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Wal-Mart Canada beefs up for retailers' food fight

Workers get the new Wal-Mart Supercentre in Mississauga, Ont. ready for the store's grand opening in June, 2008.

Kevin Van Paassen/Kevin Van Paassen/The Globe and Mail

Wal-Mart Canada Corp. is pushing aggressively into food as it steals business from grocery rivals, having almost doubled its share of the fresh-food market in the past two years.

U.S.-based Wal-Mart Stores Inc., which arrived in Canada in 1994, started to add massive Supercentres with full fresh-food offerings in November, 2006, taking a bite out of business from other supermarkets and retailers. Its new food focus prompted domestic grocery leader Loblaw Cos. Ltd. to launch a major overhaul of its business, resulting in massive problems which it was forced to patch up in past years.

Today, Wal-Mart Canada continues to add more groceries to its shelves, with food, consumer products such as toothpaste and toilet paper, and health and wellness products making up 41.7 per cent of its estimated $20-billion of annual sales, compared with just 30.6 per cent in fiscal 2008, according to Wal-Mart's figures.

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"We are in our infancy," Shelley Broader, chief executive officer of Wal-Mart Canada, told an international Wal-Mart Stores Inc. analyst conference in Toronto on Thursday.

Wal-Mart's food initiatives are putting pressure on the entire grocery retail sector, which feels the pain more acutely as the discounter races to keep its prices low. By early 2013, the sector will face another competitor when U.S. discount titan Target Corp. arrives in Canada.

The market shifts are forcing all players to offer more discounts, limiting potential financial gains.

Wal-Mart helps keep its prices low by checking prices of 150,000 items at rivals ever week, Ms. Broader said. As a result, the retailer enjoys 11 per cent lower prices on a "like-for-like" basket of goods compared with its competitors, she said. "Canadians are learning: Why bother going anywhere else," she said.

The retailer will keep up the pressure by continuing to add more Supercentres with full food offerings. Today, of 333 Wal-Mart stores, half – or 167 – are Supercentres; by the end of the year, the discounter expects to run 380 stores, 210 of them Supercentres, Ms. Broader said.

Wal-Mart is rushing to bulk up in advance of Target's entry into Canada following its $1.8-billion acquisition of most Zellers store leases. Those stores will be converted to Target outlets, starting in March.

Wal-Mart, for its part, will oversee a record expansion in Canada this year, adding or enlarging 73 stores, including 39 Zellers stores that it acquired last year for $214-million from Target, said Jim Thompson, chief operations officer at Wal-Mart Canada.

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Those Zellers stores will open as Wal-Mart by late 2012, giving the retailer a jump of several months on Target. "Customers will not have to wait until next spring to shop at Wal-Mart," he said, an apparent reference to Target taking more time to convert Zellers.

Amid the market shakeup, retail space will begin to "explode" by late this year, said Perry Caicco, an analyst at CIBC World Markets. The added competition will hurt some players. Loblaw, for example, plans to add little extra store space in the coming years.

Loblaw's share of grocery retail space could slip to about 20.8 per cent in 2014 from 21.5 per cent today, Mr. Caicco warned. The supermarket giant would need to add $1-billion of food sales "just to maintain its current market share," he said. "That is pretty much an impossible task, meaning that market share loss is inevitable."

This year, Wal-Mart will invest $750-million in expanding in Canada, while beefing up its strategy of "mass customization," under which it develops a "store of the community" to cater to local demographics, ethnicities and weather, Ms. Broader said. It has teamed up with third-party operators to run specialty Asian seafood, meat and bakery counters at a Toronto store.

The 39 former Zellers stores will give Wal-Mart the opportunity to test some smaller formats in Canada, Ms. Broader said. It recently built a smaller store in Toronto – dubbed Urban 90 – that is close to 90,000 square feet and offers almost a full food offering. The outlet sits on 4.5 acres of land, compared with 10 to 15 acres for its big-box stores.

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