Retailers are betting on discount. Will the momentum last?
Discount grocery stores have long been a draw for budget-conscious consumers, but with rising food prices and a higher cost of living, even those who once filled their carts without a second thought are now seeking ways to trim their grocery bills.
A February 2024 survey by Caddle Insights found more than 62% of grocery shoppers have switched primary grocery stores to secure better deals, and nearly 30% select grocery stores based on in-store discounts and promotions. More recently, the Canadian Food Sentiment Index by the Agri-Food Analytics Lab at Dalhousie University, supported by Caddle Insights, found nearly 25% of Canadians are shopping at cheaper stores.
“Discount has almost always been winning, other than a blip during COVID when conventional gained because you could do a one-stop shop and shop less frequently,” says Ransom Hawley, founder and CEO of Caddle. But now, he adds, more Canadians are changing how they eat and shop as they look to stretch their dollar as far as possible.
While Hawley’s insights are grounded in data, he shares a personal anecdote that’s playing out across the country. “Even in our household—and we’re certainly more fortunate than the average Canadian—we switched primary grocery stores because the prices were better,” he says. “We’ve traded to more private-label products because the prices are better. Even over Thanksgiving weekend, my uncles were talking about using price matching—that never would have crossed their minds before.”
Making big plays for price-conscious consumers
As value becomes a focal point in Canadian households of all types, major grocers are doubling down on their discount strategies—opening new stores, converting conventional stores into discount banners and launching all-new ultra-discount concepts.
“Discount has always been there … but the pace is ramping up as the economy is still top-of-mind for many people. That doesn’t seem to be going away in the near future,” says Lisa Hutcheson, retail strategist and managing partner of J.C. Williams Group. “Customers are willing to sacrifice to save money now. They are willing to give up some of the comfort they used to have from their go-to retailers.”
Loblaw, in particular, is making a significant play in the discount channel. This year, the retailer announced plans to expand its discount banners, No Frills and Maxi, with 40 stores—a mix of conversions and net-new stores. For No Frills, the focus has been on smaller footprint stores, typically around 10,000 square feet in urban markets. Recent openings include a small-format No Frills in Burlington, Ont., one in Toronto’s Liberty Village neighbourhood and one in the city’s entertainment district.
READ: Grocers find big benefits in small formats
In August, Loblaw made noise with its new, strippeddown discount concept, No Name, which is being piloted with three stores in Ontario. The stores carry a small range of pantry staples, produce items, bakery products and household necessities—but no dairy or fresh meat—primarily under the No Name and President’s Choice private-label brands. The idea is to reduce operating costs and pass savings on to consumers in a variety of ways, including a limited assortment, no refrigeration, reduced store hours and limited marketing.
When the No Name banner launched, Loblaw president and CEO Per Bank said since inflation took off, the company has been “laser-focused on doing what we can to keep prices lower for customers,” including opening more discount stores.
Loblaw is also keenly aware that the allure of discount shopping extends beyond those watching their wallets. “Discount stores appeal to everyone, regardless of their grocery shopping budget. That hasn’t changed a lot. However, in recent years, we have definitely seen a bigger shift to discount stores,” a Loblaw spokesperson said in an email to Canadian Grocer. “As the demographic makeup of Canada continues to change, we’re adapting and making sure that we tailor the assortment of each store so that it reflects the diversity of the community it serves.”
Metro, which operates two discount banners—Food Basics in Ontario and Super C in Quebec—is also expanding its discount network. In its latest fiscal year, the company opened four new Super C stores and converted three Metro locations to the Super C banner. Fiscal 2025 is looking similar, according to Metro spokesperson Geneviève Grégoire. Meanwhile, Food Basics recently opened a store in Petawawa, marking the discount banner’s 145th store in Ontario. In the third quarter, Metro reported 3.5% sales growth; on an earnings call with analysts, president and CEO Eric La Flèche said the growth was primarily driven by sales at its discount banners. “Conventional is under pressure in [Quebec and Ontario], no question about that,” he said. “When we combine discount and conventional, we’re seeing some market share and tonnage gains.”
READ: Metro to open dozen discount stores in 2025
Empire, which operates discount banner FreshCo, is looking ahead to full-service taking back more market share. “We believe that the gap between full-service and discount same-store sales will continue to close as the economy improves, which will be advantageous to us as we continue to lean into our strengths as a full-service grocer,” said Michael Medline, president and chief executive officer of Empire and Sobeys, on the company’s earnings call in September. However, Empire is still betting on FreshCo, with Medline saying, “We like our discount banner … It’s been a home run for us.”
