Canada: Walmart Canada snatches more gains from traditional grocers
Walmart Canada charted its 10th-consecutive quarter of same-store sales growth in the third quarter as the big-box giant continued to put pressure on this country’s traditional grocery retailers.
The country’s biggest mass merchant said sales at stores in Canada open for more than a year, a key industry performance metric, rose 1.1 per cent in the period ended Oct. 31, propelled by a 0.2 per cent gain in customer traffic and a 0.9 per cent gain in average basket size at the checkout.
The growth came as competition from Canada’s traditional grocery companies such as Loblaw and Metro strategically lowered their food prices to win over customers drawn to price cuts at discount chains and Walmart. As such, their efforts appear to be working, because although Walmart’s sales and market share gains grew, they appear to be slowing down.
In Canada, a “cost analytics program continues in helping drive down cost of goods allowing us to invest in price,” Brett Biggs, executive vice-president and chief financial officer at Arkansas-based Wal-Mart Stores Inc. told a conference call Thursday.
“We also reduced inventory levels even as sales increased.”
Total quarterly revenue at Walmart Canada, which does not break out a full set of financial results, rose by 3.3 per cent, and operating income rose on a normalized basis. The retailer also noted its market share in food and consumables and health and wellness increased by 60 basis points, according to market research firm Nielsen.
Walmart Canada has 408 stores, about 325 of which are “supercentres” with a full discount grocery store inside.
“We view it as positive (for Canada’s other retailers) that same-store sales growth at Walmart Canada is slowing, and that the supercentre roll-out is about 90 per cent complete, assuming some stores will not be converted to supercentres,” retail analyst Keith Howlett of Desjardins Securities wrote in a note to clients on Thursday.
“Walmart Canada and Costco Canada have achieved significant market share in grocery in Canada. This has, in our view, put significant stress on conventional grocers.”
Walmart Canada and Costco account for more than 20 per cent of this country’s food retail business, and their growth rate in the category has significantly outpaced that of grocers.
The general merchandise channel’s growth in food sales increased at a compound annual rate of 11.6 per cent between 2004 and 2015, according to data from Kevin Grier Market Analysis and Consulting, while grocery retailers’ food sales grew at a compound rate of just over three per cent in the same period.
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Overall, Wal-Mart’s same-store sales at its U.S. locations rose 1.2 per cent in the quarter, below analyst predictions of 1.3 per cent growth. The U.K. was the retailer’s hardest-hit market as its Asda division in Britain fought a fierce grocery war against traditional supermarket chains like Tesco and the strong European discount grocers Aldi and Lidl. Wal-Mart’s U.K. same-store sales fell 5.8 per cent and customer traffic fell 4.2 per cent.
“We are not satisfied,” Chief Executive Officer Doug McMillon said in a statement about the retailer’s overall performance. “We will continue to change and pick up speed to reach our longer-term aspirations.”
Wal-Mart shares fell more than four per cent in morning trading, the biggest intraday drop since May.
Total revenue at Wal-Mart rose 0.7 per cent to US$118.2 billion and earnings in the quarter fell six per cent to US$3.2 billion, or US98 cents per share, from US$3.4 billion (US$1.03) a year ago. Currency had a negative impact of three cents per share in the quarter.
Source: The Financial Post
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