You might not know it by looking at Canada, but grocery is global. The biggest retailers around the world have expanded into new countries as fast as their balance sheets have allowed them.
Eastern Europe, for example, is filled with Tescos (from Britain), Carrefours (France), Aldis (Germany) and others. Likewise, Asian and Latin American consumers are getting a taste of western retailers such as Walmart.
But Canada? Not so much. Yes, Walmart and Costco conquered the north and Target came this year. On the other hand, Safeway just sold its Canadian operations, and the Aldis, Lidls and Tescos of the world have passed Canada by.
And for good reason.
“The Canadian grocery industry is just really competitive,” says Jeff Cohen, an analyst at IBISWorld. “There are already established players that make it difficult for companies, even if they’ve been met with tremendous success in the U.S., to enter an entrenched market and try to take customers away from those already established players.”
An Ebelsoft Group study finds Canada’s retail landscape isn’t global. Just 37% of retailers are not homegrown, compared to 85% in Singapore.
“All in all, our grocers are pretty good at what they do,” says Kevin Grier, senior market analyst at researcher George Morris Centre. “It’s likely hard for a foreign firm to look at them and see how they can squeeze greater returns.”
But the status quo could soon change. Canadian supermarket margins, while definitely squeezed, are better than their U.S. and European counterparts, according to a recent Moody’s survey.
The scent of tasty margins might begin to attract international players. So too could the fact that Canada’s big grocery chains operate mainly traditional supermarkets, whereas food retail is trending toward specialty, including convenience, premium, dollar stores and even discount.
Some might argue that Canada’s well-run discount supermarkets, such as No Frills and Super C, are bulletproof to international competition. But these stores are “soft discounters” with large assortments, points out Jeff Doucette, general manager at consultant Field Agent Canada.
“Hard discounters” with limited assortments have yet to arrive on our shores. “You go to Aldi and there’s one type of corn flakes, one size of corn flakes and it’s their brand of corn flakes,” Doucette says.
Canada’s grocery space also doesn’t offer much in the way of e-commerce. Only Grocery Gateway, in Toronto, is truly in that game. But in other countries, multiple retailers have successfully introduced online stores and conquered the logistics.
Should Canadians get the urge to buy soup and salads online, an opening for Tesco, Amazon or even Peapod, the U.S. online subsidiary of Dutch grocery giant Royal Ahold, could quickly open.
More mergers and acquisitions, such as the Loblaw–Shoppers and Sobeys– Safeway deals, could also make room for foreign companies to enter Canada.
“M&A isn’t forecasted to slow down,” Cohen says. “But 10 years in the future, there will be companies, even ma-and-pop-type companies that sprout up to serve niche markets when the larger companies become more of the price-type stores.”
Ten years is a long time to wait. Until then, here are 10 international retailers likely pondering a Canada invasion. A couple have sniffed around here before. For whatever reasons, they chose not to bite. But that doesn’t mean they won’t ever.
