Why is Walmart expanding into groceries?

Rotman’s David Soberman on the new era of supermarkets.

In early February, Shelley Broader, CEO of Walmart Canada, announced her chain was moving fully into the grocery business. Walmart’s Canadian stores had added full grocery lines to some of its larger outlets, but Broader’s plan now is to inject $500 million into expanding the number of Walmarts that offer groceries.

So, Canada will have hundreds of additional grocery stores added to what seems to be a full complement already, with Loblaws, Metro, Sobey’s, Longo’s, Costco and the discount stores related to some of these chains.

Are we at the point of market saturation?

We asked Professor David Soberman for his thoughts. Soberman is a professor of marketing and the Canadian National Chair of Strategic Marketing at U of T’s Rotman School of Management.

Q. Almost all Walmarts will soon offer a full line of groceries. Don’t we have enough grocery stores already?

No. The simplest explanation for why Walmart is entering the grocery market is that the population of Canada is growing, so we would expect there to be an increasing number of grocery stores.

A lot of people perceive this as being a massive increase to the number of chains but if you go back 20 or so years ago you had IGA, Food City, A&P, Dominion, and Loblaws. The bottom line is that even in those days we had five or six chains.

The major difference today is that there is a broadening of the product lines that are carried by the traditional grocery stores and, more recently, by those that previously did not sell groceries, like Walmart and Target. I’d include Costco in that group too.

Q. So it’s more about the product line, not the number of chains?

Right. The focus today is on combining a variety of product lines that used to be offered in separate stores. One-stop shopping is the key now.

People used to separate their grocery shopping from other shopping. So you might go to a mall to do Christmas shopping, for example, or to buy clothing or school supplies for your children. But for your groceries, you would have to make a separate trek to the supermarket.

Now, it’s all being combined. Evidence for this change in shopping behavior comes by thinking about the product lines carried in a traditional supermarket like Loblaws. They’ve vastly expanded their product line with Joe Fresh, which is a whole section dedicated to clothing. You can also buy all sorts of household fix-it products in Loblaws. That section used to be about 12 feet long and it’s much bigger now. In addition, most supermarkets contain pharmacies where you can get prescriptions filled. Loblaws perceives itself as not just competing for your supermarket dollar but also for your dollar for clothing and doing things around the house.

That’s the main reason Walmart is expanding into groceries. They already carry household products and clothing. The bottom line is that people will be spending an increasing amount of their shopping dollars in a place like Target or Costco if they carry groceries. Potentially this can put Walmart in a bit of a pickle because they have something like 400 stores but half of them don’t really have complete grocery sections. Now they are ramping that up so that the majority of their stores include the full grocery section. The idea is that when people think of going grocery shopping they’ll actually go to Walmart.

It’s also interesting that many of the Walmarts are located in malls where there’s also a supermarket. This means that even within malls there is an added dimension of competition and this is a departure from the past.

This might result in people not just deciding which mall to go to, but with a Walmart supermarket and another supermarket in the same mall, they might decide which part of the mall to go to in order to do their shopping or where to park their car.

Q. How do grocery stores distinguish themselves? Don’t they really all offer pretty much the same products?

No, I think they do actually create distinct images. Sobey’s, Loblaws and Metro all have discount stores, so that enables them to compete by reaching different audiences. And even the discount versions, like FreshCo, No Frills and Food Basics, each offer a somewhat different approach from each other in the discount sector of grocery shopping.

But the gold standard is Loblaws. They’ve created very much their own image with their pioneering efforts in private labels, with President’s Choice and No Name, and the collection of products they’re offering. That approach has really helped them to create differentiation.

Q. Still, I drive through the city and I see a grocery store every few blocks.

But pay attention to how physically close they really are. You have to remember that retailing is largely a location-based competitive context. This is the reason why when you look for a Sobey’s store you tend not to find a Loblaws store right next door. These stores know how to compete and they find locations that are under-served.

One of the things about grocery shopping is you don’t want to have to travel too far to do it. This enables each of these stores to create their own retail trading area. As I say, they know how to compete and one of the ways they compete is by not competing. And they do that by not co-locating.

Q. Is the same approach taken in all retail sectors?

The grocery markets don’t co-locate but it’s very different from what you see in the clothing industry. In Toronto, for example, there’s the Mink Mile on Bloor Street, just west of Yonge, where you find all the high-end clothing shops, like Armani, Boss, Harry Rosen and Holt Renfrew. They are all located next to each other.

Or at a big mall like Yorkdale, you find all the more popular clothing stores in one part of the mall. That’s because people go in there to shop for clothing and those retailers know that when people are in the mind to shop for clothing they want to be there.

