Canadian Food 2013

-1- Table of Contents

Canadian Market Introduction...... 3

Market Shifts: Demographic, Economic, Technology...... 4 Increased Ethnic Diversity...... 4 Aging Population & Health Concerns...... 5 Consumer Financial Health...... 6 Urbanization...... 6 Digital Adoption...... 6

Grocery Industry Trends: How These Shifts Manifest...... 7 Ethnic Foods & Preferences...... 7 Health & Wellness Initiatives...... 7 Emphasizing Value & Convenience...... 7 Connecting Digital Shoppers...... 7 Closing Considerations...... 7

Identifying Food Competitors Today: Implications at the Channel Level...... 8

Examining the Market Leaders’ Positions...... 10 Loblaw...... 10 ...... 11 Metro...... 11 ...... 13 Canada...... 13

Final Thoughts: Considerations for Retailers...... 14

About the Authors

Robin Sherk—Director, Retail Insights [email protected] Robin Sherk is Director of Retail Insights at Kantar Retail, a global insight and consulting company. With offices in more than 15 countries, Kantar Retail brings a superior breadth and depth of analysis to identify retail trends and bring a forward-looking point of view. Robin is instrumental in developing the research and framing analyses within Kantar Retail’s Market Insights division. Her research covers a range of topics, including the Canadian Market, shopper marketing and merchandising trends, and examining lead retailer’s strategies to navigate the increasingly fragmented landscape. She is a trainer for syndicated seminars, providing guidance to numerous Fortune 500 consumer packaged goods companies. In addition to regularly contributing to the company’s publications, she is a quarterly blogger for Canadian Grocer magazine.

Alexandra Mansfield—Global Research Manager [email protected] Alex Mansfield, Global Research Manager, manages Kantar Retail’s global data team and research initiatives. Working across Kantar’s worldwide offices, Alex is responsible for the development and execution of Kantar Retail’s global retail data and forecasting research. She and her team also deliver syndicated and analytical content for Kantar Retail’s global products and projects. Bringing experience from multiple industries, Alex has an extensive background in market research and analysis, global markets, data management, and consulting services.

-2- Canadian Market Introduction

Ranked the 8th highest globally in terms of gross Population Concentration domestic product (GDP) per capita, Canada is one of the Despite its economic heft, Canada’s population is relatively most affluent countries in the world. Its overall GDP is small at 35 million people, according to Statistics Cana- ranked the 12th largest worldwide. Looking ahead, the da’s 2013 estimates . Even with Canada’s massive size, Bank of Canada expects that the country’s net GDP growth second in total area only to Russia , 75% of the population will be modest in 2013, at 1.8%, and then pick up to a pace is concentrated in , , and of 2.7% in both 2014 and 2015 . (Figure 1).

In addition, its economic affluence is spread relatively Upon closer examination, the population centres in a evenly. In terms of income distribution, Canada’s Gini coef- handful of urban areas located predominately within ficient, a measure of income inequality, is behind France, these three provinces. In fact, 43% of all Canadians live on par with the United Kingdom, and ahead of the United in the metropolitan areas of five cities: , Montréal, States . Accordingly, the Canadian consumer landscape is , , and - . Viewed broadly, widely middle class with strong purchasing power. Cultur- 81% of Canadians lived in urban areas by 2011, a slight ally, Canadians tend to celebrate their egalitarian nature. uptick over the 80% who lived in urban areas in 2006 . Contradicting historical stereotypes, Canadians are a rela- tively urban consumer audience.

Figure 1. Proportion of Canadian Population by Province

Source: Statistics Canada – 2013 estimates, Kantar Retail analysis

-3- Market Shifts: Demographic, Economic, Technology

Examining the trends shaping the shopper landscape of immigrants over the past 30 years and accounted for first requires consideration of the overarching demo- 56.9% of the inbound population between 2006 and 2011. graphic, economic, and technology shifts. Pulling out the The Philippines was the top country of origin during this key forces, Kantar Retail has identified the following five period, followed by China and India, respectively. Other drivers influencing Canadians today: major countries of origin from this region include 1. Increased Ethnic Diversity Pakistan, Iran, and South Korea. Steady population 2. Aging Population & Health Concerns inflows from Africa, the Caribbean, and the Central/ 3. Consumer Financial Health South America regions have also increased over the past 4. Urbanization five years. Leading countries of birth in these regions 5. Digital Adoption include Algeria, Morocco, Nigeria, Colombia, Mexico, and Haiti (Figure 2). Increased Ethnic Diversity Canada is an extremely diverse marketplace, with one of Canada’s immigration population is heavily concentrated the highest immigration rates in the industrialized world . in urban centres: over 90% of immigrants live in one of Immigration has contributed to a large portion of popula- Canada’s census metropolitan areas (versus roughly tion growth in recent decades and is expected to account 63% of total Canadian-born residents). The three largest for almost 80% of growth by 2030. 2011 National House- metropolitan hubs—Toronto, Vancouver, and Montréal— hold Survey data indicates that one in five (20.6%) Cana- are home to almost two-thirds of the immigrant popula- dian residents were born outside of the country. tion, with Toronto retaining the highest concentration of foreign born, followed by Vancouver and Montréal, respec- Immigration over the last few decades has transitioned tively. However, smaller census areas, including , away from a predominantly European-based influx toward , and Calgary, have also observed an more ethnically diverse immigration patterns. Asia uptick in immigrant migration in the last five years. (including the Middle East) has been the largest source

