Walmart may go head to head with Canadian grocers

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This article was published 21/05/2016 (3462 days ago), so information in it may no longer be current.

WALMART may be looking to add another weapon to its arsenal in its ongoing battle for the hearts and wallets of Canadian grocery shoppers.

In a note to clients, Desjardins Capital Market’s Keith Howlett said Walmart’s U.S. discount grocery store chain, called Walmart Neighborhood Market, posted a seven per cent increase in sales during the first quarter of this year. That was in line with the 6.7 per cent increase posted by Walmart Canada, which has more than 400 stores, including 317 Supercentres that carry a full line of grocery products.

The success of the Neighborhood Market concept in the U.S. has Howlett thinking the retail giant might soon be looking to try the concept north of the border, as well.

“We speculate Walmart Canada may test this concept in Canada within the next three years,” he said in his note.

Unlike its Supercentre outlets in Canada, which are typically about 120,000 square feet in size with about 30,000 square feet devoted to groceries, the Walmart Neighborhood Market stores are only 35,000 to 45,000 square feet in size and sell only sell groceries and pharmacy items.

Walmart has experimented with even smaller stores in the United States, known as Walmart Express. But they haven’t done well, and analysts have been saying the company will likely scrap that concept and focus instead on growing its Neighborhood Market and Supercentre operations.

Howlett isn’t the only one who thinks Walmart might test the Neighborhood Market concept in Canada.

“I wouldn’t be surprised if they brought them in,” Maureen Atkinson, senior partner with Toronto-based J.C. Williams Group, said in an interview Friday. “Once they have worked all the bugs out in the States, they (tend) to take them wherever they think they can make money with them.”

Atkinson said the smaller Neighborhood Market format is a better fit for smaller urban markets such as downtown Toronto, downtown Vancouver, or even downtown Winnipeg.

She said the Supercentre stores are too big for a smaller neighbhourhood-type setting, and simply shrinking the size of a Supercentre to try and make it fit doesn’t work, either.

“But this (the Neighborhood Market concept) would bring in something that was built to be small, not made smaller because there wasn’t the space,” she added.

She compared Neighborhood Market stores to Loblaw’s No Frills stores, which are a lot smaller than its Real Canadian Superstore outlets and seem well-suited to a smaller neighbourhood market. Loblaw opened two No Frills stores in Winnipeg early last year, and they did so well it has since added two more.

Atkinson said even if Walmart decides to bring the Neighborhood Market concept to Canada, she doesn’t see it having a huge impact on the market. She noted Sobeys — one of its other major competitors in Canada — already has smaller-format stores, as well.

“But whenever Walmart does something, you have to pay attention,” she added. “You can’t just kind of dismiss it because they have such deep pockets. And if it doesn’t work at first, they’ll work on it until it does work.”

In his note to clients, Howlett said Canadian grocers “continue to grapple with the growth of Walmart Canada in discount groceries and the increasing appeal of Costco Canada’s narrow selection of grocery items to middle- and higher-income households.”

murray.mcneill@freepress.mb.ca