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Wal-Mart Canada takes bite out of food costs

A Wal-Mart supercentre

Rick Wilking/Reuters

Its sales have been lacklustre, but Wal-Mart Canada Corp. can point to at least one area of consistent growth: food. Now it's counting on its core strength - its ability to get goods to shelves quickly - to lure more customers into its grocery aisles.

Consumers often judge a grocery store by the quality of its fruits and vegetables. In Canada, Wal-Mart has had to catch up with rivals, having introduced fresh produce here just four years ago in its new Supercentres. Today, in its key Ontario market, it is starting to move produce from warehouse to stores in a mere one day, down from as much as three, to shave costs by cutting by 25 per cent the amount of wilted produce that it has to toss.

The efforts appear to be paying off. In its third quarter, Wal-Mart reported on Tuesday that while overall sales in Canadian stores open a year or more slipped 0.4 per cent, it continued to enjoy strength in its food business.

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"It's very important for them, especially in the short term, if food is the area where their sales are increasing," said Martin Gooch, director of the Value Chain Management Centre in Guelph, Ont. "They can't afford to get it wrong."

Wal-Mart is trying to raise its game in food, a highly competitive market in which the major chains are revamping distribution centres with better technology to get food to the stores fresher. Grocery leader Loblaw Cos. Ltd., for instance, is investing $185-million this year alone to improve its systems and move merchandise faster.

At the same time, supermarkets face growing pressure from non-traditional players bulking up on food. Now Wal-Mart Canada is feeling the urgency to beat its rivals in the food aisles to help keep its overall business buoyant in an uncertain economy.

"It is paying off in incremental sales," Les Mann, senior vice-president of food and consumables at Wal-Mart Canada, said of the company's push on the produce market in Ontario, which is expected to be a model for the discounter's other Canadian operations. "There's a cost but there is a benefit of getting incremental sales."

To make gains in produce, Mr. Mann has ditched its third-party distributors and shifted the work in-house. In doing so, he borrows from the playbook of Asda, the British division of Wal-Mart, whose main business is groceries. Not coincidentally, David Cheesewright, chief executive officer at Wal-Mart Canada since early 2008, was a former executive at Asda, and he recruited an Asda veteran to run the supply chain here.

Mr. Gooch said other major grocers, which did not reply to queries, are working toward shipping produce from the warehouse to the store within 24 hours. Deliveries of perishable products within one to two days is probably the norm, he said.

In another effort to reduce shipping times, Wal-Mart has dropped an entire step in the handling of produce. Its suppliers now ship produce to the warehouse on pallets that are ready to be delivered directly to individual stores; previously, warehouse employees working for Wal-Mart had to pick and pack the goods for delivery to stores.

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Wal-Mart has moved in other areas to bolster produce sales. In response to customers saying the sections were understaffed, the chain has increased the hours its employees work in the department and introduced green aprons to make them more visible. To feed customers' growing appetite for affordable organic products, it has lowered prices to just 10 per cent higher than its regular produce; before they were 25 per cent higher.

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About the Author
Retailing Reporter

Marina Strauss covers retailing for The Globe and Mail's Report on Business. She follows a wide range of topics in the sector, from the fallout of foreign retailers invading Canada to how a merchant such as the Swedish Ikea gets its mojo. She has probed the rise and fall (and revival efforts) of Loblaw Cos., Hudson's Bay and others. More

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