Walmart and groceries
Paul Fraumeni | March 11, 2015A little more than one year ago, 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 was to inject $500 million into expanding the number of Walmarts that offer groceries. Canada seems to have a full complement of grocery stores 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. 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. That’s the main reason Walmart is expanding into groceries. They already carry household products and clothing. 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. 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. 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. A longer version of this story was originally published by the University of Toronto. It has been edited for clarity, accuracy and brevity, and is republished here with permission.