‘Ottawa’ Canada Could be in For an Even Tougher Grocery War After European Mass Disruption
TORONTO — Mass disruption from discount grocers in Europe could foreshadow further bloodletting in Canada’s highly competitive supermarket sector.
The vast penetration in Europe of Aldi and Lidl, two German discount supermarket chains with 20,000 stores coupled with Amazon’s entry into delivering fresh groceries on the continent, have completely disrupted the traditional grocery industry, leading to price deflation and struggles for retailers such as U.K.-based Tesco.
Canada, where consumers are highly price-sensitive and discount grocers are already driving huge growth in the sector, could be next, experts from New-York based global management consultancy Oliver Wyman told an audience at the Retail Council of Canada’s Store 2016 conference Wednesday.
“There is a prediction that half of the large grocers in Europe will be gone in the next 10. years,” said James Bacos, managing partner in retail at Oliver Wyman Germany. “That is huge structural change …There is no real worldwide consolidation (in grocery retail) — but there is going to be.”
Between 2003 to 2013, Lidl and Aldi grew to 20,000 stores from 8,000, he noted.
“They have changed the game. They have caused price deflation for the last 15 years and they will continue to do so. No market has been immune.”
In Germany, the two now have 50 per cent market share in groceries. In the U.K., their same-store sales are growing at a staggering rate of 30 per cent.
Europe is instructive because much like Europe, Canada has started to reach the saturation point in terms of traditional grocery store growth, said Fred Thomas-Dupuis, partner in retail at Oliver Wyman Canada.
“When disruption happens at that particular life stage, it can be difficult to manage, because you don’t have expansion from new store openings that you can use to camouflage your core state.”
Senior grocery executives in the U.S. have begun paying attention to the European discount threat, he said, because Aldi has 1,500 stores in the U.S. and now accounts for about four per cent of market share.
“They will come to Canada in due course,” Thomas-Dupuis said. Lidl, the largest grocer in Europe, has opened stores in 28 different markets and they have proven to operate well in very diverse markets.
He said one could argue that Canada already has many strong discount grocers: discounter Wal-Mart has almost completed its grocery roll-out across the country and all large grocers have their own hard discount divisions, from No Frills to FreshCo to Food Basics. That could make it more immune to entry from further hard grocery discounters.
“But the more pessimistic view one could take is that we have trained our customers to actually see value in lower-service stores that offer decent and very good pricing with private brands that have very low entry price points. In many ways, that make us more susceptible to this than perhaps the United States.”
The discount grocery channel in Canada grew four per cent in 2015, compared with zero market share growth at conventional full-line grocery stores, according to market research firm Nielsen Canada.
Dollar stores and warehouse clubs such as Costco in Canada also saw a spike in food sales last year, with each retail category growing their food sales by 10 per cent, compared with two per-cent sales growth among traditional grocery retailers. Today, 36 per cent of all grocery items in Canada are sold on a discount price promotion, up four points since 2010. Prior to the recession, the figure was 27 per cent.