Shoppers takes over everything
Loblaw puts fresh food in its drugstore chain — but will it cannibalize itself?
Shrimp with your shampoo? Why the drugstore’s radical new plan should have corner stores and supermarkets sweating.
On a recent evening shopping trip to Shoppers Drug Mart, it looked as though Jennifer McGinnis’s basket of goods would top $50, but the items in it might surprise you: a Chinese BBQ-style pork sirloin roast; fresh-baked baguette and goat’s brie; a clamshell-packaged salad with arugula and dressing; and a litre of iced tea. Not a bottle of shampoo or vitamins in sight.
“I’ve popped in here for dinner a bunch since they added all this food,” the 52-year-old Toronto business analyst said, noting somewhat sheepishly that she knew there was a Valu-mart, one of Loblaw Cos. Ltd.’ s supermarket brands, located less than a kilometre away on the same street. “This is even closer to my house,” she shrugged.
The midtown Toronto Shoppers Drug Mart is one of six pilot locations in the city to undergo extensive renovations in recent months to accommodate a broad new range of fresh food — everything from avocados to air-chilled organic chickens — a potential strategic upside touted in Loblaw’s $12.4-billion purchase of the drug giant last year.
Indeed, as Shoppers prepared to extend its food pilot into eight Regina stores this May, it’s not hard to envision the beginnings of a conceptual shift in convenience retailing, both in terms of the retail players and the fresher food assortment.
The grocery selection on display at one Shoppers pilot in east-end Toronto takes up about one-third of the store’s square footage, and resembles the produce- and cheese-laden corner stores of Europe more than the carbier, junkier food offerings you might find at a 7-Eleven or Mac’s convenience store. By adding everything you might need to cook a nice, nutritious dinner to an already deep mix of beauty products, toiletries, pharmaceuticals, greeting cards and household goods, your neighbourhood Shoppers could soon be the store invading virtually every retail category.
Loblaw learned some time ago that Canadians don’t always want to shop in “category killers” the size of football fields; its attempt to gird itself for the onslaught of WalMart 15 years ago, expanding into electronics, furniture and housewares, ended up proving flawed, with the retailer eventually having to pull back somewhat. Many shoppers, particularly in the increasingly dense urban centres, prefer to make quick stops at smaller local grocery stores or fruit markets to pick up selected items through the week.
When Canada’s biggest grocery chain struck a deal to buy the country’s biggest drug retailer, Loblaw saw an opportunity to leverage Shoppers’ extensive country-wide network of 1,300 locations, regarding its heavy urban real estate footprint as a hot new sales channel for its President’s Choice line of prepared food. Selling fresh food at Shoppers wasn’t an explicit goal, though many in the sector speculated it was under consideration.
“Produce has been selling extremely well, which has been a pleasant surprise,” Mike Motz, president of Shoppers Drug Mart, said of the pilot, which began with a soft launch in September.
“We keep it very fresh, very well-rotated. We see we are selling a lot of single units. People are doing what we would call a fill-in shop — they are not buying a big bag of apples for the week, they are buying a couple of apples.”
While corner stores in North America have long made household staples and snack foods their stock in trade — typically the Doritos, Vachon cakes, pepperoni sticks and
How much profit will this add to Loblaw? Nobody really knows
Gatorade you can snarf in the car after a night of too much drinking — beyond milk and eggs, their perishable offerings are extremely slim.
“There are certainly some concerns in our industry,” Alex Scholten, president of the Canadian Convenience Store Association, which has been sounding alarm bells about such retail “channel blurring” for ages.
“Product offering is not the only inroad [Shoppers] has been making into our turf,” he said. “Over the years they have extended hours of operation and offered more convenient locations for customers. And it’s not just happening at pharmacies. You see supermarkets selling more single-serve products. There are now smaller Wal-Marts and Target Express in the U.S. — they are all looking more at going into the corner markets that would traditionally be our customers.”
On the flip side, it’s not clear apples and air-chilled chickens will perform as well on the sales floor at Shoppers as deodorant and Pepto Bismol.
Mr. Motz said the pharmacy retailer first tested fresh food including salads at some of its larger locations in 2010 and 2011, but the retailer was unhappy with the results. The chain has for years hosted its own in-shop convenience store, stocking snacks, milk, cheese, eggs and bread. But meats and produce have a more limited shelf life.
“We really struggled with the fresh food then,” he said.
Sales were inconsistent and the fresh selection was uneven. “With Loblaw acquiring us, we were able to leverage the expertise Loblaw has in the [food] business. I think this has allowed us to go back in and see what we can do in the convenience space on food.”
As a low-margin category relative to Shoppers’ traditional higher-markup stock of over-the-counter drugs, beauty products and seasonal items, carrying food is primarily a traffic strategy: bringing more customers into the store, while layering on a few more sales.
But it’s also trickier: strawberries, bananas and tomatoes don’t have anything like the shelf life of paper towels and makeup removal pads.
The U.S. Department of Agriculture estimates losses due to spoilage at supermarkets are close to 12% in fresh fruit, 10% in fresh vegetables, and 4.5% in fresh meat, poultry and seafood. Such goods need to be unloaded and placed in refrigerators quickly, and Shoppers store staff at the pilot locations have gone through extensive training in food handling and regulations, Mr. Motz said.
Shoppers has shed its own private-label packaged foods (Nativa, Simply Food, Everyday Market) to make way for Loblaw’s more popular President’s Choice brand at all of its stores, but at the pilot grocery locations, Mr. Motz believes offering highquality fresh food is “absolutely critical” to make the format a success.
Kevin Grier, an independent food-industry analyst based in Guelph, Ont., suspects it’s grocers who face just as much of a threat, perhaps more, to their own traditional stores from Shoppers’ foray into food than convenience stores do, with Loblaw facing the prospect of cannibalizing its own core business.
“Supermarket sales are withering away on the vine compared to food sales at general merchandise stores, like a Wal-Mart or a Costco,” he said.
In the past four quarters, food sales growth at Canadian general merchants increased an average of 9%, compared with an average of 2% growth in supermarkets, he noted, amid higher competition and a glut of square footage in the grocery sector.
“Even drugstores have increased their food sales 3% in the last four quarters — higher than supermarkets. It is so difficult in the core grocery business right now. Shoppers Drug Mart has always been highly price-competitive on convenient items such as milk and eggs, so I think [adding more fresh food] would be incremental for Shoppers. But how much profit will this add overall to Loblaw? Nobody really knows at this point.”
Mr. Motz says the eightstore pilot in Regina will be the real test of the Shoppers grocery strategy. With Toronto being so large, the retailer didn’t have the ability to promote its grocery offerings in just six stores with flyers that might end up anywhere, sending confused customers looking for hummus and baby carrots at one of the non-pilot stores. With fuller relative coverage in a smaller, less dense market like Regina, Loblaw is about to learn one way or another whether Canadians are ready to buy roast with their razor blades — and whether that’s a profitable enough mix to warrant a reinvention of the Shoppers strategy.
“Right now this is a work in progress,” Mr. Motz said.