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Wal-Mart makes gains in cutthroat grocery sector

Wal-Mart Canada’s strongest sales came from food and packaged goods, while online sales increased by 13 per cent.

PAUL DARROW/The Globe and Mail

Discounter Wal-Mart Canada Corp. is taking a bite from rivals in this country's food fight even as it grapples with weaker sales at existing stores.

The world's largest retailer reported on Thursday that its Canadian sales at stores open a year or more – a key retail measure – slipped 1.4 per cent in its first quarter, marking the sixth quarter in a row that those sales have declined.

But at the same time, Wal-Mart's share of the Canadian grocery market picked up, signalling that it is winning business from competitors. Its weapon of choice is shaving prices, or "price investment," in retail jargon.

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"Our continued price investment resulted in an increased price gap to competitors," said David Cheesewright, president of Wal-Mart's international division that includes Canada.

While just a year ago, retail incumbents feared the arrival of Target Corp. in Canada, today the U.S. cheap-chic purveyor is stumbling and Wal-Mart is picking away at rivals, especially in the grocery aisles. Wal-Mart's share of the estimated $85.8-billion Canadian food and consumer products market climbed by 0.42 per cent in the 12 months ended April 19, according to researcher Nielsen.

In a reflection of the stiffer competition, grocers over all are selling more of their products at a discount. By the first quarter of this year, 37 per cent of consumer product goods sales were sold with a price cut, compared with 31 per cent in the late summer of 2010, Nielsen data show.

And while Target has struggled, another giant player in Canada – domestically owned Loblaw Cos. Ltd. – is making gains. It managed to increase its same-store sales by 0.9 per cent in its first quarter, led by its food business and marking its fifth quarter in a row those sales have risen.

"Loblaw appears to have found the rhythm in its food business, within the context of a still very challenging industry," Keith Howlett, retail analyst at Desjardins Securities, said.

Still, Loblaw president Vicente Trius said recently the retailer's market share is declining, but at a rate less than the drop in its share of the overall Canadian supermarket space. Grocery retail space is growing at an unprecedented rate as Target and Wal-Mart expand rapidly.

It's not only in its food aisles that Wal-Mart is slashing prices. Wal-Mart touted lower electronics and computer prices than other national retailers in Canada 90 per cent of the time for the same products in the year ended May 11, according to a survey by market researcher Gfk.

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Even so, parent Wal-Mart Stores Inc. reported an overall disappointing first quarter, blaming severe winter weather and higher health-care costs, among other factors. "Like other retailers in the United States, the unseasonably cold and disruptive weather negatively impacted U.S. sales," chief executive officer Doug McMillon said. It was forced to spend millions of dollars more than expected on heating and snow removal.

Still, "2014 appears to be a transition year for the company," said Michael Exstein, retail analyst at Credit Suisse in New York, as the retailer invests in building its e-commerce and improving its core U.S. market.

The chain in Canada also was hit by bitter cold weather, which pinched seasonal categories such as clothing and outdoor items, Mr. Cheesewright said. Health product sales were hurt by lower generic prescription reimbursements as a result of provincial reforms and higher use of low-cost generics.

Wal-Mart Canada's sales were strongest in its food and packaged goods aisles, he said. And online sales jumped 134 per cent, while operating profit outpaced sales, which in total here increased by 1.2 per cent (it doesn't break out the dollar value).

Mr. Howlett expects competitive intensity in the grocery market to moderate in the second half of the year after Target opens the bulk of its almost 130 stores in Canada. "The broader battle for customers between Wal-Mart Canada and Target Canada has affected the promotional pricing of high traffic categories as Target seeks to attract consumer trial."

Wal-Mart executives "will use their deep pockets and low-cost structure to outlast the competition until somebody else blinks," said Jim Danahy, program director of the centre of excellence in retail leadership at York University's Schulich School of Business and CEO of consultancy CustomerLAB.

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At the same time, Loblaw and Sobeys, the country's largest and second largest grocers, respectively, are aggressively seeking savings from their recent mergers, he said. Loblaw acquired Shoppers Drug Mart Corp. and Sobeys' parent Empire Co. bought Safeway Canada.

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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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