Grocery was among the country’s slowest-growing retail segments in December, according to new figures from Statistics Canada, with supermarkets and other grocery stores (excluding convenience) experiencing revenue growth of just 0.4% to $6.6 billion.
The supermarket segment grew just 0.9% in 2016, while revenues for specialty food stores declined 3.6%.
Total Canadian retail sales for the year were up 3.7% – compared with 1.7% growth in 2015 – buoyed by double-digit growth in segments including automotive parts, accessories and tire stores (12.2%), gasoline stations (14%) and shoe stores (13.9%).
“It was an average year, not a barnburner, but at least it was better than the year before,” says Toronto-based retail consultant Ed Strapagiel. “When you start looking at grocery stores, however, the performance isn’t nearly as good.”
Strapagiel says grocery sales reached $86.9 billion in 2016, a modest 1.1% gain over the previous year. He says a “very competitive” landscape, including heightened competition from non-traditional grocers such as Costco and Walmart, continues to impact the segment.
“This has been the case for a few decades now,” says Strapagiel. “More of the grocery business is leaving the food and drug sector and going into the general merchandise group, mainly the combo stores. As those biggies battle it out among themselves, particularly on the online side, they’re going to capture more of the dollar share in food and grocery.
“The question is can they do it profitably, and the jury’s still out on that.”
While revenues for health and personal care stores were up 4.6% on a year-over-year basis, Strapagiel says it's unlikely there will be any future grocery/drug store deals such as Loblaw Companies’ $12.4 billion acquisition of the Shoppers Drug Mart chain in 2013.
“There are not that many takeover targets,” he says. “The next largest are Jean Coutu and London Drugs, and I don’t see either of them selling out.”
Strapagiel says it is “awfully difficult” for grocery retailers to grow their top-line revenue, instead saying they need to focus on the bottom line, addressing areas such as internal efficiencies. “There’s not any major product line or group that’s suddenly going to be the saviour for the supermarket sector,” he says.
He also says grocers need to be wary of mistakes like Sobeys’ troubled $5.8 billion acquisition of the Safeway chain in 2013 – a deal that a 2016 report in the National Post says was characterized by “out-of-stock products,” “logistical snafus,” “systems integration problems” and “disgruntled staff members on both sides.”