The age of discount

Discount grocery stores are revolutionary and remarkable. And they're about to hit a tipping point.

This Dec. 21, the world is supposed to end. Details are vague, but this is the last day on the ancient Mayan calendar. The Mayans were a clever bunch. They built cities and studied astronomy. By not putting Dec. 22, 2012 (or any day after) on their calendar, some believe the Mayans knew something we don’t. Boom!

Not much good will come from the end of the world, mind you. Then again, operators of conventional grocery stores in Ontario will have avoided a noteworthy tipping point. I’m talking about the day when more than half of all grocery sales in Ontario are rung through discount stores. According to Nielsen, discounters now control 48.3 per cent of the market. By the end of this year, or shortly after, they could top 50 per cent.

Despite their hefty sales, discounters, especially hard discounters like No Frills and Food Basics, get little respect. They don’t win store design awards and their managers are rarely recognized for the excellent job they do eking out a profit on operating margins that aren’t razor thin, they’re laser thin. And while consumers shop discount stores often, they don’t rave about them the way they do a Longo’s or a great IGA.

Discount stores weren’t always viewed as so blah. When the first one opened, the format seemed exciting, as if from another planet. That was in June 1961 and the store was called Food City. Plopped right next to a Towers department store in the suburban wilds of Scarborough, Ont., Food City was 20,000 square feet and even its operators, Oshawa Wholesale, weren’t sure what to expect from the store.

Unlike traditional grocery stores at the time, where 25 per cent of the footprint was devoted to service areas, almost all of Food City was given to sales, with giant pallets of merchandise still in cardboard cases. Customers, meanwhile, counted their savings in pennies. A can of York Irish Stew, for instance, cost 27 cents at Food City. Down the road, a competitor had it on for 29 cents.

Even then, discounters stirred strong feelings. Five months after Food City’s arrival, the opening of a discount grocer in Ottawa, Shoppers City FoodMart, touched off a bitter price war.

What’s really impressive about discounters today is how they have reframed the conversation of what a supermarket should be, and what it should not. Grocers, especially independents, are told to focus on their fresh departments or go high-end in order to di erentiate themselves.

Fair enough, but what’s not said is that grocers can also risk losing significant sales by doing so. Jim Prevor, the U.S. food industry consultant known as the Perishable Pundit, once told me that when a conventional grocer flocks to high-end to be different from Walmart or other discounters, there’s an underlying message sent to customers: Sorry folks, we’re no longer competitive on canned soup and laundry soap and all the other staples you have to buy each week. Oh, and here’s the address to the new Target. Prevor’s point: Don’t entirely give up on the basic essentials sold in your store (the centre store, for example) just to sell more okra and brie.

With discount about to pass the 50 per cent tipping point, perhaps it’s time conventional grocers look for ways to get some of that business back. Then again, we should still admire discounters and recognize them for what they’ve become–the Honda Civic of grocery formats: no frills, yes, but surprisingly reliable. Even the Mayans would be impressed by that.