Figure 2 Immigrant Region of Birth by Period of Immigration – Canada

100% 90% Oceania & Other 80% 70% Asia & Middle East 60% Europe 50%

40% Africa 30% 20% Caribbean, Central & South America 10% United States 0% Before 1971 to 1981 to 1991 to 2001 to 2006 to 1971 1980 1990 2000 2005 2011 Source: Statistics Canada National Household Survey (NHS), 2011

-4- Market Shifts: Demographic, Economic, Technology

Within the three largest metropolitan areas, the compo- Figure 3. Historical & Projected Aging Population—Canada sition of immigrants differs. In Toronto, South Asian and 30 25.5 Chinese immigrants are dominant minority populations. 24.0 24.7 25 Though this area is widely diverse and includes Latin 22.8 18.5 American, Italian, African-descent, and other Asian 20 communities as well. Asians also comprise a large 14.4 15 12.6 proportion of the immigrants in Vancouver, even though 11.5 this area has witnessed a recent outflow of Hong Kong 9.6 10 8.0 natives. In Montréal, on the other hand, black residents are the most prevalent minority group, followed by Arabs 5 and Latin Americans. This region is also rich with Euro- 0 pean origins and heavily French influenced. Other prom- 1971 1981 1991 2001 2011 2021 2031 2041 2051 2061 inent groups include African, Haitian, Italian, Anglo, and Population %, 65 years and over Jewish populations. Source: Statistics Canada National Household Survey (NHS), 2011

The result of these patterns has been a set of richly diverse urban centres and surrounding communities. Steady immi- Figure 4. Aging Population Growth by Province – Canada gration in the coming decades will continue this trend, but NU the most significant long-term impact will be the preva- NT lence of second- and third-generation immigrant popula- YT BC tions. These generations will identify with multiple ethnic AB origins, languages, and cultural preferences. SK MB ON Aging Population & Health Concerns QC NB Though population aging is a global trend, it will be a NS significant factor for Canada in the coming years. Seniors PE represent the fastest-growing age group in Canada, and NL CAN they will continue to for the next several decades. Cana- 0 5 10 15 20 25 30 35 dians age 65 and older are expected to double over the 2036 2011 next 20 years, to over 10 million residents by 2036 . A dropping replacement fertility rate, increased life expec- Source: Statistics Canada National Household Survey (NHS), 2011 tancy, and the aging baby boomer cohort drive this trend. Canada’s median age has also reached a record high, at Health care costs and infrastructure will be highly approximately 40 years old (Figure 3). impacted and pressured. Health and wellness will be a forefront issue, particularly for aging Canadians. A recent Regionally, the Atlantic Provinces and Quebec are aging RBC poll reveals that over 70% of non-retired individuals more quickly than the Western provinces. Ontario is ages 50 to 69 regard changes in their physical health as slightly below Canada’s average, while British Columbia is the top challenge they are facing in retirement, well above tracking above the average rate (Figure 4). the second challenge identified: changes in income.

From a macroeconomic point of view, this trend will chal- In addition to the health concerns associated with aging, lenge Canada’s labour force, rate of output, and govern- Canada’s rising obesity rate will keep health and wellness ment revenues in the coming decades. Currently, there initiatives in the spotlight across all age groups. A Univer- are approximately five working-age Canadians for every sity of British Columbia study published by the Canadian senior: by 2030, this ratio is expected to drop below three Journal of Public Health earlier this year indicates that working-age residents per senior. 25% of Canadian adults are obese. This proportion spikes to more than 30% in the most highly affected regions: the

