Walmart Canada Corp. is ramping up its food selling business in the West with the launch of online fresh grocery delivery in Vancouver as supermarkets across the country step up their fight against Amazon.com Inc.
Walmart, which began delivering groceries to residents in the Toronto area last year, announced Wednesday that it will launch fresh grocery delivery in Vancouver this summer through the service Food-X Urban Delivery Inc.
While Canada’s biggest supermarket chains have hastened and mobilized their online strategies in the wake of Amazon’s Whole Foods purchase last August, Walmart’s deal with Food-X gives the big-box retailer access to a group of urban consumers that it’s eager to court.
The new deal will “unlock a part of the city where we don’t have stores today, and where grocery prices are extremely inflated,” Lee Tappenden, CEO of Walmart Canada, said in an interview.
In the past, Walmart has had difficulty opening stores in core city areas such as Toronto’s Kensington Market, where in 2014 the retailer’s developer dropped a proposal to open a store following a vocal community outcry. But delivering fresh groceries to online ordering pickup depots in such neighbourhoods or delivering directly to consumers’ homes is a way to access customers in hard-to-reach areas.
“We are challenging ourselves to think of new and innovative ways to open up areas of the country where we are not currently strong in terms of store presence,” Tappenden explained, adding servicing “very dense, downtown urban areas such as Vancouver requires a different model.” Shipping fees have not been set and will be announced closer to the launch this summer.
Walmart currently delivers fresh groceries in Toronto and the surrounding area. It also offers free pickup of online fresh grocery orders outside its stores, as it does in Ottawa, Montreal, Calgary and Edmonton.
The Vancouver home delivery arrangement differs from Walmart’s fulfilment model in Toronto, where it delivers goods picked from its own store shelves using crowd source delivery companies. In Vancouver, Walmart will ship and store fresh groceries to the warehouse of Food-X’s parent company, Spud Inc., a local online grocery retailer that has delivered organics and other food products to residents since 1997.
The news comes as Canada’s biggest grocery players have shored up their strategies for grocery home delivery in recent months. While Amazon has not announced plans to deliver fresh groceries in this market, as it has done in some U.S. markets through its Amazon Fresh service, Canadian grocers appear to be preparing for the eventual certainty.
In November, Loblaw announced a partnership with California-based Instacart to launch home delivery services in Ontario and Vancouver, and in January, Sobeys signed a partnership deal with Britain’s Ocado Group to help build the retailer’s online shopping and delivery business, expected to launch in Toronto in about two years.
Metro, meanwhile, delivers groceries in Montreal and Quebec City and plans to launch e-commerce in Ontario at the end of this fiscal year or in early fiscal 2019.
“Grocery retailers are getting into delivery, looking at what Amazon is doing,” said Alex Arifuzzaman, partner in Toronto-based retail real estate specialists InterStratics Consultants “But this field of food, which is highly perishable, is much harder to get right. Grocery stores have a knowledge of how to do that, whereas Amazon is still in the learning stage from that perspective.”
Walmart’s strong Canadian sales in the fourth quarter announced Tuesday are an indication of just how quickly its food business is growing, Arifuzzaman said.
Walmart Canada posted 2.9 per cent same-store sales growth and higher operating profit in the period ended Jan. 31 as the company wooed consumers to its stores with lower prices. The retailer said it gained 60 basis points of market share year-over-year in food, consumables, and health and wellness in the period.
But the retailer’s shares fell more than 10 per cent to US$94.11 on Tuesday amid fears of slowing online sales growth relative to Amazon. Walmart’s same-store sales in the U.S. grew for the 14th consecutive quarter, but online sales grew 23 per cent in the critical holiday fourth quarter period — slower than the 29 per cent online sales growth in the same period last year, and slower than third-quarter online sales growth of 50 per cent.
In Canada, there has been also been market skepticism about whether increased consumer online shopping in categories such as books and apparel is transferable to food. Unlike Europe, where home delivery of online grocery orders is popular in many big cities, Canada’s cities are less dense, making home delivery fees costlier and making the delivery of high-quality fresh food more challenging from a logistics and profit perspective.
But Peter van Stolk, CEO of Spud, said consumer appetite for grocery delivery has noticeably accelerated. “We have been in the business for 20 years and we have doubled (online) business in the last year,” Van Stolk said. “Yes, the demand is coming, without question.”
Van Stolk said Spud anticipates online food sales will account for 10 to 15 per cent of the grocery market in the next five years — 15 per cent in urban areas, and 10 per cent in regional areas.