Canada’s retail environment for produce is highly consolidated among a handful of supermarket and discount chains, and competition is fierce both across the nation and within the provinces. Retailers, both chains and independents, vie for a total of just over 34 million people—the equivalent of 11 percent of the U.S. population—spread across a geographic region slightly larger than its neighbor to the south.
Ron Lemaire, president of the Canadian Produce Marketing Association, characterizes it as “a small per capita market,” with “relatively few retailers fighting for [their] share of stomach.” Svetlana Uduslivaia, senior market research analyst at Euro monitor International, agrees: “It’s a very saturated, very competitive marketplace at this point.”
Highly Concentrated
All told, nearly 21,000 stores in Canada sell food, according to Statistics Canada, with total food sales reaching CAD$87 billion for 2012, representing 19 percent of all retail sales. Grocery stores and supermarkets dominate the market, accounting for 63 percent; yet discounters, club stores, and other outlets have slowly gained market share, climbing by several percentage points over the last two years.
The three major players—the national chains, Loblaw and Sobeys, and the big regional chain, Metro—account for 43 percent of retail food sales. These three, plus Costco and Walmart, continue to dominate the market and drive trends nationwide. Several have been adding floor space to their produce departments as a means of remaining competitive.
Although multinational retailers have not made as many inroads as in the United States, the global discounters and mass merchants that are in the Canada market—namely Costco and especially Walmart—are having a major impact. Costco has been in the country since 1986 and has 75 warehouse clubs, while Walmart entered in 1994 and has over 330 outlets, more than half of them supercenters with fresh produce.
Uduslivaia says both chains are “very strong competitors,” which was further underscored by Walmart Canada’s announcement in January that the company would spend $450 million to open three dozen new supercenters in Canada, through both new construction and renovations to existing facilities. The investment will not only add nearly 1.5 million square feet of retail space but provide what the company believed would reach 7,000 new jobs.
Some of the new stores were planned for the Maritimes, marking Walmart’s first supercenter foray into the eastern section of Canada. Walmart Canada’s president and CEO, Shelley Broader commented: “We’re truly delighted to be adding a full grocery section to more locations across the country, including the opening of our first supercenters in the Maritimes. We look forward to helping our customers coast-to-coast save money on groceries as well as their general merchandise purchases,” she said.
Canada’s retail environment for produce is highly consolidated among a handful of supermarket and discount chains, and competition is fierce both across the nation and within the provinces. Retailers, both chains and independents, vie for a total of just over 34 million people—the equivalent of 11 percent of the U.S. population—spread across a geographic region slightly larger than its neighbor to the south.
Ron Lemaire, president of the Canadian Produce Marketing Association, characterizes it as “a small per capita market,” with “relatively few retailers fighting for [their] share of stomach.” Svetlana Uduslivaia, senior market research analyst at Euro monitor International, agrees: “It’s a very saturated, very competitive marketplace at this point.”
Highly Concentrated
All told, nearly 21,000 stores in Canada sell food, according to Statistics Canada, with total food sales reaching CAD$87 billion for 2012, representing 19 percent of all retail sales. Grocery stores and supermarkets dominate the market, accounting for 63 percent; yet discounters, club stores, and other outlets have slowly gained market share, climbing by several percentage points over the last two years.
The three major players—the national chains, Loblaw and Sobeys, and the big regional chain, Metro—account for 43 percent of retail food sales. These three, plus Costco and Walmart, continue to dominate the market and drive trends nationwide. Several have been adding floor space to their produce departments as a means of remaining competitive.
Although multinational retailers have not made as many inroads as in the United States, the global discounters and mass merchants that are in the Canada market—namely Costco and especially Walmart—are having a major impact. Costco has been in the country since 1986 and has 75 warehouse clubs, while Walmart entered in 1994 and has over 330 outlets, more than half of them supercenters with fresh produce.
Uduslivaia says both chains are “very strong competitors,” which was further underscored by Walmart Canada’s announcement in January that the company would spend $450 million to open three dozen new supercenters in Canada, through both new construction and renovations to existing facilities. The investment will not only add nearly 1.5 million square feet of retail space but provide what the company believed would reach 7,000 new jobs.