But they also understand the shoppers will sometimes buy multiple items from different stores. In that kind of business, you don’t have to necessarily win with each shopper every time he or she shops. You may not have the person who buys on every trip but if on one out of every three trips they buy something at your shop, then you can still create a successful business. It’s a very different form of business when you’re a supermarket.

Q. What about the higher-end grocery stores, like Pusateri’s and McEwen? Do they make a difference to the overall grocery industry?

This is called segmentation. In cities like Toronto, Vancouver, Calgary or Montreal you have a certain segment of the population, maybe 5 or 10 percent, who are high income earners who like to spoil themselves with exotic foods or imported items that cost a bit more but that offer different tastes and experiences. This is not the sort of thing sold en masse by a Sobey’s or Metro because the turnover isn’t there and these kinds of products are not part of their model.

In contrast, the objective of a Pusateri’s or a McEwen is precisely to allow shoppers to find the exotic foods or imported items that cannot be found elsewhere. They charge a higher price so they don’t need the volume of a prototypical supermarket: as long as a specialty grocer like Pusateri’s has a steady flow of customers, the business model is viable. Whatever big city you go to you’ll see these types of stores. In London, England, you see Fortnum and Mason and in Paris, you see Fauchon which is the same sort of shopping experience, for wealthier people who want special jam or imported escargots imported from a certain region of France. But these grocery stores don’t have a negative influence on the business of the larger chains.

Any final thoughts?

We’re going to see a lot of change in the retail environment. Target is maybe having a harder time here than they imagined. But on the other hand, coming into a country and trying to make your organization fit the Canadian marketplace is something that cannot be done overnight. Overall, Canadians have a wide selection of places where to do their shopping. It’s convenient to be able to go to a Walmart or Costco and buy many different types of products and get things done all at once. So I think this is a good development for customers.

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Novel energy retrofit

Noreen Fagan | April 20, 2015

From the outside, the Victorian house at 31 Sussex Ave. in Toronto echoes the romanticism of a by-gone era but, once inside, the building transforms into an example of 21st century technologies. The 1879  red brick home is the stately research subject of Kim Pressnail, a professor of civil engineering at the University of Toronto and Russell Richman, a professor of building science at Ryerson University. The University of Toronto-owned house is part of a low-energy retrofit project designed by Pressnail and his former student, Richman. The project explores new and innovative approaches to low-energy housing. In 2013, the Sussex house was retrofitted to incorporate two-nested thermal zones. The box-within-a-box consists of a core and perimeter zone, each with separate temperature controls. The core contains the most commonly-used spaces such as the kitchen, dining room, bathroom and master bedroom while the perimeter contains non-essential spaces such as the ballroom and spare bedrooms. The house uses radiant floor heating, and has triple-glazed windows and foam insulation.  But the key to saving energy lies in the ability to keep the two separately insulated thermal zones at different temperatures, which is what Pressnail and his team did for one year, beginning in December 2013. “We started out by heating the whole building, then gradually turned the heat down in the perimeter,” says Pressnail. In January, the permimeter's thermostat was set at 21 C. This allowed the researchers to see how the house would perform if all areas were heated.  In February and March, the perimeter air temperature was gradually reduced to 5oC. This provided the researchers with the opportunity to evaluate the response of the ornate plaster ceiling in the ballroom.  Generally, the perimeter areas can be turned down to 5oC or the average outdoor monthly temperature whichever is greater in order to achieve maximum energy savings during the winter season. But in April, as outdoor temperatures began to climb, the team allowed the perimeter temperature to increase to 10oC. “The goal was to save energy and increase the durability of the building – not degrade it,” says Pressnail. Tenants to move in The overall target was to save 75 per cent more energy compared to a home built to the 2012 Ontario Building Code (OBC) standards. In fact, the savings were 65 per cent, but if the perimeter had been operated in the maximum energy savings mode for the entire winter, they would have been closer to their goal, says Pressnail Although the initial research period has ended, the team will continue to record energy usage after new tenant – a visiting professor –  moves in April 1. “We are going to monitor how the occupant, who has been given the tools to save energy, will run the house. We are going to sit back and see what happens,” says Pressnail. While Pressnail keeps tabs on the Sussex house, his future projects will include either building thermal zones into a new home or retrofitting a modern building. Although research done at Sussex house shows that thermal zoning is environmentally friendly, Pressnail doubts people will be rushing to retrofit their houses anytime soon. At a time when natural gas and oil prices are low, the cost of retrofitting outweighs the energy savings. “The game-changer will be when people start paying the true cost of what the energy is doing to the environment,” he says.  

