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by Peter Brieger
The National Post
Dec 27, 2003
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If there are still doubts about the power
of Wal-Mart Stores Inc.'s name, then the reaction here to rumours that
the world's largest retailer may enter Canada's grocery business should
quash any debate on the subject.
This country's food retailers, including Loblaw Cos. Ltd. and Sobeys
Inc., spent 2003 bracing for the arrival of Wal-Mart's food and general
merchandise-filled supercentres, all the rage in the United States.
They invested heavily to boost their product mix, bought small competitors
and, in Loblaw's case, struck generous labour agreements to prepare
for the much-anticipated arrival.
All this even though grocers have nothing to worry about, at least in
the short term.
"We have no plans to bring the Wal-Mart supercentre concept to
Canada," says Andrew Pelletier, a company spokesman.
"We have never ruled it out either, but it's not part of our plans
right now."
Wal-Mart has been here since the mid-nineties with traditional discount
outlets, and in October it began testing food sales with the launch
of four Sam's Club warehouse stores.
The company's main focus, however, is on developing Sam's into a nationwide
chain and expanding its 216-location discount stores, Mr. Pelletier
said.
Moreover, some company watchers figure Wal-Mart's competitive advantage
-- that is, offering the lowest price on everything -- would disappear
in food sales since groceries in Canada are much lower priced than in
the United States.
"[But] the anticipation of a Wal-Mart store coming is often enough
to bring up standards and improve merchandise," Wal-Mart's Mr.
Pelletier added.
True or not, Canada's grocers don't appear willing to wait for what
they -- and some analysts -- see as the inevitable.
Loblaw, the country's largest grocer, has been busy hiking its share
of non-food goods such as clothing and electronics at larger stores.
The company controls 34% of nationwide grocery sales under such banners
as Loblaw, No Frills, Maxi, and The Real Canadian Superstore.
Perhaps to ward off Wal-Mart, the company is also expanding its superstore
concept to eastern Canada after establishing the low-priced retailer
across western Canada.
Meanwhile, Sobeys is repositioning its stores and is likely to replace
some Western Canadian IGA locations with the parent company's moniker.
In December, the country's No. 2 grocer bought smaller rival Commisso's
Food Markets Ltd. in a $65-million deal and is developing its role as
a national chain with mid-size stores focused on food.
Still, Sobeys and Metro Inc., a Quebec-based grocer whose brands also
include Super C and Loeb, have lifted their mix of non-food goods and,
like Loblaw, are focusing on price.
Instead of offering occasional sales or discounts, retailers, such as
Sobeys' Price Chopper stores, are targeting the "price obsessive
shopper" with outlets dedicated to everyday low prices.
"Everyday low price formats have emerged as a growth engine as
non-traditional retailers have become more of a threat," said BMO
Nesbitt Burns analyst Karim Salamatian in a recent report.
Mr. Salamatian figures that Loblaw has the upper hand in the marketplace
right now. "Loblaw is clearly the leader," he wrote.
"The company is building stores that are unique and expanding the
traditional supermarket offering into non-food items such as seasonal
and general merchandise in a way Canadians have not seen before."
Nor have Canadians seen the kind of labour concessions that Loblaw's
union accepted earlier this year, especially at a company that earned
$728-million on revenue of $23.1-billion last year.
In anticipation of the Wal-Mart grocery onslaught, the grocer convinced
the United Food and Commercial Workers union to accept lower wages at
planned supercentres in eastern Canada. It was a decision that provoked
howls of protest from some employees and put labour leaders on the defensive.
Once again, all without much evidence to support the Wal-Mart supercentre
"threat."
"If you're a retailer here in Canada and you're paying your employees
'too much,' you're going to use the Wal-Mart excuse, whether or not
it's a valid threat," said one analyst who asked not to be named.
Of course, it is possible that Wal-Mart megastores will move across
the border and Canadian grocers are just reacting.
But there is also fierce competition among existing grocery players
and traditional rules about who sells what are all but extinct. For
example, pharmacies now sell food or develop film while some grocers
offer onsite medical clinics and drug dispensing.
General retailers like Wal-Mart and Zellers add another dimension to
the already blurred mix.
"There is one common theme in Canadian retailing today, and that
is change," Mr. Salamatian said.
"Retailers are changing their stores, changing their product offerings,
changing their banners and changing their pricing propositions to consumers.