Some of the new stores were planned for the Maritimes, marking Walmart’s first supercenter foray into the eastern section of Canada. Walmart Canada’s president and CEO, Shelley Broader commented: “We’re truly delighted to be adding a full grocery section to more locations across the country, including the opening of our first supercenters in the Maritimes. We look forward to helping our customers coast-to-coast save money on groceries as well as their general merchandise purchases,” she said.
Adding More Fresh
American retailers like Costco and Walmart are benefiting the fresh produce industry by steadily increasing the amount of space devoted to food in both the United States and Canada. According to Canadian Imperial Bank of Commerce (CIBC) World Markets, almost half of all food square footage growth from 2004 to 2014 will be due to mass merchants.
Walmart Supercenters in particular devote a great deal of space to groceries, with produce and other foods displayed in prominent, front-of-store locations. The company’s low pricing strategy, combined with a strong emphasis on better quality and selection, has made Walmart a destination for groceries. Since 2009, many of its stores have added fresh fruits and vegetables.
“They’re into the game,” says John F.T. Scott, president and CEO of the Canadian Federation of Independent Grocers. “But the traditional retailers, whether corporate or independent, are very good at fresh
produce.” Scott believes the influence of Costco and Walmart lies much more on the “fresh side than the packaged side.”
In 2013, all eyes were on the expansion of Target, planning to open 124 stores this year with 25 more to follow in 2014. Square footage is about 80 percent the size of the typical U.S. store. Although Target has not announced plans to carry groceries in Canada, this has been a growing category in the United States and most observers expect the chain to do so in the future. “Surveys have shown that Canadians wouldn’t mind trying groceries at Target,” commented Uduslivaia.
Alternative Formats
As the number of immigrants, especially Asians, has grown and continues to do so—the next five years are expected to bring 1 million new immigrants into Canada—there has been a rise in demand for ethnic produce and foods. According to the CIBC, ethnic grocers will account for 15 to 20 percent of all food-related square footage growth in Canadian retailers in 2013.
Another recent development in this sector is an increase of large, modern supermarkets catering to consumers in a wide range of ethnic groups. “These [retailers] are very strong in foods, but they’re not just about food,” Uduslivaia says. “It’s a full-scale modern supermarket with a mix of ethnic flavors and a variety of products.”
The Big Three supermarkets are getting into the act by acquiring established ethnic operators. The largest is Asian supermarket chain T&T, with 22 stores mostly in British Columbia and Ontario, which was purchased by Loblaw in 2009, while Metro acquired a Montreal chain, Marché Adonis (specializing in Mediterranean foods) in 2011. Others include Galleria Supermarkets (Korean) and Starsky Supermarket (Eastern European), both in the Toronto area.
Mainstream supermarkets and discounters are also boosting selections of ethnic produce, as well as other kinds of food—a lucrative move, since margins tend to be larger. Sobeys’ FreshCo banner is an example; it attracts ethnic and discount shoppers with an expanded produce selection as well as a variety of ethnic foods.
Mainstream shoppers, too, have been looking for ethnic options. Uduslivaia notes that consumers will pick up ethnic foods in their primary supermarket if the price is low, but many prefer to travel to an ethnic store as a destination for such foods. “There’s this interesting trend that indicates consumers are looking for something a little more authentic, and this is where the ethnic retailers win,” she says.
Another trend in Canadian food retailing is the rise of urban, small-format stores. With 81 percent of Canada’s population living in urban areas, major chains are experimenting with smaller footprints near condominium developments in city centers.
A case in point is Walmart’s “Urban 90s” launched in January 2012. “Produce and grocery are at the front and center of the store,” explains Uduslivaia, “so they’re the first thing you see.” Further, she says, the format places a major emphasis on food and groceries. Other grocery chains in on the trend include Sobeys with its “Urban Fresh” concept.
Regional Differences
While the national chains dominate the grocery industry in Canada under various names, there are also regional chains of note. A few include Longo’s in the Toronto area, Federated Co-ops in Alberta, and Safeway and Overwaitea (known for a large Asian assortment) in Western Canada.