Bathroom talk

Sharon Oosthoek | April 16, 2015

Alex Mihailidis is known as "the talking bathroom guy" for his research into computerized devices designed to help those with dementia live more independently in their homes. The University of Toronto biomedical engineer created a bathroom with sensors to detect when someone standing idly at the sink has forgotten how to wash their hands. The sensors trigger a gentle voice that leads them through the process of turning on the tap and using the soap. And if they need extra help, there is a video screen in front of the sink to demonstrate proper technique. Mihailidis's bathroom adapts to the user so that if it's their habit to take 30 seconds to lather up, it will wait 30 seconds before prompting them to rinse. He has put his bathroom through a series of rigorous tests at the Toronto Rehabilitation Institute's mock apartment, set up for studying assistive technologies in the home. People with mild to moderate Alzheimer’s disease living in long-term care homes in Toronto came in to help, showing that they are able to complete 25 per cent more of the required steps with the bathroom's prompts. Testing is crucial, says Mihailidis. Anywhere from 70 to 90 per cent of assistive devices are abandoned after a short period of use. Often it's because designers haven't deeply considered users' abilities, education and cultural or social backgrounds. Mihailidis is just wrapping up a research project to understand how these factors affect people's use of assistive technologies. The project relies on questionnaires, focus groups and interviews with caregivers. "Technology is the easy part" His resolve to get it right comes from a chance meeting years ago, with an engineer whose wife had Alzheimer’s disease. The man talked about how both he and his wife were embarrassed when he had to help her in the bathroom. He said he wished there was some device that could prompt his wife to use the toilet and sink, and give her back her dignity. "That kind of stuck with me," says Mihailidis. "Technology is the easy part. I mean it may take us a few years to perfect it. But what we really need to understand is how this technology affects people's lives." Mihailidis is also working on an interactive robot that can help people with dementia complete daily tasks such as making a cup of tea. Unlike the bathroom technology, which stays put, the robot can follow someone into the kitchen. Preliminary tests at Toronto Rehab show people with dementia are willing to interact with the robot and follow its prompts. Mihailidis's team — keenly aware that our population is aging ­— is encouraged by these results. "We are still in the research phase. These are complex technologies," says Mihailidis. "But our goal is have people use these technologies in their home to keep them living there independently as long a possible."

Healing gardens

Araina Bond | April 13, 2015

Nathan Perkins is dedicated to improving people’s health, one woodland path at a time. “Connecting with nature is incredibly important for health and wellbeing,” says the associate professor at the University of Guelph’s School of Environmental Design and Rural Development. His work is part of a body of research that demonstrates the powerful benefits that come from interacting with natural environments. In fact, studies show even a five-minute walk outdoors can lower blood levels of the stress hormone cortisol. Whether it’s as complex as a walk through a labyrinth or as simple as being able to move a chair to a place in the sun, research shows that a vital part of happiness and healing involves being in a healthy environment. While there are many studies that link nature – even something as simple as gardening or caring for a house plant – with good physical and mental health, Perkins has seen the effects first hand. He recalls keenly how a staff member at a health centre he helped design once told him: “What a huge difference this design makes for our clients. They are self-medicating on nature!” Perkins also works with schools and other institutions, and he’s designed projects on three continents. While each is different, they are all about finding the best ways to connect people with nature. His first major project was working with Guelph's Homewood Health Centre, a psychiatric hospital with programs for helping patients deal with addictions. “I was their designer in residence,” he says. “It was the highlight of my academic career.” Participatory design crucial to project Since the historic Homewood Health Centre houses a daycare where Perkins’ own children attended, the beautiful grounds are also an opportunity for stimulating interaction. “The clients got so much joy from watching the kids play in the gardens,” he says. “But the children also learned that people with addictions and mental health issues are just regular people.” Perkins explains that environments that inspire wellbeing are about more than just beautiful flowers. He believes in a process of participatory design from beginning to end. Patients and staff at Homewood, for example, were not only consulted throughout, but were also involved in long-term initiatives such as the herb garden and nature trail. “We all need a pilgrimage experience, a contemplative meditative space. It can be as simple as having chairs that people can move to create their own space,” he says, pointing out that in many institutions such as hospitals, chairs are bolted to the floor. Perkins has published several studies showing the benefits of involving staff, patients and even visitors in the design process. In designing institutions, he says, so much of the process is focused on long term cost-saving measures. “That’s how you end up with windows that don’t open,” he explains. “I’m a big believer in windows that patients can open. If you can’t have that, it could be something as inexpensive as putting a bird feeder outside the window.” Perkins notes that research shows small changes, such as having a hospital room with a view, can lead to shorter stays and less pain medication. In fact, he still treasures a letter sent by one former patient with addictions issues thanking him for the woodland trail he’d designed. She said it gave her hope and helped her heal. “I want to change the world,” says Perkins, and there is little doubt that he is on the right path.

