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.

Link to original article

Tagged: Community, Culture, Economy, Stories

Share: Print

Leave Comments

Blog Posts

Bernie Kraatz

How tiny particles can ...

Sharon Oosthoek | December 1, 2015

Nanotechnology is most often celebrated for its potential to diagnose and treat human disease. University of Toronto chemist Bernie Kraatz's research is focused on fine-tuning this potential. Kraatz makes nano-sized “hooks” designed to fish out from blood, serum or urine the molecules that signal diseases such as cancer or HIV. The hooks are made of combinations of nanoparticles that can also lock on to the biochemical changes that happen in our bodies when drugs fight these illnesses. This means they can both diagnose disease and monitor treatment. While Kraatz's nanoparticle hooks are still in the testing stage, he has designed them to be embedded in microchips used in hand-held biosensors. These biosensors could one day be used in the field and the hospital to quickly scan biological samples for disease while making sure drugs are working as they should. It is, as Kraatz says, a step toward more personalized medicine. Such biosensors could also help border agents quickly detect DNA indicating the presence of endangered or invasive species in goods. Water treatment workers could test for pathogens such as viruses or bacteria. Right now, testing for pathogens means culturing samples, which can take several days. “We are offering continuous and fast detection,” says Kraatz. Building instructions Kraatz’s nano-sized hooks are made of tiny chemical compounds that mimic larger, disease-signalling biological molecules. “The compounds I make are small compared to the biomolecules we are fishing for, but they retain the ability to bind with them,” he says. Getting these hooks just right requires an intimate understanding of the chemical properties of both the compounds and the biomolecules in our bodies that he wants to identify. Kraatz makes his hooks with nanoparticles of ferrocene. Ferrocene is a crystalline compound composed of iron, carbon and hydrogen. This compound is responsible for first-level sensing and can provide biosensors with a simple read-out. But ferrocene needs help recognizing exactly what it has found. And so Kraatz enlists the help of other nanomaterials — fragments of DNA and/or fragments of peptides, which are short chains of amino acids. The DNA fragments recognize and bind with larger mutant, disease-causing DNA. Meanwhile, the peptide fragments recognize and bind with larger mutant proteins that signal the disease’s progress. The final step in this complicated process involves attaching the ferrocene/DNA/peptide compound to a silicon chip coated in a thin layer of gold nanoparticles. This last piece of nanotechnology, the nanogold coating, conducts electricity in the biosensor's digital reader, which health workers can then consult for results.   A version of this story was originally published by University of Toronto's Edge magazine.  It has been edited for clarity, accuracy and brevity, and is republished here with permission

From farm to fork

ORION staff | October 9, 2015

It’s morning. Farmers across Ontario are waking up to tend to their animals. You might be sitting down to a plate of scrambled eggs—maybe even a few strips of bacon. We take it for granted that this food will be safe to eat. But we rarely think about why. That, in part, is thanks to people like University of Guelph systems design engineer Deborah Stacey. Relying on a high-performance computing network, her research helps inform the regulatory structures that ensure our food is free of contamination and that the animals it comes from are healthy. It is, in part, due to her work that we now have modelling programs such as NAADSM, the North American Animal Disease Spread Model. This is the software governments and industry rely on to plan for and prevent epidemics. “NAADSM allows you to put in various scenarios for various animal diseases to see how they would spread,” says Stacey. “My interest is in looking at the network connections within that: contact, moving animals from one herd to another, and licking or touching other animals. I’m interested in how these contact networks differ across industries, which could suggest a different path of disease spread.” This research is then used by organizations such as the Guelph-based Poultry Industry Council to help determine which transportation and feed networks most effectively limit or eliminate things like avian diseases—in other words, how to ensure your scrambled eggs are safe. Stacey’s work produces a staggering amount of data, and it requires a lot of statistical analysis. It’s done through the Shared Hierarchical Academic Research Computing Network, or SHARCNET, a consortium of Ontario universities, colleges and research centres using a shared system of distributed high-performance computing, linked together through the ORION network. “Studying these networks made me more aware of how we develop and distribute the food we eat,” Stacey says. “It was surprising to find out how critical these farming systems are, and that they can be understood using mathematical models. These human systems that we’ve evolved are incredibly complex, and it was enlightening to see how much we need to study this—our food safety and security depend on understanding these systems.” A  version of this story was originally published by ORION.  It has been edited for clarity, accuracy and brevity, and is republished here with permission. 
Student studying