"Consumers are less loyal to one retailer and spread their dollars
across more retail formats. To lead in this environment a retailer must
become more relevant to Canadian consumers by offering a broader products
assortment when they want it, where they want it and at the right price."
Or as another analyst put it: "Even if we ignore the Wal-Mart issue,
you can't not change your stores. That's death."
ANATOMY OF A RETAIL GIANT: Wal-Mart Stores Inc. has proven that bigger
is better, muscling its way to the top in a number of retail categories
by keeping costs low and maintaining quality . Its food and g eneral
merchandise-filled supercentres, a big hit in the United States, are
likely to eventually be rolled out in Canada and a number of the big
grocery players are worried.
ENTERTAINMENT & ELECTRONICS
Wal-Mart has bullied its way into becoming a major shopping destination
for entertainment. According to Kaan Yigit at Solutions Research Group
Consulting Inc. in Toronto, Wal-Mart is the number one seller of DVDs,
with a commanding 26% market share (no. 2 Future Shop has only a 16%
share). It has boosted its market share in CDs from just 4% in 1998
to 17%, ranking second to HMV. Wal-Mart is also the second-ranked seller
of electronics, behind Future Shop. With the explosion of entertainment
offerings, especially DVDs, Mr. Yigit says the chain's core customer
is shifting away from 30-something females. "More and more young
males are coming in," he says.
FOOD
Supermarket chains in Canada are bracing for the threat of Wal-Mart
--whether that threat proves real or perceived. Currently, Wal-Mart
sells only frozen foods and nonperishable items, but its megastores
in the United States are peddling fresh offerings and that's hurting
sales at major chains like Safeway. To prepare for the war, Loblaws
Co. Ltd., for one, is pushing its superstore format. Already familiar
to shoppers in Western Canada, these stores are generally larger and
priced more competitively, thanks to better cost control. Superstore
employees are not unionized.
BANKING
Toronto-Dominion Bank cancelled its partnership with Wal-Mart this year,
closing 118 of its in-store branches. Though Wal-Marts drive strong
foot traffic, the bank's branches weren't profitable, sources at the
bank say. The decision to forgo the partnership also meant that TD would
shelve its plans to offer banking services in Wal-Mart's U.S. stores,
which it had started planning in September 2001.
HARDWARE
A handful of independent discount stores have survived the big-box influx
by banding together. S&R Department Store in Kingston, Ont., for
example, is using Tru-Serv Canada Co-op, a purchasing cooperative in
Winnipeg, to leverage the economies of scale of several stores. The
co-op buys goods for more than 600 independent retailers across the
country, who sell hardware under the Tru-Valu banner. While S&R
purchases its hardwares and housewares through Tru-Serve, manager David
Marans admits when it comes to other parts of its business, the store
is on its own. "But we good at negotiating."
CLOTHING
Though it's arguably Wal-Mart's weakest area in Canada, apparel remains
a dominant force in the industry. According to David Howell, a retail
consultant at NPD Group in Toronto, Wal-Mart has forced clothing prices
in the country down 14% over the past five years across all categories.
"All retailers are chasing Wal-Mart," he says. Nevertheless,
Wal-Mart Canada's clothing sales lag the company's U. stores. Here,
Wal-Mart has only a 16.9% share of the apparel unit volume, compared
to 35% in the United States. "I'd like to think that's partly because
we're better dressed here," Mr. Howell says.
SALES
Hudson's Bay Co., Canada's largest retailer, hasn't seen an uptick in
the quarterly sales for its flagship stores in three years. The company's
discount chain, Zellers, saw sales in the third quarter drop 1% and
hasn't grown them more than a measly 2% over the past 17 quarters. Canadian
consumers seem to prefer Wal-Mart to its rivals. The company claims
to have received an unsolicited petition with 10,000 signatures to bring
one of its stores to Guelph, Ont. The city already has a Zellers, but
apparently that's not good enough.
McDONALD'S
Nine years after the two companies first teamed up in Canada, almost
every Wal-Mart has a McDonald's. And for McDonald's Canada, the expansion
of Wal-Mart is key to its own growth strategy. The chain scaled back
its expansion plans, opening only 35 restaurants last year in Canada,
but 14 of those have been in Wal-Marts. In the United States, more than
half of new McDonald's outlets came by way of restaurants in Wal-Mart
stores. "[Wal-Mart and McDonald's] have a lot in common,"
says McDonald's spokesman Ron Christianson.
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