-5- Market Shifts: Demographic, Economic, Technology

Maritimes, , and the Northwest Territories. This Urbanization phenomenon will only elevate consumers’ demand for As of 2011, approximately 81% of Canadians lived in urban health support and solutions. areas . In the top 10 cities, population density has risen by almost 7% on average in the last five years. Canada Consumer Financial Health has endured a long-term trend of movement from rural The overall consumer outlook is steady, despite the fact areas to cities. Toronto is one of the most populated cities that Canadian household debt to income ratio is still in North America and the densest metropolitan area in very high. There are low delinquency rates, but many Canada, followed by Montréal and Vancouver. consumers are not paying down existing balances. This, coupled with rising costs of transportation and food, Population density is rising as zoning restrictions limit will temper spending. single-family homes, and the associated costs of trans- portation make proximity to work more appealing. Immi- Recent inflation trends have been relatively mild, but grants and younger generations drive this trend substan- longer-term trends over the past 5 years indicate a tially, however, an increasing number of families and baby substantial rise in food prices during this period. Discre- boomers are opting to move downtown . tionary spending is under added pressure, as consumers at least perceive that they are paying more for food Growing density in highly populated metropolitan areas— purchased from stores, especially for fresh produce, meat, particularly in downtown neighbourhoods—has given and bakery products. Cost cutting strategies are driving way to greater competition for retail space and food store multiple shopping trips and price comparison behaviour, options. Smaller stores in local neighbourhoods represent particularly for grocery trips. a viable alternative for shoppers seeking convenience and specific product assortments or shopping trips. In the first half of 2013, the TNS Consumer Confidence Index indicated stagnant confidence and a reserved Digital Adoption overall outlook, with shoppers generally less willing Canadians spend a substantial amount of time online: IISD to spend on big-ticket items in recent years (Figure 5). studies claim that Canadians rank highest in the world Broadly, consumers are steady, but cautious, suggesting for Internet usage, spending approximately 45 hours per that value seeking will stay of heightened importance. month online, versus a global average of 24 hours . Social media penetration is also high, with almost one-half of Canadians active on platforms like Facebook. Google Figure 5. TNS Canadian Buy Index, Thru July 2013 Canada statistics support these findings: 86% of Cana- 115 dians have broadband access and 54% have smartphones. This data also reports that consumers leverage this tech- 110 nology to aid their shopping, while 93% of Canadian users research purchases online. 105

x Despite this activity, eCommerce sales represent less

e 100 d than 6% of total Canadian retail spending . The channel n I 95 is underdeveloped: supply chain challenges, limited product assortment, and high costs have inhibited devel- 90 opment. Overall, retailers’ digital strategies are still in their early stage. Value-conscious Canadian shoppers are 85 more inclined to use marketing vehicles such as flyers or 1 2 1 2 1 0 1 1 2 1 3 1 0 1 1 1 1 3 1 2 1 3 1 1 3 1 0 1 0 1 2 1 0 1 1 0 1 2 ------l l v l l y - r y - y - r y - v r r v p p p n n n n u u u u a a a a a a a

a hunt for bargains in-store. Looking ahead, infrastructure e e e a a a a J J J J J S N o J J S S J N o M N o M M M M M M M improvements and an emergence of U.S. retailer sites will Source: TNS Canada help to spur growth in the next decade.

-6- Grocery Industry Trends: How These Shifts Manifest

Ethnic Foods & Preferences over three-quarters of Canadians describe themselves as Statistics Canada projects that by 2031, ethnic shoppers will cost conscious; and price is the top consideration when represent 31% of the consumers in Canada. More signifi- shopping for food products . Coupons and promotional cantly, it is estimated that visible minorities will drive over programs are widely popular in Canada, as shoppers are 70% of all consumer-spending growth over the next decade active bargain hunters. Loyalty card penetration is high: . This is significant because many ethnic shoppers, particu- an estimated 9 out of 10 Canadians participate in loyalty larly first-generation Canadians, tend to seek out local programs, outpacing the United States, China, Brazil, and stores appealing to their origin culture, especially for food India. As these loyalty programs become mobile enabled, products. These shoppers opt for niche retailers over large, the ability to drive personalized offers to shoppers will traditional for specialty brands and products. further enhance their appeal.

