Plans by the American retail giant Wal-Mart to aggressively expand its Canadian food business should be sending waves of unease through Canada’s agricultural economy.
Alberta will feel the effects earlier than most provinces.
On the surface, it sounds like good news. Another major food retailer buying Canadian food products surely will create more competition, more sales and perhaps better prices.
Who would not be happy with predictions that over the next decade, the value of Wal-Mart’s Canadian food retailing business will double to more than $7 billion? A recent BMO Capital Markets report calls Wal-Mart a giant that is coming to life.
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For Canada’s food producers, what’s not to like about that?
Well, quite a lot, actually.
For starters, those increased food sales from Wal-Mart Supercentres will not really be expanding the Canadian market. It largely will be sales taken from grocery competitors like Loblaw, Safeway and Sobeys.
The Canadian domestic food market is a mature one. Domestic sales growth prospects are largely stagnant. This will not mark a growth in demand for Canadian food products, simply a shift in market share among players in Canada’s highly concentrated grocery industry.
And Wal-Mart’s business formula that turned an Arkansas five-and-dime store into the world’s largest retailer in little more than half a century is simple if brutal – keep prices low, keep unions out, make money on volume and squeeze suppliers for the lowest prices possible.
Wal-Mart’s well-documented tactic of using its market strength to squeeze suppliers almost certainly will create price pressures throughout the Canadian food chain, down to the farm level. And its competitors will have to do the same to compete.
Canadian farmers whose focus is largely or entirely the domestic market will feel the most effect, so marketing boards will face the greatest pressure.
With its network of suppliers across the United States, Wal-Mart would take advantage of any weakening of supply management protections in a World
Trade Organization deal to bring cheaper product into the country.
In his study on the Canadian grocery industry for BMO Capital Markets, analyst David Hartley noted the company’s strengths.
“Wal-Mart comes armed with competitive advantages in global product sourcing costs and labour economics and flexibility and has a very successful grocery track record in North America.”
He also predicted Wal-Mart’s expected aggressive expansion will shake up Canada’s food industry.
“The entrance of the Wal-Mart Supercentre is similar in our view to implementing a process to deregulate a regulated industry.”
Those should be chilling words to any farmer dependent on supply management for a living.
Albertans will be among the first to feel the effects of Wal-Mart’s lengthening shadow.
By next month, Alberta will have eight Supercentres operating in Edmonton, Lethbridge, Pincher Creek, St. Albert, Vegreville, Wainwright, Airdrie and Olds. Only Ontario, with 21 stores, has more.
Hartley predicted that food prices in the Alberta market, cited as among the highest in Canada, will fall as the Wal-Mart influence spreads.
Within three years, the company is expected to triple the number of Supercentres in Canada to 90 or more.
Farmers may soon be seeing first-hand that expanding the number of buyers chasing your product is not always a good thing.
