Walmart, Costco hit food brakes

Canada’s grocers get respite from foreign giants

TORONTO • While international retailers Costco and Walmart have gobbled up a growing share of Canadian food sales for more than a decade, further gains are expected to be tougher to eke out as the country’s traditional grocers mount an improved defence.

Industry watchers say the price gap between the two sides has narrowed and the traditional stores’ loyalty programs are helping support sales.

“Every point of market share is hard fought over in the grocery market,” said Kenric S. Tyghe, a consumer and retail analyst at Raymond James.

“The traditional grocers have done a better job defending share than, I think, a lot of observers expected.”

While they have operated in Canada for years, competition from Costco and Walmart is still top of mind for local grocers given the lowcost strategy of the two foreign giants.

In April, Metro CEO Eric R. La Fleche discussed Costco’s expansion in Ontario, saying it is “a significant competitor, and we have to execute and differentiate.”

In the second quarter of 2004, traditional grocery stores sold about $12.3 billion worth of food, accounting for about 90 per cent of the market, according to Statistics Canada data.

General merchandisers, which include Costco and Walmart, sold about $1.3 billion in food or roughly 9.8 per cent.

In the same quarter of 2016, traditional grocers’ market share fell to about 79.2 per cent, while that of the general merchandisers more than doubled.

Those changes translate “into billions and billions of dollars every quarter,” said Kevin Grier, an agriculture and food market analyst, adding that the shift in market share to the U.S. chains is expected to slow.

“You can’t keep that up,” he said.

Canadian grocers were granted some respite from foreign-owned competitors when Target, which entered the Canadian market in 2013, pulled out of the country in 2015.

Costco now operates 95 warehouses in Canada, while Walmart runs 410 stores. Costco plans to open three more stores by the end of this year for a total of seven new stores in 2017.

While Walmart has not revealed any new expansion plans, it announced in 2015 it would add 42 supercentre locations.

Tyghe said that pace of expansion will not create the sort of disruption and dislocation seen when growth in square footage at the two chains outpaced population increases, forcing Canadian grocers to lower prices.