Canada Food and Drink Report Q4 2009

In Q309 US retail giant Wal-Mart Stores announced plans to open its first two supercenters in the province of Saskatchewan in Western Canada. The retailer said that the 185,000 square foot stores are due to open in early-2010 and will be located in the cities of Regina and Saskatoon. This news follows shortly after Wal-Mart announced plans to invest CAD115mn to open a new distribution centre in Alberta to act as a hub for fresh food in Western Canada. Wal-Mart's expansion in the region is likely to heighten price competition and could put pressure on the current market leaders, including Safeway.

Wal-Mart began opening hypermarkets in Canada in 2006. The firm already operated around 250 standard-sized stores but the US style supercenters were something new to the Canadian retail sector. The stores have so far proven popular, offering low prices and fitting well with Canadians' car-based lifestyle.

Since adopting this strategy Wal-Mart has been expanding these stores very aggressively, opening an average of two new stores every month. The firm now has 58 in operation and a further 34 expected to be complete by the end of 2009. The company has made clear that it sees Canada as one of its key growth markets in the coming years, along with Mexico and the UK.

The supercenters have put downwards pressure on prices, compounded by the economic downturn which has increased price-sensitivity. In the East of Canada, where most of its stores are currently located, Wal- Mart is up against the incumbents Loblaw and Metro and both have been forced to adapt to the firm's presence. Both retailers have introduced a wider range of private labels and increased the number of store promotions and discounts.

However, while the retail landscape has certainly changed, fears that Wal-Mart's aggressive expansion could decimate sales at conventional retailers have so far proven to be unfounded. In 2008 Loblaw had a strong year, with same-store sales increasing by 4.2% (up from 2.4% in 2007). Although Loblaw's samestore growth slowed to 2.1% in the first quarter of 2009, this can still be regarded a reasonably positive result against a deteriorating economic backdrop. These results suggest that for retailers in Western Canada, the arrival of Wal-Mart is not reason to panic.

While the firm's focus on value is sure to put downwards pressure on prices and should prompt local incumbents to reassess their price positioning and hone their private-label offering, a general trend towards value is already the dominant theme in the Canadian retail sector and Wal-Mart's arrival is only one part of this overall trend.