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An employee arranges pricetags at a vegetables work bench during the opening day of upmarket Italian food hall chain Eataly's flagship store in downtown Milan, March 18, 2014.Alessandro Garofalo/Reuters

Eataly, the upscale Italian eatery and foodie shopping destination, is scouting out prominent Toronto locations for its first Canadian restaurants-and-store emporium.

Adam Saper, managing partner and chief financial officer at Eataly's U.S. unit, confirmed the company has teamed with Canada's Weston family business, which owns Canadian luxury chain Holt Renfrew & Co., to help find the best local site. They have looked at a number of potential locations near the Holts Bloor Street West flagship store in the Yorkville area, he said.

Eataly has even considered setting up shop inside the soon-to-be renovated Holts store, he said in an interview.

"We really want to come to Toronto," said Mr. Saper, who will speak next week at the Retail Council of Canada's annual conference. "We are looking to make a deal."

Founded by Oscar Farinetti in Turin, Italy, in 2007, Eataly today has 10 stores in Italy, one in Istanbul, one in Dubai, one in Sao Paulo and 13 in Japan. South of the border, it has a giant flagship in New York and another in Chicago, with plans for more.

New York's Eataly features celebrity chefs, seven restaurants, a cooking school and displays of more than 10,000 products, including fresh pasta, cheeses, meat, breads, fish and vegetables.

Throngs of tourists snap photos and tour the theatre-like setting while eating $12.80 (U.S.) Neopolitan Focaccia sandwiches or Nutella crepes for $5.80.The pending arrival of Eataly in Canada raises the ante for other high-end food retailers and restaurants. At the same time, Eataly will face burgeoning competition in the retail food arena as rivals ranging from U.S.-based Whole Foods Market Inc. to local players such as Pusateri's Fine Foods expand here.

Even major grocers, led by Loblaw Cos. Ltd., whose major shareholder is the Weston family, are bulking up on fancier fare.

The frenzy of activity among pricier food retailers underlines the race to respond to consumers' more worldly tastes. And it's a way to gain greater profit margins in a cutthroat, margin-thin sector.

Sales of ready-to-eat prepared fare in grocery stores jumped 8 per cent to $2.5-billion in 2014 compared with the previous year, according to researcher NPD Group.

"Food has become more than a necessity today – it is now an affordable luxury item," said Susan McGibbon, president of consultancy the Retail Lab.

Eataly's Mr. Saper said he was surprised at the extent of Italian food sophistication in Toronto when he started to look at the market a few years ago.

"We've got more serious over time," he said. But he added he doesn't want to rush the move here, nor does he want to build too many of Eataly's massive restaurant-stores. "We're not a Starbucks kind of brand."

Mr. Saper said he's looking for almost as big a space in Toronto as in New York and is in discussions with landlords as well as local suppliers. "We don't want to be a cookie-cutter brand." He doesn't expect to have a firm deal to announce by next week when he speaks at the Toronto conference. Already, Eataly has a joint venture with the Weston family to launch a food hall at its luxury Selfridges department store in London.

With €450-million ($610-million) in annual sales – about one-quarter of that, or $125-million (U.S.) in the United States – Eataly takes a couple of years to pay back its investment in each store, he said. Each one generates from $50-million to $65-million in sales, he said.

In Canada, it ran into a potential trademark roadblock with deli-café Eataly Foods Inc. in Port Colborne, Ont. The restaurant, which won a local Chamber of Commerce new business award two years ago, came to a friendly agreement to each stick with its Eataly name, owner Claudia Spiteri said. It plans to expand in the Niagara region, while the other Eataly is eyeing major cities, her husband, Tony, said. They agreed to help each other, he said. Added Mr. Saper: "We are comfortable that we will have the rights to the trademark in Canada. … It's been dealt with."

Other gourmet grocers are also pushing to raise their game. Whole Foods, with 10 stores in Canada, plans 40 in the coming years and $1-billion of sales.

Pusateri's has partnered with posh Saks Fifth Avenue, owned by Hudson's Bay Co., to put "food halls" in Saks stores when they start to open in Canada in the spring of 2016.

With a fourth standalone Pusateri's store launching later this year, the chain plans to roll out an e-commerce site by the end of 2015 or early 2016, and is not ruling out further store expansion, said John Mastroianni, general manager of the grocery chain.

"We have a lot on our plate at the moment," Mr. Mastroianni said. "We're not shutting the door to anything."

Pusateri's sends its chefs around the world for inspiration, including a trip recently by one of them to Israel to find the best hummus, he said. It recently introduced the new recipe (less salt, more vegetables that are grilled longer) in a 300-gram container for $8.99, about 20-per-cent more expensive than its other hummus offerings. Last month, the chain launched a new menu for its in-store eatery which touts a $12 banana-and-Nutella waffle and a $9 breakfast burger with bacon sausage, over-easy egg and cheddar cheese.

In the highly competitive grocery field, even discount stores have gradually broadened their offerings, with more premium products and improved fresh foods, said Perry Caicco, retail analyst at CIBC World Markets.

Big conventional grocers "had to raise their game to maintain – and hopefully raise – their prices," he said in a recent report. Loblaw has built what it calls its "inspire" stores modelled on its Maple Leaf Gardens location in Toronto; second-ranked Sobeys Inc. has rolled out "urban fresh" upgrades, while Metro Inc., the third-largest grocer, has built "wow" stores, all pouring capital into renovations.

But Mr. Caicco also warned the retailers may be overinvesting in updating stores in the "discount-heavy suburbs. … We don't see these spends ending well."