Price is king, but perception is everything
The question is, can discount banners win on price alone, or do other factors influence their success? “Our research continues to show that price is paramount,” says Caddle’s Hawley, adding that convenience and perceived value are also important. “If you don’t put price first and foremost, and consumers don’t think they’re getting value, then you’re going to struggle.”
Amar Singh, senior director at Kantar Retail, agrees that one of the main success drivers for discount stores is the perception of value. In addition, discount stores have shed their reputation for offering lower-quality goods in less-than-appealing shopping conditions.
“The brand profile of discount stores has improved tremendously over the past few years,” says Singh, adding that the shopping experience is often on par with conventional supermarkets. “If you go to a high-end No Frills that’s well-lit, clean and has good signage, it’s akin to any decent supermarket now,” he says. “If you need a limited number of products and have a defined basket … week after week, the discount store does a good job. The supermarket is where you can buy additional items you can’t access at your discount store.”
Moreover, Singh points out that if shoppers can buy the same private-label products at discount stores as in conventional stores, they’re likely to make that switch. “Just as consumer perceptions of private-label products have improved, their perceptions of discounters have also improved,” Singh says.
Dollar stores shake up the grocery landscape
As retailers continue to evolve and expand their discount offerings, grocers have another player to contend with: dollar stores. Dollarama, in particular, has expanded its food assortment in recent years, offering brand name products including bread, cereal, canned goods, condiments, snacks, rice and pasta. In September, Dollarama reported a second-quarter profit of $285.9 million, up from $245.8 million in the same quarter last year. On a call with analysts, CEO Neil Rossy said grocery “is just one small part of our store,” attributing its strength to its wide range of products.
However, there’s no doubt Dollarama is having an impact on the grocery landscape. Hutcheson of J.C. Williams Group says in addition to the pace of growth in the discount grocery channel, “we’re seeing Dollarama all of a sudden weaseling in there. They’ve had great results and are opening stores in markets that grocery wasn’t previously in and taking some market share. We’re starting to see people look to Dollarama and Giant Tiger as a grocery option for non-perishables, particularly. I think retailers are saying, ‘uh oh, we’d better pay attention, and we need to maintain our market share.’”
Research from Caddle shows more Canadians are, indeed, buying grocery items from the dollar channel. “Canadians are picking up more items at dollar stores and including them as part of their [overall] shop,” says Hawley. Since many food items at Dollarama come in smaller units than what’s sold in grocery stores, “it’s not necessarily the best value, but it’s the lowest price,” he says.
U.S.-based retail consultant Carol Spieckerman is watching Dollarama with interest. “Dollar General, the big player here, has been investing heavily in grocery and continuing to expand into other categories, yet they’ve seen some concerning numbers and decreases in momentum that they had going for quite some time,” Spieckerman says. “In contrast, to see the recent numbers out of Dollarama, it makes you wonder if Dollarama is doing something different, or if there’s going to be a lag effect where Dollarama also, in time, will start to see a slowdown.”
However, she adds, the success of concepts such as Dollarama stems from diversification. “They have the ability to expand into non-grocery and pump-up profits and get higher margins. So, they can be more opportunistic than pure-play grocers.”
In the United States, Aldi employs a similar strategy with its centre-row aisles of cheap, non-food merchandise. “Even though Aldi is very focused on grocery, they have those treasure hunt aisles, and that’s their way of trying to grab more margin outside of grocery and keep that treasure hunt vibe going,” says Spieckerman. “Aldi can increase the number of visits in that way—it brings people in beyond shopping for groceries every week.
Is discount shopping here to stay?
Looking ahead, if the economy improves and the cost of living stabilizes, will Canadians continue to embrace discounters, or will they revert to their former shopping habits? For the next few years, at least, it appears discount will be king. “In our forecasting at Kantar, the value channel, which includes all the discount grocers, Dollarama, Dollar Tree and Giant Tiger, are going to outpace the category average of all other channels,” says Singh. “So, the value channel is going to be the fastest growing through 2029.”
Hutcheson agrees, predicting sustained growth for the discount category. “The economy is not looking to improve greatly, although it has some glimmers of hope,” she says. “People are becoming very price-sensitive and they’ve educated themselves [about food prices].” Even if some go back to the way they used to shop, Hutcheson says, “while the economic uncertainty is here, saving money is at the forefront of consumer behaviour.”
Hawley suggests if a shift away from discount happens, it will take time as more Canadians have learned the value of savings by shopping at discount stores and price matching. “Once people understand how much they can save, it’s hard to go back,” he says. “For the foreseeable future, I see the discount channel continuing to win.”
This article was first published in Canadian Grocer’s November 2024 issue.