Who gets into university

Sharon Oosthoek | September 28, 2015

Nipissing University sociologist David Zarifa studies the educational and labour market experiences of disadvantaged youth, and he has good news and bad news. The good news: access to undergraduate education continues to increase for traditionally disadvantaged students, including those from low-income families or whose parents did not continue past high school. The bad news: at the higher levels — post-graduate and professional programs — the playing field is much less level. Zarifa came to this conclusion after a close examination of Statistics Canada’s National Graduate Survey of the year 2000 cohort. The survey looks at the experience of 35,000 undergraduates who completed various programs across all provinces and territories. Sociologists have long known that social origins can influence a student's educational experience, directly through parents’ level of education and indirectly through student performance, aspirations, and academic confidence. But there is very little research in Canada about how social origins influence professional or graduate school attendance. When Zarifa crunched the Statistics Canada numbers, he found nearly 35 per cent of undergrads whose parents had a master’s or doctorate degree entered a professional or graduate level program. That compares to only about 13 per cent of graduates whose parents did not have a postsecondary education. He also found about 21 per cent of graduates without government-sponsored student loans entered a graduate or professional program, compared to only about 14 per cent of graduates with loans above $15,000. Zarifa says he is discouraged to see parent education still has an impact at the graduate and professional level, even when taking into consideration other important factors such as academic abilities, aspirations and the educational experiences of graduates. "You would hope by the time students have their undergraduate degree, they wouldn't have this disadvantage in carrying on and trying to better their career prospects," he says. He hopes his study draws attention to some of the challenges facing groups from less privileged backgrounds: "While more and more students are continuing on into some form of postsecondary education, not all social groups are accessing the most lucrative segments within the postsecondary system equally."  
immigration canada document

Welcoming newcomers

Robyn Dugas | August 25, 2015

Most research into Canadian immigration focuses on its three largest cities: Toronto, Montreal and Vancouver. Yet mid-sized cities such as Ottawa are just as dependent on newcomers to maintain populations, boost local economies and offset labour shortages. “Canada’s approach to managing the admission of newcomers is undergoing a fundamental change," says Western University social psychologist Stelian Medianu. "In particular, the new system that is taking shape will lead to greater involvement by employers and by colleges and universities.” But in places such as Ottawa, these organizations may lack the infrastructure and tools to help integrate immigrants. The answer, says Medianu, is interagency collaboration. Settlement agencies have the expertise — so why not bring that expertise to employers, universities and colleges as they help immigrants transition to Canadian society? Connecting with the experts Medianu’s research is just one part of the Pathways to Prosperity Partnership, a nation-wide alliance of university, government and community partners researching the integration of immigrants and minorities in Canada. He is working with an umbrella group representing Ottawa's settlement organizations called Local Agencies Serving Immigrants (LASI) Coalition. With the coalition's help, Medianu is identifying the needs of each stakeholder group: employers, educational institutions, immigrants and international students. He is also researching the most successful initiatives around the world to determine which ones could be put to use in the Ottawa region. His work is part of a year-long Mitacs Accelerate internship. Mitacs is a national non-profit organization that supports research partnerships between universities and partner organizations. Medianu is identifying how each LASI-affiliated settlement group is uniquely suited to furthering immigrant integration. "Each settlement agency has its own capacity and expertise," he says.  "Together they can create suites of services that better match the needs of employers, educational institutions and newcomers.” With that information at hand, Medianu has been  mapping potential partnerships between these settlement groups and the companies and institutions that could benefit from their expertise. At the end of the project, he’ll provide LASI with recommendations and research results that will help its member organizations build fruitful partnerships in the community and, ultimately, provide a streamlined settlement experience for new Canadians in mid-sized cities.

Tracking turtles

Sharon Oosthoek | August 24, 2015

James Paterson spent the spring of 2009 and 2010 hiding behind trees and crouching in the underbrush of Algonquin Park. Thus camouflaged, he allowed himself an occasional peek as he waited patiently for turtles to lay their eggs in the woods. But as soon as they left, he would dash out with a screen to cover the nests and protect the eggs from predators. read more »
More Blogs »