Grocery stores could be making headway in their ongoing battle for food market share against Walmart and Costco in Canada, according to a new industry report.
Although the two retail giants registered growth in Canada through most of 2016, their rate of growth in food sales slowed considerably from prior years, according to Kevin Grier Market Analysis and Consulting.
Grier notes general merchants in Canada, mostly Walmart and Costco, saw year-over-year gains in food sales of about one per cent more than the food stores did in the third quarter of last year compared with the third quarter of 2015.
But “that one per cent differential compares to a 9 per cent differential in favour of the general merchandise channel over the five years from 2011 to 2015,” Grier notes, citing StatsCan data, and “each quarterly loss in share is worth billions of dollars.”
Food stores’ share of food sales appears to have stabilized at 79 per cent of the market. That compares with an 84 per cent share just five years ago, Grier said.
“If the grocers could have kept their share at 84 per cent, which it was in 2015, their food sales would have been about a billion dollars more each quarter.”
The loss in grocery retailers’ share of food to the general merchandise channel has been slow and steady.
“You have still got erosion, but the rate of deterioration seems to be slowing. It’s still very good for Costco and Walmart, but on the other side we are seeing more competitive pricing, fundamentally, from grocery.”
The news comes as Canada’s veteran grocery companies have tried to step up their food game in order to compete with Walmart and Costco, both known for cavernous stores and value pricing of food and other merchandise.
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Loblaw has been upgrading its stores and adding fine breads and cheeses while expanding its in-store home meal replacement offerings, as has grocer Metro Inc., whose purchase of the Quebec-based specialty baker Première Moisson introduced premium baked goods and charcuterie to its stores.
Industry analysts have also noted much more intense pricing battles over the last year among the grocers in Western Canada, where consumers have been hit by the oil industry downturn, making the food business more competitive.
Last month, Costco reported that same-store sales in Canada outpaced growth in all of the warehouse retailer’s other divisions in the warehouse retailer’s second quarter, rising eight per cent, compared with growth of three per cent in the U.S.
At Walmart Canada, same-store sales rose 0.2 per cent in the quarter ended Jan. 31.
The competition is not expected to let up any time soon. Analysts note the primary square footage growth in the grocery market this year 2017 will be at Costco Canada, which is opening open seven stores this year.
Meanwhile, the general merchandise channel has been growing at a fearsome clip. Costco’s share of grocery food sales in 2016 was estimated at 10 per cent and Walmart’s at 7 per cent, according to CIBC, up from 7 per cent and 6 per cent, respectively, in 2010.
Food sales have been critical to Costco Canada’s success, and will continue to be as the company starts competing in earnest with industrial food, restaurant and office suppliers. The company opened its first business centre in Canada last month in order to better target owners of small businesses like restaurants and corner stores.
“At one time, we served (business customers) better than we serve them now,” Brien told the Financial Post in a recent interview, adding the warehouse retailer had increasingly incorporated products that cater to families rather than businesses as its business model evolved in Canada.
Source: Financial Post