Amazon deal for Whole Foods will shake up Canadian grocers: experts

Implications massive as stores open up more sales channels for online giant

Galen Weston might have to change his mind when it comes to home delivery of groceries.

The chief executive of Loblaw Cos. Ltd. has been skeptical about delivering online groceries to Canadian customers, but that could all change with Friday’s news that online giant Amazon is buying Whole Foods for US$13.7 billion.

Though Whole Foods only has 13 Canadian stores, in British Columbia and Ontario, the implications are massive for the online grocery market in this country because they give the virtual retailer clear bricks-and-mortar access points in this country as well as another channel for the potential distribution of fresh food. Amazon currently has six fulfilment centres across Canada, two in Vancouver and four in and around Toronto.

“All three traditional grocers (Loblaw, Sobeys and Metro) are suffering from what I call the ‘Apple’ syndrome,” said Sylvain Charlebois, food industry expert and dean of management at Dalhousie University in Halifax.

“In 2001, Apple decided to get into music, an industry that it wasn’t in, and now they dominate sales in that industry brilliantly,” he said. “The music business resisted change for many years, and an external force came in and initiated change and that is exactly what is happening in Canada. Amazon is making a statement today. (The grocery retailers) will need to change.”

It comes as the Big Three grocers have spent years fending off a steady market share incursion from Costco and Walmart, whose share of grocery sales rose to an estimated 10 per cent and seven per cent of the market in 2016, respectively, according to CIBC, up from seven per cent and six per cent in 2010.

Though the market for online grocery sales in Canada is tiny, Amazon’s entry into selling packaged goods online in 2013 has deepened the erosion of profit margins among traditional players, who have lowered prices in response to the increased competition on all sides.

Packaged food bought online accounts for 1.9 per cent of Canada’s $140-billion grocery market, according to Nielsen, but sales online are projected to grow 20 per cent a year and will account for 5.3 per cent of the market by 2020.

Packaged food accounts for 0.6 per cent of the market currently, while health and beauty items account for 1.8 per cent of sales, according to Nielsen. Non-grocery staples such as pet foods and household paper products account for 3.2 per cent of online sales.

Amazon’s move also stands to transform the mechanics of grocery distribution, as Canadian companies who deliver online grocery orders use their own fleet of trucks or outsource delivery to others. “Amazon is exploring product delivery with drones,” Charlebois said. “And it is 16 times more expensive to run a fleet of trucks, between labour, energy and time, than it is to use drones.”

All three grocery chains in Canada sell online to an extent. At IGA stores in Quebec, Sobeys delivers to homes and offers in-store grocery pickup of online orders. Rival Metro has introduced a similar program in and around Montreal. Loblaw is doing a test market run of a “click-and collect” model, where customers order and pay online and pick up items outside selected Loblaw stores.