Ethnic shoppers also shop traditional banners for staple Canadian shoppers also place emphasis on value as it items and dry goods. A recent Nielsen study shows that relates to convenience. While the majority of Canadians eat the two major ethnic groups in Canada, Chinese and South their meals at home, this rate continues to drop as more Asian Canadians, are more likely to shop at both ethnic food consumers are opting for the convenience of ready-pre- stores and traditional banners . Chinese shoppers tend to pared meal options. In addition, the average time that favour clubs like Costco in addition to ethnic stores like H Canadians spend preparing meals at home has dropped Mart, T&T, and Oceans. South Asians have a tendency to significantly over the past 20 years . Urban shoppers will frequent value discounters and drugstores. These demo- increasingly trend toward convenience-related trip types, graphics are making multiple and distinct shopping trips: particularly as new formats add to the density of options in ethnic stores for specialty and prepared items; big box and the metro areas. discount stores for basics and high frequency items. Connecting Digital Shoppers Large, traditional chains will capture more ethnic shopper Bridging the gap between online usage and purchases trips by expanding product assortment and targeting will be a challenge until Canadian retailers advance their cultural holidays and seasons, like the Chinese Lunar New digital capabilities. Opportunities in the short term centre Year and Ramadan. Also, as ethnic shoppers generally have on shopping aids, particularly in the form of mobile tools, a proclivity toward value and largely favour fresh foods, and more dynamic customer engagement through the pricing and a high quality fresh assortment will be leverage of shopper activity on social media and shopper competitive priorities. review sites. In terms of eCommerce, U.S. retailers will also help to drive competition in this space. Health & Wellness Initiatives Health and wellness will be put in the forefront as it relates Closing Considerations to healthier eating and lifestyle support, as well as ancil- Overall, these trends indicate heightened competition, lary products tied to health-related programs and services. not just in the grocery space but also in other channels. The topic of nutrition as it relates to physical health will be Traditional channel boundaries are blurring for shoppers, a foundational dialogue for grocers and drugstores. and Canadians are shopping more alternative formats as Organically produced foods are also increasingly popular, they seek options to meet their changing demands. Mass reporting 20% growth at the end of the past decade . The merchandisers, clubs, discounters, and drugstores are issues of rising obesity and aging Canadians—as well as offering an increasingly influential food proposition and a the associated costs—will add momentum to natural food competitive alternative to traditional supermarkets. and nutritious food trends. Heightened competition, consolidation, and price strategies will result in stores that emphasize convenient locations Emphasizing Value & Convenience with a focus on trip type, formats and assortment tailored Canadian consumers are notoriously value conscious and to local or multicultural preferences, and the emergence of knowledgeable. According to the Retail Council of Canada, alternative and multi-channels.

-7- Identifying Food Competitors Today: Implications at the Channel Level

Given these evolving shopper demands, Canadians’ choice Mass Merchandisers & Supercentres of grocery outlets is shifting beyond traditional supermar- Both centre their value proposition on offering an affordable, kets. By 2012, 36% of total food sales in Canada were sold one-stop trip on a wide variety of general merchandise, food, through alternative food retailing channels, up from 33% and consumables. Supercentres differ from mass merchan- of total food sales in 2010 (Figure 6). disers in so much as they have a full range of fresh groceries. shut all but three of its mass stores in 2012, though Broadly, these shopper shifts reflect the channels’ sales Target’s entry to the market in 2013 will add back approx- trajectories as well. Kantar Retail forecasts that between imately 140 locations by 2015. At the same time, Walmart 2013 and 2018, the compound annual growth rate (CAGR) of hypermarkets, warehouse clubs, and drugstores will far has been closing its mass merchandise locations, converting outpace the sales growth of the chains. In them into supercentres. fact, traditional supermarkets are forecast to grow below the Canadian chain stores average (Figure 7). Warehouse Clubs Customarily requiring a membership, these big-box Within the grocery and supermarket channel, shop- retailers offer a limited assortment of bulk packs at an pers are also diversifying which outlets they frequent. inexpensive price. The membership base may be geared For instance, the proportion of Canadians who say they toward small business and/or consumers, providing a “regularly” shop at a “local health food store” doubled one-stop, stock-up convenience. In Canada, this channel between 2011 and 2012, reaching 14% audience penetra- is nearly synonymous with Costco. tion . Likewise, 10% of Canadians reported buying their groceries at ethnic food stores by 2008 , and the format Figure 6: Food Sales in Canada by Channel has only increased in popularity since. Given these shifts, 100% Canadian supermarkets will face greater competition from 3.4% 4.1% 5.9% 5.9% Other the following outlets: 90% 6.3% 6.8% 80% 7.0% Ethnic Grocers 8.3% Convenience Stores 10.6% Given Canada’s heightened ethnic diversity, grocery 70% 11.2% stores catering to Chinese, Indian, South Asian, and other 60% Drug Stores foreign tastes are rapidly emerging. Most are inde- 50% pendently owned locations or small, regional chains. They Warehouse Clubs are particularly evident around Toronto, Vancouver, and 40% 66.8% Montréal, the urban centres immigrants favour. 30% 63.7% Mass Merchandisers / 20% Supercentre Natural Food Grocers & Specialty Health Stores The growing popularity of organic and locally produced 10% Supermarkets / Grocers items has given way to the rise of natural grocers and 0% specialty health stores. These grocers tend to be smaller, 2010 2012 regional players. Perhaps the most well-known natural Note: 2012 is estimated based on Statistics Canada, 2013 Who’s Who Directory, ACNielsen Banner Share, Euromonitor, Canadian Grocer- foods chain is Whole Foods. Its management has goals Executive Report. to expand from nine stores to almost 50 locations across Source: USDA Gain report Canada, with aims for sales to reach eventually more than CAD1 billion .

