target
unable to find its identity, she says, but stores
were often out of stock or didn’t have the
right product mix or pricing for Canadian
shoppers. The result was reminiscent of
British grocery giant Tesco’s debut in America
under the Fresh & Easy banner, which ended
in bankruptcy in 2013.
PRICING AND CONCESSIONS
Meanwhile, the three leading chains, along
with long-established warehouse chain Costco
www.producebluebook.com
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CART TO CART
food safety, compliance, traceability, and bestbefore dates on perishables. It makes the management of these commodities more difficult.
And the decreasing Canadian dollar over the
past several months has also been tough.”
Strapagiel points out that the Canadian dollar was down 10 percent in the winter months
of 2014 and 2015 compared to the previous
year, raising costs for suppliers during a time
when they were importing many commodities
from the United States and elsewhere. “With
the competition, it’s very hard for retailers to
pass those increases along to their consumers,”
he says. “With the thin margins, there’s pressure on vendors to be more efficient, shave
prices, and make other concessions.”
Barlow notes that consolidation intensifies these trends. “We expect to see food cost
increases, combined with a reduction in
manufacturer or producer investments in
innovation and capital, due to margin pressures created by the buying power of the
major chains.”
“Price pressures are always a factor,”
stresses Lemaire, “but all in all, consumers
are still demanding quality.”
Select Supermarket Chain Data for Canada
Company
Geographic Scope
& Store Banners
Total Number of
Grocery Stores
Buy-Low Foods
British Columbia and Alberta
24 (corporate & franchised)
Costco Wholesale Canada
Nine provinces
88
Farm Boy 2012
Ottawa and southwestern Ontario
15, plus 2 planned
Fruitcana Produce
British Columbia and Alberta
18
Loblaw Companies
National: Loblaw's, Zehrs,
Provigo, No Frills, Maxi, Real
Canadian Superstore
1,132 (corporate & franchised),
2,440 of all formats
Longo Brothers Fruit Market
Greater Toronto; is also Canada’s
online grocery leader
26 including 4 small-format
(The Market)
Metro, Inc.
Quebec & Ontario: includes
Metro, Metro Plus, Super C,
Food Basics, Adonis
564 (corporate & franchised),
832 all formats
Overwaitea Food Group
British Columbia & western
Canada: includes Save-On-Foods,
Overwaitea, Urban Fare, Cooper's
Foods, PriceSmart
Sobeys
All provinces: includes Sobeys,
Safeway, IGA, Foodland, FreshCo,
Price Chopper, Thrifty Foods
1,800 (corporate & franchised,
all formats)
Sunterra Quality Food Markets
Calgary and Edmonton
10
T & T Supermarket
(Loblaw-owned)
Greater Vancouver, Calgary
& Edmonton;and Ontario
22
Thrifty Foods
Lower mainland and
Vancouver Island
26
Walmart Canada
National
396, including 288 Supercentres
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145
THE PREMIUM NICHE
At the other end of the pricing scale, the
national chains also are testing and expanding
premium formats, as well as adding premium
features to their mainstream stores. Many are
taking cues from successful high-end specialty
grocery chains like Longo Brothers Fruit
Markets and Whole Foods Markets. Longo’s,
based in Toronto, and U.S.-based Whole
Foods, both have a small footprint in Canada
today, but are reportedly looking to expand
their market share in the True North in the
coming years.
Metro has been testing additions such as
expanded and more diverse salad bars and
hot gourmet take-out options, as well as
enhancing the quality and range of its fresh
fruit and vegetable offerings. Loblaw is taking similar steps in some of its stores in
Toronto and Quebec, adding new fruits and
vegetables to their mix. And Sobeys launched
‘Sobeys Extra’ in 2013 under a similar blueprint, with additional signage to explain the
differences between varieties of produce, and
more fresh-cut fruits and vegetables.
These moves are supported by consumer
trends. “The Canadian market is very unique
in that Canadians have a high propensity for
trying new products,” explains Lemaire, who
reports that three in four Canadians have tried
a new fruit or vegetable in the last five years.
“It’s really exciting that the consumer base is
willing to try something new,” he enthuses.
“Retailers have to keep on their toes to meet
this consumer demand.”
