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Less than two weeks after Loblaw Cos. Ltd. announced a $12.4-billion takeover of Shoppers Drug Mart Corp., arch-rival Wal-Mart Canada Corp. launched its first super centre in Atlantic Canada. (GLORIA NIETO/THE GLOBE AND MAIL)
Less than two weeks after Loblaw Cos. Ltd. announced a $12.4-billion takeover of Shoppers Drug Mart Corp., arch-rival Wal-Mart Canada Corp. launched its first super centre in Atlantic Canada. (GLORIA NIETO/THE GLOBE AND MAIL)

As consumers fret over prices, big grocers take fight Down East Add to ...

The grocery wars are heating up and heading east, amid signs that consumers are becoming concerned about higher prices as the industry consolidates.

Less than two weeks after Loblaw Cos. Ltd. announced a $12.4-billion takeover of Shoppers Drug Mart Corp., arch-rival Wal-Mart Canada Corp. launched its first super centre in Atlantic Canada, with a full offering of fresh fruits, vegetables and meat, and plans for eight more big stores in the region this fiscal year. Loblaw and Sobeys Inc., the country’s second-largest grocer, dominate the field in the Maritimes.

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By the fall, U.S. discount rival Target Corp., which started to open stores in Canada in March, will roll out its first outlets in Atlantic Canada, putting even more pressure on incumbents.

This comes as a new poll finds that most consumers – 43 per cent – say that Loblaw’s takeover plan will lead to less competition and higher prices. Canadians in the Atlantic provinces (53 per cent) are the most likely to think competition will suffer, according to Forum Research Inc.

“These mergers and new market entrants are dynamic and interesting and important,” Shelley Broader, chief executive officer at Wal-Mart Canada, said in a telephone interview from Halifax, where she presided over the super centre launch.

“But nothing is as important as listening to my customer. Our continued focus is to lower the cost of living and to drop retail [prices] and to meet consumers’ primary demand, which is lower prices. … If that’s what customers are saying is most important to them, then that’s great for us and for our brand.”

Retailers are racing to keep up with a flurry of industry acquisitions and new foreign players, raising the stakes for all merchants. But the rapid pace of change threatens to scare deal-hunting consumers, putting pressure on retailers to improve their offerings and avoid unnecessary price hikes.

Major grocers say they’re aware of price sensitivities among customers. Julija Hunter, spokeswoman for Loblaw, said its prices will not increase as a result of the transaction, which is expected to close in early 2014. “The complementary strengths of the two organizations will provide us with the means to enhance the customer experience by offering greater assortment, service, value and convenience,” she said in an e-mail.

Sobeys, owned by Empire Co. Ltd., announced its own $5.8-billion deal in June to acquire Canada Safeway Ltd. Marc Poulin, chief executive officer of Sobeys, told analysts consumers are unpredictable and will check prices at different stores, keeping grocers on their toes.

“As retailers, we have to be especially sharp to entice the customer to spend the extra dollar,” he said. “I think the market is getting very competitive, that’s for sure, and it’s the result of the fact that we have a fickle consumer and a lot of square footage being added to the marketplace.”

Sobeys spokesman Andrew Walker, noting the poll does not cover its proposed takeover, added: “Canadians are, and will continue to be, very well served by the variety of competition that exists in the Canadian grocery marketplace.”

This year alone, Target is launching 124 stores in Canada while Wal-Mart will have 388 stores by the end of its fiscal year, nine more outlets than a year earlier, many of them conversions to super centres with full food aisles. Costco Wholesale Canada – which outshines both Wal-Mart and Target in customer satisfaction, according to recent Forum research – also will add more stores to its current 85 in coming years.

“Whenever there’s less choice in the marketplace, you think: ‘Less choice means less competition; less competition means higher prices,’ ” said Lorne Bozinoff, Forum president. Nevertheless, 29 per cent of consumers said the Loblaw deal will lead to lower prices and 19 per cent believe it will have no effect on prices, according to the survey.

Over all, most consumers – 42 per cent – approve of the Loblaw’s takeover, while 30 per cent oppose it and 28 per cent have no opinion.

Corrine Sandler, CEO of Fresh Intelligence Research Corp., said its studies have found that consumers already perceive that Shoppers’ grocery prices are higher than those at supermarkets such as Loblaw. “But, if anything, I would expect prices to be better at Shoppers, and more variety” after the Loblaw deal closes, she said.

Wal-Mart’s research has found that its grocery prices on a standard basket of goods are 8 per cent to 20 per cent lower than those at conventional supermarkets, Ms. Broader said.

She said the super centre rollout in Atlantic Canada is “coincidental” to Target arriving in the region this fall. Wal-Mart is quickly gaining food market share over rivals, she added. “We have continued to outpace the market, sometimes by a metric of three and four times.”

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