-8- Identifying Food Competitors Today: Implications at the Channel Level

Figure 7. Canada Channel Sales Growth Forecast (2013e-2018e)

Canada Channel Sales Growth 248,446 250,000 '13E - '18E Channel 215,236 CAGR

200,000 Apparel 6.8% Cash and Carry 4.8% Category Specialist 2.4% Convenience 150,000 2.8% Department 0.1% Discounter 5.7% Drug 100,000 0.6% Hypermarket 4.5% Mass Merch Excluding -1.7% Supercenter 50,000 Non Store Retail 8.9% Supermarket 2.2% Total Canada KR Retail 2.9% 0 2013E 2018E Years

Source: Kantar Retail analysis, KRiQ.com

Drugstores eCommerce Facing regulatory pressures and declining profits on the Online grocery is a relatively underdeveloped channel in pharmacy side of their business, drugstores across the Canada. Sobeys’ IGA and banners, as well as country have increased their emphasis of convenience Longo’s, offer online grocery ordering, though their deliv- food and consumables offerings. Shoppers Drug Mart eries’ reach its limited. Pure-play online upstarts, such as exemplifies this move to feature food, though others, such Well.ca, are emerging, though their shopper reach is quite as Rexall and , have also accelerated their small. Amazon, a market behemoth in other countries, move toward convenient groceries. is just building its grocery and consumables presence. Only 3% of Canadians stay that they “regularly” shop on Discounters Amazon.ca for groceries and consumables, according to These small, limited-assortment chains sell inexpensive 2013 TNS Canada data. However, the retailer is starting groceries in a basic setting, serving shoppers demands to invest in the market, having introduced its Prime for value and quick-trip convenience. Each of the three membership program in January 2013 and expanding its leading grocers in the country operate discount grocery assortment of pet items in April 2013. formats, though only Loblaw’s banner has a national reach. This format has grown steadily in recent years, and Kantar Retail forecasts that almost one-half of new consumables stores opened between 2013 and 2018 will be discount positioned.

-9- Examining the Market Leaders’ Positions

Despite the inroads made by alternative channels, the five This health presence adds to the retailer’s “Live Life biggest food retailers—Loblaw, Sobeys, Metro, Walmart, Well” efforts to support wellness and nutrition. The and Costco—accounted for approximately 80% of total food retailer offers in-store education programs, such sales in Canada by 2010 . The industry has continued to as “Get Checked Now” diabetes risk assessment consolidate since then, given Loblaw’s planned acquisition events. In 2012, Loblaw also introduced the Guiding of Shoppers Drug Mart and Sobeys’ announced acquisition Star nutrition rating system to further link nutrition of Canada in 2013. As a result, Canada’s grocery to health. Advancing its efforts, the retailer plans to landscape is one of the most consolidated in the world, open a wellness grocery store called “Nutshell Live with fierce competition among sophisticated and sizable Life Well” in Toronto in early 2014. operators. Facing disparate demands from their shopper base, these dominant retailers are vying to maintain their • Ethnic Tastes: Broadening its store portfolio, Loblaw position and drive incremental growth. purchased Canada’s largest Asian food retailer, T&T, in 2009. As of 2012, this banner operated 22 locations Loblaw across Ontario, British Columbia, and . In addi- Loblaw, a subsidiary of George Weston Limited, is the tion, Loblaw has been re-assorting its conventional largest retailer in Canada with revenues of CAD31.6 grocery shelves to adapt to changing Canadian tastes. billion in 2012. It operates 22 banners across the country, This involves stocking the most popular SKUs at T&T including supermarkets, discounters, hypermarkets, and incorporating select T&T private labels within its and warehouse clubs. A majority (62%) of its corporate conventional grocery banners. and franchised stores are located in Ontario, versus just 12% in Quebec as of 2012. Once its acquisition of Shop- • Convenience Through Smaller Stores: The retailer pers Drug Mart is complete, Kantar Retail calculates that operates 213 No Frills and 89 Maxi discount stores, Loblaw will capture more than 11% of Canada’s formal promising shoppers low prices and a quick trip in retail sales. The retailer also carries the country’s two these under 4,000 square metre boxes. Its discount largest control brands: President’s Choice and No Name. stores are already perceived as price leaders in the market, and the retailer is testing a smaller version Its recent growth has been stagnant, with comparable of its No Frills store in Alberta to better serve conven- store sales (comps) down 0.2% in 2012. Responding to ience trips. Adding to its convenience proposition, this pressure, management is the most aggressive among Loblaw plans to re-design the food offering within the the market leaders to position against shifting shopper Shoppers Drug Marts, elevating its fresh and quick- demands. Specifically, the retailer has invested signifi- meal offering, with a particular aim to better serve cantly to position itself to meet demands for health and urban shoppers. wellness, ethnic tastes, convenience, and value. • Value Through Shelf Price, Loyalty Card: Today, the • Health & Wellness: In July 2013, Loblaw entered retailer is emphasizing everyday prices over punctu- an agreement to purchase Shoppers Drug Mart, the ated sales. In 2013 the retailer also rolled out a PC country’s largest drug chain, for CAD12.4 billion. Once Plus loyalty card, starting with Loblaw’s grocery stores the deal closes, Loblaw’s prescriptions market share in Ontario before expanding across grocery and the will increase from roughly 5% to 25%, with an added Superstore banners. This mobile-enabled program 1,300 drugstores to build on the 500 pharmacies that can target offers and rewards to particular shoppers, it already operates. driving customer engagement.

