Each day TFO Canada publishes a sample of trade news on the Canadian import market along with any new, updated or changed regulations and legislations regarding international trade; countries in which TFO Canada offers services and on the export sectors which it promotes.
Canada: A packaged-goods price competition might be on the way, with Walmart leading the chargeWednesday, May 04, 2016 > 10:10:39
In the latest sign that grocery price competition may be heating up again, Walmart Canada has cut prices on packaged goods to take on discounters such as No Frills.
The mass merchant, which operates 312 stores across the country and began expanding into the grocery business in 2006, is looking to bolster its everyday low pricing strategy in the centre-of-the-store grocery aisles by consistently having lower shelf prices on selected major branded goods, according to a new report from Keith Howlett of Desjardins Securities.
The move comes after Sobeys reduced prices by between five per cent and seven per cent last month on 8,500 items at its IGA stores in Quebec.
“The pricing strategies being adopted by Walmart and Sobeys will have ramifications over time, if they are in fact sustained. The era of the industry typically taking its cue from Loblaw may be receding.”
In conducting pricing analyses at a variety of grocers beginning in February to assess how well grocers were passing through Canadian price inflation on goods priced in U.S. dollars, the analyst observed “unusually wide” shelf pricing gaps between Walmart and hard discount grocers on a small number of items, excluding weekly promotions.
“It is now our understanding that Walmart wants to consolidate its everyday low pricing image in the centre of the store by consistently having lower shelf prices on selected major branded items,” Howlett said, a move that might prevent grocers from expanding their gross margin rate over the long term.
Grocery leaders have been watching the centre-store action — or lack thereof — for a few years now, because overall sales of canned, packaged and frozen goods (which are traditionally found in the centre of grocery stores) have been eroding, with the bulk of grocery growth coming from fresh food. And in the last year it has been easier to pass inflation-related price increases to consumers for fruit and vegetables than for centre-store goods.
Loblaw is due to report its first-quarter earnings on Wednesday, and executives will likely be pressed to revisit analyst questions from recent quarters in regards to shelf pricing and inflation. In February, president Galen Weston told investors on a fourth-quarter conference call that he expected the price gap between the retailer’s conventional stores and its discount stores “will need to narrow, as the consumer gets more and more sensitive around price,” citing intensified promotions at Loblaw’s full-line market stores.
“People are looking for value, and the high/low retailers and the market division space deliver great value in the ads, and they will do more of that,” Weston said.
Howlett believes the potential impact of Walmart’s price cuts could be dampened by the chains’ “aggressive” weekly promotions and the strong performance of domestic grocers’ house brands, such as Loblaw’s President’s Choice label and Compliments at Sobeys.
“The domestic grocers also build their consumer proposition (even in discount) from the foundation of fresh products, in contrast to Walmart, which begins, in our view, from its pricing of centre-of-store offerings before layering on its fresh offering.” Howlett says he does not anticipate “any variant of a broader-based price war” given the concentrated nature of the Canadian grocery industry.
Loblaw is the largest discount grocer in Canada, with 478 stores under banners including Real Canadian Superstore and No Frills, while Walmart has 312 stores.