Walmart and Costco are driving down prices and increasing their market share
The evolution of Canada’s food retailing industry is being hastened by a pair of American giants. Consumers are the big winners.
Reports on the latest Canada consumer price index drew a great deal of attention to falling meat prices. To the delight of barbecue fans, beef, pork and chicken prices have dropped for the first time in six years.
In fact, according to Statistics Canada, food prices declined dramatically across the board in June. Food inflation is now below the general inflation rate for the first time in almost two years.
Food price decreases are driven by a range of factors; for example, because food distributors are winning their fight against vendors to lower prices for consumers.
While food prices contract, menu prices in restaurants continue to increase, at 2.6 percent over last year.
Aside from Newfoundland and Labrador, most provinces and the territories experienced food price declines. Prices fell the most in Quebec and British Columbia, by more than 0.5 percent in just one month. Both provinces were considered key markets for high-value food products for sophisticated consumers.
However, that may be changing, because underneath the numbers published recently by Statistics Canada is a very different, even troubling, story about the nation’s food retailing establishment.
In the face of a changing marketplace, one retailer stands out. Walmart’s store sales are up 6.7 percent from last year and the retailer has made significant inroads in many parts of the country, particularly in Quebec and B.C. In fact, eight of the 13 stores Walmart bought from Target last year were in Quebec and B.C.
Overall sales are up more than eight percent at Walmart Canada and customers are spending 2.1 percent more per visit. Also, the average Walmart consumer is visiting the store more frequently, a powerful indicator that food is making a difference for the retail giant.
The numbers confirm the impact of Walmart Canada’s strategy as the food retailing landscape becomes more competitive.
Walmart wants to be the No. 1 food retailer in Canada, as it is in the U.S. And it’s difficult to bet against the Arkansas-based giant. Its low-cost operating model provides a significant advantage. And its focus on food prices can no longer be ignored.
Walmart Canada now has food labs to develop and test new products. The company is fully committed to food, offering more fresh products and better merchandise.
It has gone from a mediocre food retailer, at best, to a decent one. Now you feel like you are in a food store and the process of Walmart Canada legitimizing itself as a food retailer is almost complete.
But it’s not just Walmart. Costco has almost 10 percent of the Canadian food retailing market share, an impressive increase from a few years ago.
Both companies are capitalizing on our two-tiered food system.
While the haves – the foodies, the organic lovers and fan of local products – advocate for more changes, the have nots just survive. The have nots, who are not necessarily the poor and socially inept, are often the forgotten food consumers. They may have lost their jobs, recently run into financial difficulties or trying to raise children during a separation. They may even be working two or three jobs at once.
What Walmart and Costco are doing resonates with the have nots. They are capitalizing on that segment of the market who must watch every cent they spend.
So Loblaws, Sobeys and Metro are all putting more pressure on vendors to reduce prices. If you think the intent is only to protect consumers against higher food prices, you’re kidding yourself. These traditional retailers are working hard to protect themselves from Walmart.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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