OTTAWA – The arrival of American retailing giant Wal-Mart in Canada last year confronts Canadian retail chains like the co-op system with the competitive challenge of a generation.
“The new retail player brings credibility, success and a new way of doing business that will alter the traditional food distribution industry and lead it into the 21st century,” according to a report by Agriculture Canada analyst Shay Allen.
“The arrival of Wal-Mart as a competitor in the supermarket sector will change the Canadian retail food universe and the relationships and expectations within that universe.”
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In an interview, Allen said Wal-Mart has not yet indicated it will move into food retailing in Canada.
However, in the U.S. it has become a major food retailer, devoting space in its superstores to produce. By the end of the decade, it is expected to be one of America’s largest food store chains.
Allen said the advantages that Wal-Mart has as a giant retailer is its size, its method of dealing directly with suppliers and a management and distribution system that involves continually moving replacement stock through the network.
“If the product is continually moving through the system, it’s not sitting on the shelf,” said Allen. “It is a very efficient and cost-effective method.”
She said to react to this new competitor, Canadian retailers will have to “study and understand Wal-Mart’s strengths and their own weaknesses.”
Several new stores coming
Last year, the Alabama-based giant moved into Canada by purchasing 122 Woolco stores. It has announced plans to build several new stores this year and is slated to open a superstore in Thunder Bay.
Allen said the Wal-Mart strategy appears to be to establish a foothold in smaller communities in Western and Eastern Canada before moving into larger centres with superstores.
“Historically, grocery retailers do not do well against Wal-Mart in small communities,” she wrote.
If the American chain becomes a food retailer in Canada, it could put price pressure on farmers and their marketing boards, as well as food manufacturers, distributors and brokers.
Allen also noted that Wal-Mart managers will not be able to simply transfer all their techniques from the U.S. into Canada.
There are different consumer preferences here, regional and language-group variations and laws in Canada. As well, wages are higher.
But she said the Canadian retail and food sector should assume that “Wal-Mart is here to stay.”
