Success by Differentiation
Despite the competitive challenges, many independents and local grocers are flourishing. “We have a healthy mix of national and regional customers and our business is growing on both sides,” says Davidson. “Smaller chains that are hands-on operators and have a passion for fresh produce are doing really well and are happy with the reality of their situation.”
David Wilkes, senior vice president of the Retail Council of Canada, believes size is less important in the grand scheme of things than customer service. “It’s all about basics and fundamentals to give the customer the best possible experience, no matter the size or ownership.”
LESSONS LEARNED FROM TARGET
Target closed down its Canadian operations in early 2015, just two years after its debut in the country. Were Target’s woes unique, or does its situation offer lessons for U.S. retailers hoping to expand into Canada?David Wilkes, senior vice president of the Retail Council of Canada, notes that popular high-end grocer Whole Foods as well as luxury retailers Saks Fifth Avenue and Nordstrom department stores have been able to enter the Canada market successfully and continue to expand. “It was a black swan event with a unique set of circumstances,” he says of Target.
“There are no barriers to U.S. firms if they approach it right; you have to have the right product at the right price at the right time, with the right focus on individual markets. Most retailers understand that—Target was an exception.”
Retail marketing consultant Ed Strapagiel agrees: “Up to their advances into Canada, Target was regarded as a sharp operator with excellent marketing.” But the retailer misjudged the market initially and then pulled the plug, possibly prematurely, when a new CEO came into the picture. “There were all sorts of missteps; many of the wounds were self-inflicted.”
Euromonitor International research analyst Amanda Bourlier adds that not only did the retailer exhibit a lack of understanding of Canadian consumers, especially when it came to product mix and pricing structure, but executed its plans in a haphazard manner.
Strapagiel concurs, and says other retailers can learn from Target’s experience. “Canada is a very different place to do business,” he explains.
“It’s not so much that consumers are different, it’s the operational structure.” Canada’s lower population density adds wrinkles to distribution, though he believes there are plenty of opportunities in the more populous areas. Additionally, unions tend to be stronger than in the United States affecting labor costs, while packaging and labeling costs are higher in the provinces due to bilingual requirements.
“Loblaw, Metro, and Sobeys are formidable competitors,” Strapagiel says. All three are operationally sound and vertically integrated, and Loblaw in particular is a master of private labels, he adds.
The largest of the regional chains, 100-year-old Overwaitea Food Group, is owned by the Jim Pattison Group and operates the Save-On-Foods, PriceSmart Foods, Cooper’s Foods, Urban Fare, and Overwaitea Foods banners. Save-On-Foods is the chain’s most recognized banner, and other stores, like Cooper’s Foods (purchased in 1999), are being rebranded. Like the big national supermarket groups, Overwaitea is also expanding its reach: the chain began moving outside its traditional base of British Columbia and Alberta in 2015 to the prairie provinces of Saskatchewan and Manitoba.
Overwaitea has opened nearly two dozen new stores in the last two years, and expects to add 25 more to its ranks within the next two years. It also opened new stores in British Columbia, including higher-end PriceSmart Foods in Burnaby and Fleet-wood, and converted three recently acquired Lower Mainland MarketPlace IGA stores to Save-On-Foods.
Another group, Federated Co-operatives Ltd. based in Saskatoon, Saskatchewan, acquired a number of Safeway stores from Sobeys, and rebranded the new locations. While Federated Co-op is certainly not as large as Walmart or Canada’s Big Three chains, it has a sizeablenetwork of wholesale, foodservice, and retail services. Through its The Grocery People subsidiary, which contracts with grower-shippers in several provinces, affiliated member stores are supplied with competitively priced produce and fresh-cut products.