-10- Examining the Market Leaders’ Positions

Sobeys shoppers load targeted offers to their cards. In addi- Sobeys, a subsidiary of Limited, will be tion, the retailer offers ®, a coalition reward the second-largest retailer in Canada once its acquisition points program, in Quebec and the Maritimes. This of Canada Safeway is completed in late 2013. Sobeys oper- will likely expand out West through Canada Safeway, ates 14 banners nationwide with a stronger store presence as the banner also offers these rewards. Its loyalty in the Maritimes and Quebec. Though its range of formats cards assert value, as well as help the retailer includes convenience, drug, discount, and warehouse refine its merchandise, and promotions build clubs, the retailer primarily focuses on driving growth shopper rapport. through its full-service supermarkets. In fiscal 2013, which ended May 4, 2013, its net sales reached Another key piece of Sobeys’ value proposition is its CAD17.6 billion. three tiers of private labels, with the Compliments brand as the cornerstone. In recent years, the retailer Its growth has been modest, with comps rising 1.3% in repackaged and redesigned is private label offer, its 2013 fiscal year. To drive its sales, management is culling its 5,000 SKUs to roughly 4,200 private label focused on expanding its food proposition across the items by mid-2013. Looking ahead, its private brand country, exemplified by its move to purchase Canada offer will be enhanced through the leverage of Canada Safeway, which had a strong presence in the West. To Safeway’s capabilities. meet changing consumer demands, the retailer is namely driving health, value, and convenience appeals. • Convenience, Digitally: Of the leading Canadian retailers, Sobeys’ digital selling presence is the most • Better Food for Health: Partnering with celebrity advanced. In Quebec, select IGA locations have offered Chef Jamie Oliver, Sobeys has re-launched it brand online grocery ordering for more than a decade. Its message to assure the accessibility and convenience Thrifty Foods banner also allows online ordering. In of healthy eating through the tagline “better food for addition, the retailer is developing mobile tools to all”. Support for this marketing effort is to involve aid shoppers’ meal planning. Leverage of such tools the introduction of a new grocery store concept and and programs are expected to advance as Canadians ready-prepared private label meals. increasingly adopt online shopping.

• Health Through Natural: Building on the expertise Metro from its Rachelle-Béry natural health banner in Metro is the third-largest grocer in Canada with CAD12.0 Quebec, Sobeys plans to introduce Natural Source billion in sales in 2012. It is a regional player with departments inside select Sobeys in the Maritimes. market share leadership in Quebec and a broad store It will carry more than 2,000 food items, focused on presence in Ontario. Across these provinces it operates organic or simple, minimally processed ingredients. two discounter, three supermarket, and four drugstore Nine Sobeys stores also feature “Wellbeing” depart- banners, though management’s strategy emphasizes ments with roughly 3,000 natural health food and executing the basics to deliver as a food retailer. beauty items, as well as trained counselors to conduct information sessions. The retailer plans to expand this Similar to the other leading grocers in Canada, its sales program going forward. performance has been moderate with comps up 1.2% in fiscal 2012. To advance its position, the retailer is particu- • Value via Loyalty Cards, Private Label: Sobeys offers larly focused on fresh, health service, loyalty programs, three loyalty reward programs. Club Sobeys is a and adapting to ethnic tastes. loyalty card in Sobeys banners in Ontario, and Thrifty Foods offers Club Thrifty Foods. This has advanced to digital connections through My Offers, which lets