Lemaire also notes that while shoppers
under 30 are driving the trend toward produce
diversity, older consumers are seeking more
fresh fruits and vegetables for their health,
while demanding they be packaged, displayed,
and merchandised for ease of purchase and
preparation. Examples include more fresh-cut
produce and value-added meal kits, merchandising ingredients for a healthy dish together in
one display, adding recipe cards or recommendations to certain produce items, or having
dietitians onsite. “How do you provide a solutions-based approach?” Lemaire asks. “It’s the
‘how’ that is essential.”
And while demand for fresh-cut produce
has climbed among older consumers, it also
appeals to time-strapped shoppers of all ages.
“As societal demands require more work and
less play, we tend to have little time for food
prep,” comments Joe Rubini, president of
Toronto-based Rally Logistics, Inc. “Getting
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CART TO CART
fresh-cut produce on store shelves is sometimes
worth the expense to add that time back into
your day.”
ETHNIC AND ORGANIC TRENDS
Canada’s Asian population continues to rise,
and mainstream grocery chains catering to specific Asian populations, including those of
Chinese, Indian, and Filipino descent, continue
to grow. The leading national chains have purchased some of the key players in the past as a
way to participate in this trend, as Loblaw did
with T&T Supermarket in 2009.
But many observers believe there is much
more room for expansion. Uduslivaiya notes
that ethnic consumers want a wide diversity of
produce with a high degree of quality and
freshness, but at a good price—which is not
available at most specialty stores. “Mainstream
retailers are not really responding to these customers’ needs and demands,” she comments.
Strapagiel agrees, adding: “The ethnic trend
has been with us for a while, but it’s not at its
peak yet.” And although much of the development has been in the bigger cities including
Vancouver, Montreal, and Toronto, he notes, “I
could see it expanding into other cities.”
Rubini, too, sees the trend as gaining
momentum. “As Canada continues to diversify
and more people immigrate here, it’s important
to provide the traditional fruits and vegetables
they would be accustomed to back ‘home’.”
Both Russell and Rubini see further opportunity with organic produce. Rubini believes
smoothie and juicing trends are powering
demand, while Russell believes pricing is key.
“Organic producers are getting pretty sophisticated; their production levels are up to 75 percent of conventionals and the price differential
is shrinking,” he explains. “Organic demand is
increasing steadily, and there are various levels
of demand based on family income. At the discount banners it’s all about affordability, but
even those consumers are trying to manage
their budget for organic.”
This is backed up by the big chains
adding more organics, from various meat
varieties at Metro and tropical fruit at Loblaw
to a broader assortment of organic fruit and
vegetables at Sobeys.
REGIONAL STRATEGIES
Each of the national chains has geographic
areas of relative strength, as Metro has in
Quebec or Sobeys in the Maritimes—but all
have expanded nationally. Metro, which is
the most regional of the big three chains,
bought A&P years ago to enter Ontario,
while Sobeys’ purchase of Safeway solidified
its presence in the west. French-speaking
Quebec has its own banners, but the national
chains have entered through acquisition. As a
result, consolidation, price pressure, new format testing, and other trends tend to be consistent across Canada.
There are some subtle differences, however.
Many observers see Ontario, including
Toronto, as being the most competitive of the
provinces, with grocery square footage growing
more quickly than in the past and, many
believe, faster than the market can handle.
Western Canada’s strong population growth
and robust economy has led to opportunities
there. And Alberta has higher per-capita consumer spending rates than other territories,
which could mean there is room for more premium grocery stores.
Diversity, especially in Asian population
growth, is affecting the country with higher
concentrations in Ontario and British
Columbia, though the actual composition of
this trend varies by city and province as well.
Uduslivaiya says the needs are tied to specific
communities, propelling retailers into “analytics to really understand their customers.”
All of the national trends—the strength of
the discount tier, expansion of ethnic and
urban retail formats, and the testing of premium banners and features—occur in the
context of a very small population. Canada
has less than 35 million inhabitants, compared
to more than 319 million in the United States.
Meanwhile, competition from U.S. chains,
from Walmart to Whole Foods, continues to
grow. All of these trends likely point to more
consolidation and continued price wars within
the Canadian grocery channel.
Image: Shutterstock.
Karen Raugust is a freelance writer who
covers business topics ranging from retailing
to the food industry.
In This Issue
Additional information about the sales pipeline at
drugstores, convenience stores, and other retailers can
be found in our feature, “A Hot Sales Opportunity?” in
the main journal.
10 — Blueprints Supplement | Apr/May/Jun 2015
Canada: Far and Wide