AMAZONFRESH, U.S., (online retailer): Amazon first tested fresh grocery delivery, in Seattle, in 2007, and only expanded to one other city, Los Angeles, this summer. So it still has plenty of U.S. cities to cover. But Vancouver and Toronto are rumoured to be among 20 cities Amazon intends to expand to in 2014. And with 15,000 dry groceries added to Amazon’s Canadian website in October, Amazon clearly wants to be in the grocery business here. Seems only a matter of time before AmazonFresh crosses the border. (Odds of coming to Canada: 9/10)
ALDI, Germany (discount grocer): The hard discounter would likely be welcomed by Canadians. Sure, the German chain offers an über-limited selection. But consumers can stock up on the basics, then “premium” shop elsewhere. Aldi’s business model is conducive to opening a bunch of stores quickly, and it already has 1,300 eponymous stores in the U.S. Expansion to Canada’s western provinces could make sense given the available real estate and dearth of other discounters. (Odds of coming to Canada: 8/10)
LIDL STIFTUNG & CO., Germany (discount grocer): Lidl is another German discounter that could make a run here. Like Aldi, it operates smaller stores, but it has more selection. Lidl looked at Canada in 2003 and reportedly even mapped out a major rollout. Now it’s looking at the U.S., and could open its first 100 stores on the eastern seaboard in 2015 as part of an estimated 500-million euro initial investment. (Odds of coming to Canada: 7/10)
DOLLAR GENERAL, U.S (dollar chain): Expanding into Canada was listed as an “alternative growth strategy” in a 2011 investor presentation. But the sustainability of such an expansion was only given a three out of five, and sat behind a few other options. However, the Tennessee-based chain has been on a growth spurt and planned to open 635 stores in 2013, including its 11,000th outlet. Now that rival Dollar Tree is here, thanks to its 2010 buy of Dollar Giant, can a move to Canada be far behind? (Odds of coming to Canada: 5/10)
WALGREEN CO., U.S. (drugstore chain): Before Loblaw Cos. Ltd. swooped in, Illinois-based Walgreens was reportedly looking at buying Shoppers Drug Mart. Walgreens runs almost 8,000 pharmacies across the U.S. and has a market cap of US$56 billion, about four times that of Loblaw, so it had the heft to outbid the Canadian chain if it had desperately wanted into Canada. In 2012 it bought the Snyder Drug Stores chain once owned by the Katz Group, which operates Pharma Plus, Rexall and others. That it looked at Shoppers may indicate Walgreens has interest in Canada if it can find a chain at the right price. (Odds of coming to Canada: 5/10)
TRADER JOE’S, U.S. (specialty grocer): Canadian shoppers are definitely interested in this California-based specialty grocer, as Michael Hallatt can attest. Hallatt is the owner of Pirate Joe’s, a Vancouver store that consists entirely of goods he buys at Trader Joe’s in the U.S. and resells. Trader Joe’s (owned by Germany’s Aldi Nord) sued Hallatt for trademark infringement and damage to its reputation, but lost. Aside from the public-relations black eye Trader Joe’s took, the failed lawsuit could show it may have some interest in eventually moving north. There’s even an unaffiliated Facebook page advocating such a move. But as of press time, it only had 400 fans. (Odds of coming to Canada: 4/10)
KROGER CO., U.S. (grocery chain): Some have speculated the Cincinnati-based supermarket chain could be the next U.S. giant into Canada. But it still seems intent on expanding in the U.S. Witness its US$2.4-billion deal in July to buy Harris Teeter Supermarkets, which has more than 200 stores in the southeastern U.S. The deal is Kroger’s largest takeover since 1998 when it bought Fred Meyer for more than US$12-billion, so it’s been known to pay handsomely to expand. But another big move seems unlikely in the short term, as it will take a while to digest Harris Teeter. (Odds of coming to Canada: 4/10)
DELHAIZE GROUP, Belgium (grocery chain): The Belgian chain has stores in Europe, Asia and the U.S., where it has been since it bought Food Town Stores, in 1976. In May, Delhaize agreed to sell three of its smaller U.S. chains to rival Bi-Lo Holdings in a move made to simplify its operations. The company has also cut its dividend to help fund its investments and it will have a new CEO next year. Should it ever decide to look at Canada, one of its directors, Bill McEwan, is pretty familiar with the local grocery market–as he was once CEO and president of Sobeys. (Odds of coming to Canada: 3/10)
FAMILY DOLLAR STORES, U.S. (dollar chain): This North Carolina–based chain has more than 7,500 stores. At an investor conference last year, it said it could open up 11,000 more stores and that long-term growth plans might include Canada and Mexico. But as a spokesperson at the time said: “We have plenty of opportunity domestically before we even think about where to go internationally.” So a move north doesn’t appear to be imminent. (Odds of coming to Canada: 2/10)
TESCO, Great Britain (grocery chain): Britain’s largest grocer leapt into the United States in 2007. Many saw it as Tesco’s beachhead into North America. But its Fresh & Easy chain never caught on and the retailer took a 1.2-billion pound write-down on the 200-store chain. In September it sold 150 locations to a private-equity firm, Yucaipa Companies. Moving to Canada at this point might be difficult, especially since Tesco seems to be retrenching in other countries too, including China. (Odds of coming to Canada: 1/10)