-11- Examining the Market Leaders’ Positions

• Advancing Fresh: In fiscal 2011, Metro launched a • Value Through Loyalty, Discounters: In Quebec, Metro produce initiative to elevate its fresh presentation, and Metro Plus stores operate a metro&moi loyalty adding 50 types of fruits and vegetables and investing card with more than 1.3 million members as of fiscal in display counters and employee training at its 2012. The retailer rewards shoppers with quarterly supermarket and discount banners. This adds to the rebates and personalized offers through insights retailer’s employee training efforts, which already developed through its partnership with dunnhumby. emphasize fresh. Referred to as the Five Customer Looking ahead, greater digital integration with mobile Promises program, Metro’s employees are educated devices is anticipated. and evaluated on the shopper’s experience in their store. Quality fresh product is the first of the five key Metro’s discount banners, and , attributes, followed by ease of shopping, pleasant continue to outperform its conventional banners’ sales people, variety, and good prices. growth. Accordingly, management has announced plans to convert a handful of Metro stores in Ontario • Health Needs: In addition to emphasizing nutritious, into Food Basics. Super C also continues to expand, fresh items, Metro serves shoppers’ health needs with Kantar Retail projecting its store count to through its 261 pharmacies that are both co-located increase from 85 in 2012 to 101 by the end of 2018. with its grocery stores and as standalone locations. Its McMahon division also distributes pharmaceuticals • Meeting Ethnic Tastes: Metro acquired a 55% stake in and health care supplies to pharmacies, supermar- Adonis, a Mediterranean grocery chain, and Phoenicia, kets, and health care institutions. an importer and food distributor, in 2011. This allowed the retailer to improve its ethnic offering in its core banners through assortment advice and the addition of private label Cedar and Phoenicia and, shortly, Adonis items. In 2013, Adonis expanded beyond Quebec and into Ontario (Figure 8).

Figure 8: Exterior of Adonis Store in , Ontario

Source: Kantar Retail Store Visit

-12- Examining the Market Leaders’ Positions

Walmart Canada Costco Canada Walmart entered Canada in 1994 as a mass merchan- Costco entered Canada in 1985 and has grown to reach diser when it purchased Canada. Its first super- roughly 10 million members, or almost one-third of centre opened in 2006, cementing its foray into grocery. Canadians. It operates 85 clubs across 9 of the 10 prov- By mid-2013, operated 380 stores, 57% inces, with 54% of its clubs located in Ontario and Quebec. of which were supercentres. The retailer continues to The retailer still sees opportunity to expand in Montréal, convert its mass merchandise stores into supercentres, Toronto, Winnipeg, Alberta, and , and has with efforts focused on Quebec and the Maritimes to plans to eventually reach 110 clubs . complete its national rollout. By 2012, its sales reached CAD19.8 billion, according to Kantar Retail. Its sales growth has been strong, as total Canadian reve- nues grew 12% last year to reach CAD15.7 billion, and Despite store expansions and conversions, Walmart’s comps increased 5%. Membership renewal rates are like- comps have been weak, hovering around 0% to 1% since wise high, at roughly 90%. Management’s aim is to deliver 2009. To drive its sales, the retailer is focus on local rele- membership value by selling the quality, locally relevant vance, “save money” appeals and one-stop convenience. items at the lowest price. Accordingly, its business model inherently serves shoppers demand for value, diverse • Suiting Ethnic Tastes, Locally: Termed “Store of the tastes, and stock-up convenience. Community,” Walmart seeks to refine its store assort- ment to local tastes through the use of customer • Demand for Value: Costco invests minimally in its insights and point-of-sale (POS) data. In select stores, clubs appearance, sells a limited range of items, and the retailer has gone so far as to rent out in-store shuns marketing to reduce overhead costs to allow space to local butchers and bakers to best meet very low margins. In addition to offering low prices community preferences. on brands, its Kirkland Signature brand has strong equity, known for its quality and value. • Save Money with Private Label, Lowest Prices: Walmart’s brand is built on its “save money” price • Diverse Tastes: Operating under a regional buying leadership proposition, though 2013 TNS Canada structure, Costco’s merchants are renowned for survey data indicates that Walmart is not perceived selecting the right items to entice their members as offering the best value for money in Canada: and accommodate local tastes. This has helped the discounters such as No Frills lead. To combat this, the retailer succeed in attracting new Canadians. retailer is elevating its private labels, introducing new higher-tier private lines such as Our Finest and Your • Support for Aging: Costco also serves members by Fresh Market. In addition, the retailer has put greater offering optical, pharmacy, and, in roughly 40% of emphasis on Rollback sales and opening price point its clubs, hearing services. The retailer also touts its items to communicate stronger price impressions. ability to provide members in-club advice, and offers products for an array of home health care needs. • One-Stop Convenience: The supercentre’s “one-stop Given that Costco’s membership base skews toward shop” delivers convenience through the ease of older shoppers, the retailer will continue to serve its stocking up across a broad range of categories audience’s changing health needs. in a single trip. Recently, Walmart augmented its reach through its website, selling a range of general merchandise and select consumables. A re-launch of its mobile app to help in-store browsing and facilitate on-the-go shopping is also expected.