While the formats and layouts of national chains are similar across the country, products vary. “British Columbia is far more likely to be on the very front of fresh, natural, organic, and exotic produce,” says Scott. On the other hand, the Atlantic region is traditional, with wrapped produce still in demand. Toronto and Montreal are melting pots that have changed dramatically in terms of product mix; Toronto’s more established groups include Asian, Caribbean, and Middle Eastern.
The French-language province of Quebec has a distinct, European character. Its retail landscape is more fragmented, with more independent grocers than other regions. Significant amounts of produce are sold through fruit stands and farmers’ markets, although Loblaw, Sobeys’ IGA stores, and Metro account for more than 80 percent of the grocery market overall. Walmart has seven stores in Quebec, but expects to have more than three times that in as many years.
In general, the independent and regional supermarket segment in Canada is nowhere near as significant as in the United States. “That’s not to say we don’t have a vibrant independent sector,” says Lemaire. Local independents such as Farm Boy in Ottawa have a community-based focus, provide additional services, and carry more local products than the chains. “They influence and challenge the national retailers in regional markets.”
Still, independents can have a hard time competing. “It’s particularly difficult if they are near a Walmart Supercenter,” Uduslivaia clarifies. “They can’t always match the prices, but they have to by default.”
The Price Is Right
The biggest impact of Walmart and Costco on the Canadian marketplace has been in intensifying price pressure in an already competitive landscape. “There’s been a blurring between grocery, discount, supercenters, and hypermarkets (a combination department store/superstore) on pricing,” says Uduslivaia. “Supermarkets are being very aggressive. Their prices are even lower than the discounters in some cases.”
“Consumers are very cautious, just as in the United States,” Scott explains. “Even in specialty stores they’ll ask the price.” He notes that margins are narrowing, even on organic and natural produce. “There’s a much stronger trend toward organic and natural than we’ve seen before,” he says. “But the whole market has tightened up a fair bit.”
“The extreme retail competition trickles down to the wholesale level,” adds John Russell, president, J. E. Russell Produce, an Ontario Food Terminal-based distributor of brands including Fresh Express, Berry Bowl, and Earthbound Farm. “It leads to very competitive price levels that are razor sharp. And we still have to continue to provide quality produce and good service, so our customers can compete with the influx of mass retailers.”
Convenience is another trend, with consumers willing to pay somewhat more for triple washed and bagged produce, prepared salads and stir fry ingredients, or baked prewrapped potatoes. “We’re seeing the growth of anything that makes it very easy for consumers,” Scott reports. The same can also be said of private label products, as many Canadians—like their American counterparts—no longer believe these brands to be of inferior quality. Sales for private label goods reached over CAD$11 billion in 2011 and were expected to climb in both 2012 and 2013.
There has also been growing interest in healthier-for-you foods, driven by Canada’s aging population as well as younger generations seeking more eco-friendly or ‘natural’ lifestyles. As part of this trend, sales growth in several fruit and vegetable categories is outpacing that of food sales overall. According to the U.S. Department of Agriculture’s Foreign Agricultural Service, sales of artichokes in Canada grew 44 percent in 2011, while cherries, kale, ginger root, and yams all grew by more than 15 percent (versus 2.2 percent for foods as a whole).
Part of the picture is imports; shipments of fresh fruit from the United States continued to climb over the last several years, representing 6.5 percent of all U.S. exports to Canada for 2012, worth nearly $1.8 billion. Canada imports 48 percent of its fruit from the United States, with another 11 percent from Mexico. Included in the U.S. figure were tropical and exotic fruits, which comprised 4.2 percent of the total fresh fruit shipments.
In recent years, both Chile and Costa Rica have carved a bigger slice of Canada’s import pie, with grapes, berries, apples, and cherries competing with U.S. commodities. The lion’s share of Canada’s fresh vegetable imports, however, continue to come from the United States (66 percent) and Mexico (25 percent), while the top three suppliers of processed fruits and vegetables are from the United States, China, and Thailand.
Even with rising interest in premium, convenient, healthier, and natural and organic produce, price is always a concern for Canadian consumers. Lemaire sums it up nicely: “We’re a price-driven market in the end.”
