As Target prepares to leave Canada, Walmart is marching on with the next installment of its highly aggressive strategy. It recently announced it will invest $340 million this year in converting old stores into Supercentres, even while opening a few brand new stores.
Supercentres dedicate much of their real estate to food retailing, a key growth driver for Walmart.
Target’s abrupt departure is obviously leaving many landlords vulnerable and willing to accept any decent tenants, thus bringing down costs for Walmart’s expansion. For Walmart, it is as if Target Canada never actually happened.
As in past years, Walmart’s expansion plan is really about the company’s footprint in Canada’s food distribution landscape. More than ever, the company is fully committed to food. Walmart Canada will not convert or open a new store unless a considerable amount of retail space is used to accommodate food sales. As you would find at any other food retailers’ headquarters, Walmart has now built a few test kitchens in Mississauga to support product development and food research.
Walmart Canada’s ascent into food retailing is nothing short of remarkable. Since 2008, its market share in food retailing jumped 38 per cent in Canada and it’s slowly approaching the number four spot, currently occupied by Costco. Walmart Canada has made it clear that it wants to become the number one food retailer in the country, as it is now in the United States. Based on its performance so far, it’s hard to bet against the Bentonville, Arkansas-based retailing giant.
However, because of higher food inflation in recent years, Walmart Canada’s success in food has been supported by an increasing number of consumers looking for bargains. Walmart can no longer just rely on macroeconomic factors to achieve growth in food sales, however. Its Supercentres’ food retailing model is not quite right, just yet. It’s improving, particularly with perishables, but Canadian consumers’ expectations are also changing.
In recent years, Loblaw, Sobeys, and Metro have all raised their game and made their stores more appealing by offering a culinary-like experience to curious consumers. Beyond better logistics, they have all also developed novel promotional and branding strategies in order to attract the ever-changing cosmopolitan consumer, who is getting accustomed to paying more for groceries. While price remains an important decision factor, other features, like freshness, ethnicity, and health benefits in relation to food, are becoming more influential. And because Canadian consumers are forthrightly spoiled, it’s only going to get better for all of us.
In light of all these changes, Walmart Supercentres fall way short of offering any memorable experiences for the inquisitive, inherently pluralistic consumer. The Supercentres are intentionally unsophisticated and unexciting. While the price factor clearly cannot be underestimated, that market segment has already been occupied by Walmart Canada to a large extent. Its Supercentres need to move beyond price to atmosphere, with its aisles exuding flavours, colours, and enjoyable scents that any consumer would want to explore further.
Simplicity in food retailing can be overdone. The next generation of Walmart Supercentres will need to keep in mind the frugal but open-minded consumer. Given that logistics is Walmart’s core competency, food safety and integrity is arguably one of their most significant strengths. Any modern consumer can intuitively appreciate that.
To be successful in the future, Walmart’s Supercentres will need to stimulate consumers’ gastronomic senses, and not just rely on financially-vulnerable consumers.
Dr. Sylvain Charlebois is senior director of the agri-food analytics lab and a professor in food distribution and policy at Dalhousie University.
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