An expected national rollout of Wal-Mart’s “Sam’s Club” warehouse operations in Canada shouldn’t threaten the Canadian grocery industry, analysts say.
The anticipated rollout of Sam’s Club, which boasts 500 stores across the United States and more than 46 million U.S. members, isn’t necessarily a precursor to the introduction of all-out Wal-Mart Supercenters – which in the U.S. average between 100,000 and 220,000 sq. ft. of retail space and offer full-line grocery shopping as well as discount general merchandise – on this side of the border.
While the members-only Sam’s Club, introduced in Ontario at the end of October with the opening of four units, is expected to take a slice out of the grocery revenue pie, that piece is likely to be quite small.
A CIBC World Markets report predicts that even under very aggressive scenarios, Sam’s Club should only capture about one per cent of the Canadian consumer food business by 2009, even though the food side accounts for 60 per cent of its sales.
While there are currently no Wal-Marts in Vancouver, the New Westminster store provides shoppers with the extended grocery products, as does an expanded Wal-Mart in Victoria. In Kelowna, it is likely that Wal-Mart will broaden its selection there at some point in the future, company officials said.
Named after Wal-Mart founder Sam Walton, a typical Sam’s Club covers between 110,000 and 130,000 sq. ft. and carries 4,000 items. But with Sam’s Club accounting for annual sales of more than $29 billion, no one is taking the division’s arrival in Canada for granted, even with its limited expansion plans.
So far, Wal-Mart Canada has only announced two more Sam’s Clubs, both in Ontario – one in Cambridge, the other in London. They’ll join outlets in Etobicoke, Pickering, Richmond Hill and Vaughan.
Andrew Pelletier, director of corporate affairs for Wal-Mart Canada, said it is too early to talk of expansion into Alberta or other provinces, citing that potential expansion is subject to real-estate deals that have not been finalized.
Nevertheless, Pelletier did add that “the Ontario stores are exceeding our expectations and we’ve also exceeded our expectations in terms of membership.
Jonathan Norwood, an analyst with Halifax’s Beacon Securities, expects general merchandise to be hit by Wal-Mart’s corporate gospel of ‘always-low’ prices.
“I don’t see a lot of downward pressure on grocery prices in Canada,” said Norwood. “The industry has been consolidated for a long time. What I do look for is downward pressure on general merchandise product offerings.”
In a report on Sam’s Club’s arrival in Canada, Toronto-based analyst Perry Caicco and colleagues Kathleen Wong and Richard Piticco hold a similar view. According to the CIBC World Markets analysis, “Sam’s (Club), unlike Costco, is primarily focused on the business customer. In terms of general merchandise, that focus manifests itself in merchandise such as filing cabinets, photocopiers and supplies.
“In fact, on general merchandise, no Canadian merchant is more at risk against Sam’s than Staples Business Depot.”
Even when Wal-Mart’s expanded Grocery Shelf sections are added to the equation, it will make just a small overall dent in the grocery market, says the CIBC report.
“With Sam’s Club, Wal-Mart might capture close to 5.9 per cent of the Canadian grocery business by that time (2009), more than double the 2.75-per-cent share we believe they will have at the end of this year. However, even without Sam’s Club, our projections have Wal-Mart at almost a five- per-cent share anyway,” the analysts say.
“We’re installing pantries in most of our stores across Canada, where we have space to do it,” said Pelletier. “We began testing the pantries in 1998 and customers responded extremely positively to having the food (available) in a department store setting.”
But Pelletier stressed that more groceries in Wal-Mart are not foreshadowing the arrival of Supercenters. “We don’t have any plans at this point to bring the Supercenter to Canada, though we haven’t ruled it out. They’re doing well (in the U.S.) and we’re often asked why we don’t bring them in.
“Our answer is we’re focused on the Canadian market, and we have a lot of growth potential with Wal-Marts and Sam’s Clubs,” said Pelletier.
The CIBC trio of analysts, meanwhile, says that Wal-Mart has recognized a great opportunity with Sam’s Club. “The Canadian warehouse club industry is understored, the competition had slowed down and there is great potential with business customers,” they said in their report.
In addition to relocations of existing Wal-Mart stores, the company has plans to open 31 new Wal-Marts across Canada in 2004.
When your competitor vows to sell for less every day, how do you compete? Business Edge asked Lee Ann Keple, an assistant marketing professor at the School of Business at Athabasca University, who had this to say on Sam’s Club entering the Canadian market and Wal-Mart’s move to expand its grocery offerings in more of its stores:
“It’s a one-two punch,” said Keple. “With Wal-Mart having expanded grocery and pantry items, it will eat in a bit but it won’t kill any grocery stores because their selection is not complete. Add in Sam’s Club, and you have grocery stores being squeezed on canned and packaged goods. You won’t go pick up your can of soup at Safeway or IGA when you can purchase a case of 12 for a lower price per can.”
“To compete, grocery stores will have to reinforce the fact that they have a much wider range of products and that they are the one-stop shopping experience for all your food needs,” added Keple. “They’ll also need to call attention to the service aspect they can provide, from personalized attention in the meat and bakery departments to help throughout the store.”
More work will be needed on customer loyalty programs, giving consumers incentives to do their grocery shopping there instead of going to Wal-Mart, Keple said.
“They may also have to selectively reduce prices on certain items because consumers tend to carry around the prices of certain items in their mind – if they see too much of a price difference between a Wal-Mart and a Safeway, it will tend to draw them to Wal-Mart. You may also see supermarkets reacting stretching their product lines with items like organic produce.”