-13- Final Thoughts: Considerations for Retailers

Reaching Canadians today presents particular challenges, they write their lists or introducing delivery services to as the audience is fragmenting with increasingly disparate distinguish the experience. Increasing share of wallet demands. Moreover, as the grocery industry consolidates captured may involve adding new services to complement and alternative channels for groceries proliferate, the the product offering and advance the solutions offered, competition’s sophistication will continue to elevate. For such as featuring health coaches, cooking classes, or retailers, this context will require a re-examination of who quick-service meals to eat in-store. is in their competitive set. Perhaps more importantly, it requires an assessment of where growth will realistically Developing such appeals involves building distinct skill come from, as the ability to identify new or capitalize on sets that are not traditionally associated with grocers. This disparate pockets of opportunity will become of height- includes advanced analytics and deepened use of shopper ened importance. insights to attune assortment and offers to specific stores and shoppers. As marketing appeals become more In particular, those retailers that succeed in expanding sophisticated, leveraging new media to attune messages their share of shopper decisions and share of wallet will to particular shoppers at specific times will be expected. be better positioned. Broadening share of decision involves To build out such programs along with the supply chain to intercepting shoppers earlier along the path to purchase, support such complexity, a heightened emphasis of tech- becoming the top-of-mind option as shoppers begin to nological capabilities and expertise will continue. In the plan a trip. Innovative techniques to build this connection end, those retailers with the internal flexibility and tactical include developing tools to help shoppers find offers as agility to quickly adapt will be best positioned to succeed.

-14- References i World Bank, 2012 data ii Bank of Canada news release, July 17th, 2013 iii Conference Board Canada – data as of January 2013 iv Statistics Canada 2013 Canada population estimates v The World Factbook, CIA.gov vi Statistics Canada 2013 Canada population estimates vii Human Resources and Skills Development Canada viii OECD, International Migration Outlook, 2012 ix Statistics Canada National Household Survey (NHS), 2011 x Human Resources and Skills Development Canada xi 2013 Royal Bank of Canada Retirement Myths & Realities Poll xii University of British Columbia Adult Obesity Study, 2013 xiii TNS Canada Consumer Confidence Index, 2013 xiv Statistics Canada 2013 Canada population estimates xv BMO Financial Group estimates, 2013 xvi IISD Reports on Canadian Interest in Internet Governance xvii 2013 Statistics Canada e-commerce data xviii Retail Council of Canada estimates xix Nielsen Canadian Grocer Conference, 2012 xx Agriculture and Agri-Food Canada Organic Foods Market Analysis Report, November 2010 xxi USDA GAIN Report: Canadian Consumer Insights 2012 Consumer Survey xxii Statistics Canada Estimates: Average Time Spent on Activities, 2010; Office of Consumer Affairs: Analysis on Consumer Spending xxiii USDA GAIN Report: Canada Retail Food Sector Report, January 2013 xxiv USDA GAIN Report: Canadian Consumer Insights 2012 Consumer Survey xxv TNS Canada estimates xxvi Financial Post online: http://business.financialpost.com/2013/05/22/whole-foods-says-grocer-wants-to-open-40-more-canadian-stores/ xxvii Business Network Switzerland: The Canadian Food Retail Sector, February 2011 xxviii Financial Post online: http://business.financialpost.com/2013/06/04/costco-continues-no-frills-expansion-as-target-walmart-retail-race-heats-up/

ABOUT KANTAR RETAIL Kantar Retail was formed in 2009 from four insight and Consulting businesses. It serves leading Retailers and Manufacturers globally, delivering a competitive advantage and enhanced revenue and profitability. Leading suppliers, brand manufacturers, retailers, financial services and strategic marketing firms rely on Kantar Retail’s expertise to transform their businesses.

Kantar Retail is headquartered in London and is part of the Kantar Group of WPP.

© 2013 Kantar Retail. All rights reserved. COPYRIGHT NOTICE: No part of this publication may be reproduced in any form by photostat, microfilm, xerography, or any other information retrieval system, electronic or mechanical, without the written permission of the copyright owner.

-15-