Fix that leaky pipe

Sharon Oosthoek | April 9, 2015

There was a time when mould in your house — even so-called toxic black mould — was considered a mere aesthetic problem. "Until 1988, it was assumed if mould grew in a building, it was just ugly and not much of a health hazard," says David Miller, an expert in fungal toxins and allergens at Carleton University. "That assumption was absolutely wrong." Miller's research has been instrumental in changing our understanding of how mouldy homes harm our health, and in creating building codes and government policy to lessen those effects. Mould is a colloquial term for fungi that grow on things such as food and damp building materials. When it reaches a critical mass on the wall or a cold corner of a house, bits of the fuzzy stuff break off and become airborne or collect in dust. These fragments contain toxins and proteins, some of which are allergens, and all of which are small enough to travel deep into the lungs. People living or working in damp and mouldy buildings are at increased risk for asthma and respiratory problems such as colds and flu. Miller helped establish this link by honing techniques for assessing exposure in a way that is relevant to our health. In partnership with a large clinical lab, he works with blood samples from people already known to be allergic. This means their blood contains antibodies produced in response to various allergens, including those from mould in their homes and workplaces. Miller then uses these antibodies to "mine" for allergenic proteins produced by mould. He does this by extracting proteins from the most common species of fungi that grow on damp building materials. These are then purified on a special gel that also separates them. Next he spreads a dilution of the antibodies over the gel. "If there is a protein that the antibody recognizes, it will stop there and stick," he says. This tells him that the proteins from building samples come from moulds that have an adverse affect on our health. Don't forget to ventilate Such research is especially important in Canada, where children — whose developing immune systems make them vulnerable — spend about 90 per cent of their time indoors. That's a problem, given that between 10 and 30 per cent of homes in North America have moisture issues leading to mould growth. Part of the reason for this, says Miller, is we began to better insulate our homes in response to the 1970s' energy crisis. That's a good thing for reducing energy and greenhouse gas emissions. But for a long time we didn't pay enough attention to proper ventilation, giving mould a damp breeding ground. "A typical family of four emits two to seven kilograms of water every hour from things like cooking, cleaning, showers and faulty venting on clothes dryers," says Miller. "If it isn't vented properly, the water goes into the fabric of the building." Thanks to the work of Miller and others, we now better understand the risks. This has led not only to building codes requiring better ventilation, but also to public education campaigns encouraging people to repair leaky pipes, use kitchen and bathroom exhaust fans and make sure clothes dryers are properly vented. "Changing building codes requires evidence. Making public policy requires evidence," says Miller. "That's where I've tried to make my contribution."

Let the voting begin: ...

Sharon Oosthoek | April 8, 2015

Did you know the anti-blackout suit, which gave Allied pilots the advantage in the Second World War and later enabled space travel, was designed here in Ontario? Or how about evidence used in the canonization of the first Canadian-born saint, or the development of the colour motion picture process Technicolour? Yep, all advances made here in Ontario. On April 1, the Research Matters team launched a fun-online campaign at www.yourontarioresearch.ca to highlight the 50 game-changing discoveries made in this province’s universities over the last 100 years. The list includes well-known ones — insulin and the Group of Seven, anyone? It also includes discoveries with less profile, but just as much impact. Check out our top picks and see for yourself. As hard as it was for people here at Research Matters to narrow down the list to 50, the big challenge is now up to you to vote for your favourite discovery. Voting began April 1 and will continue all summer at fairs and public events as the game changers go on the road with the Research Matters’ Curiosity Shop. The public’s top-five favourites will be announced in the fall. Of course, measuring the impact of university research can be a personal matter — for some people it might be about how a certain discovery in medicine saved their mother's life. For others, it may be how it led to public policy that created new possibilities for peace and democracy. My personal favourite? As an enviro geek, my vote goes to techniques pioneered in Ontario for assessing water quality, contaminant transport, climate change and changing wildlife stocks in critically-important ecosystems. I'm proud of our home-grown discoveries and I hope you are too. Let this be an opportunity to delve deeper into research that matters to you. Be sure to keep up to date on twitter – you can find us at @OntarioResearch and use the hashtag #researchmatters. Check out the full list of game-changing discoveries at http://yourontarioresearch.ca/ and vote for your favourite.
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