The Walmart effect

A lot of attention to the latest CPI report was given to falling meat prices.

To the delight of BBQ fans beef, pork and chicken prices have actually dropped for the first time in six years. Yet the decrease in meat prices are not the only food prices dropping across Canada.

According to Statistics Canada, food prices across the board have actually declined in June in a dramatic fashion. In fact, food inflation is now below our general inflation rate for the first time in almost two years. Food price decreases are not influenced by one category in particular. One could argue that food distributors are winning their fight against vendors to lower prices for consumers.

But underneath the numbers published recently by Statistics Canada lies a very different, perhaps troubling, story for our food retailing establishment in Canada.

Aside from Newfoundland and Labrador, most provinces experienced food price declines across the country. Even the Territories witnessed price decreases in many food categories. Where prices fell the most in the country in June was not in Alberta, but rather in Quebec and British Columbia. For both provinces food prices dropped by more than 0.5% in only one month. Both provinces were considered as being the terrain of high-valued food products which catered to more sophisticated consumers. However, market data suggest that things may be changing.

Ontario has always been considered the most competitive market in the country. In recent months the price growth in industry square footage has plateaued. The main metric has become same-store-sales and margins. Guess who’s performing well these days? Walmart. Their store sales are up 6.7% from last year and have made significant inroads in many parts of the country, but mostly in Quebec and BC. In fact, 8 of the 13 stores Walmart bought from Target last year were in Quebec and BC.

Overall sales are up more than 8% at Walmart Canada and customers are spending 2.1% more per visit. Also, the average Walmart consumer is visiting the store more frequently, which is another powerful indicator that food is making a difference. The numbers are confirming the impact of Walmart Canada’s strategy. While food prices are contracting, menu prices in restaurants continue to increase at 2.6 % over last year. This supports the theory which suggests that the food retailing landscape is becoming more competitive.

Walmart wants to become the number one food retailer in Canada, as it is in the U.S. Looking at their status in the Canadian food stratosphere, it is difficult to bet against the Bentonville-based giant. Its low-cost operating model is a significant advantage and its focus on food prices can no longer be ignored. Walmart Canada now has food labs which allows it to develop and test new products.

Walmart is fully committed to food, offering more fresh products and better merchandise. Walmart went from a mediocre food retailer, at best, to a decent one where you feel like you are in a food store. The process of legitimizing itself as a food retailer in Canada is almost complete.

And it’s not just Walmart. Costco is almost at the 10% market share in the Canadian food retailing, which is an impressive increased from a few years ago. What needs to be underscored is how both companies are capitalizing on our two-tiered food system.

While the haves, the foodies, the organic lovers and fan of local products advocate for more changes, the have nots survive.

The have-nots are not necessarily the poor and socially inept. This group is often comprised of the forgotten food consumers. They may have lost their jobs, or may have recently run into some financial difficulties, or they may be trying to raise children while going through a separation. They may even be working two or three jobs at once, the list goes on. What Walmart and Costco are doing resonates with the have nots.

No matter how we feel about Walmart, or Costco for that matter, both companies are capitalizing on market demographics regularly seeking financial assistance to feed itself honourably.

So Loblaw, Sobeys and Metro are all putting more pressure on vendors to reduce prices these days. If you think that these measures are being put into place to only protect consumers against higher food prices, then you’re kidding yourself. The pressure is on to protect themselves from Walmart.