Why Walmart wants to sell you groceries

In early February, the CEO of Walmart Canada announced her chain was moving fully into the grocery business.

Walmart’s Canadian stores already featured full grocery lines to some of its larger outlets, but the company's plan now is to inject $500 million into expanding the number that offer groceries.

The move means Canada will see hundreds of groceries stores added to what seems to be a full complement already, with Loblaws, Metro, Sobey’s, Longo’s, Costco and the discount stores related to some of these chains. Are we at the point of market saturation?

Writer Paul Fraumeni asked Professor David Soberman for his thoughts. Soberman is a professor of marketing and the Canadian National Chair of Strategic Marketing at the University of Toronto's Rotman School of Management.

The major difference today is that there is a broadening of the product lines that are carried by the traditional grocery stores and, more recently, by those that previously did not sell groceries, like Walmart and Target. I’d include Costco in that group too.

People used to separate their grocery shopping from other shopping. You might go to a mall to do Christmas shopping, for example, or to buy clothing or school supplies for your children. But for your groceries, you would have to make a separate trek to the supermarket.

Now, it’s all being combined. Evidence for this change in shopping behavior comes by thinking  about the product lines carried in a traditional supermarket like Loblaws. They’ve vastly expanded their product line with Joe Fresh, which is a whole section dedicated to clothing.

You can also buy all sorts of household fix-it products in Loblaws. That section used to be about 12 feet long and it’s much bigger now. In addition, most supermarkets contain pharmacies where you can get prescriptions filled. Loblaws perceives itself as not just competing for your supermarket dollar but also for your dollar for clothing and doing things around the house.

That’s the main reason Walmart is expanding into groceries: they already carry household products and clothing.  The bottom line is that people will be spending an increasing amount of their shopping dollars in a place like Target or Costco if they carry groceries.

Potentially, this can put Walmart in a bit of a pickle because they have something like 400 stores but half of them don’t really have complete grocery sections. Now they are ramping that up so that the majority of their stores include the full grocery section. The idea is that when people think of going grocery shopping they’ll actually go to Walmart.

It’s also interesting that many of the Walmarts are located in malls where there’s also a supermarket. This means  that even within malls there is an added dimension of competition and this is a departure from the past.

This might result in people not just deciding which mall to go to, but with a Walmart supermarket and another supermarket in the same mall, they might decide which part of the mall to go to do their shopping or where to park their car.

But the gold standard is Loblaws. They’ve created very much their own image with their pioneering efforts in private labels, with President’s Choice and No Name, and the collection of products they’re offering. That approach has really helped them to create differentiation.

One of the things about grocery shopping is you don’t want to have to travel too far to do it. This enables each of these stores to create their own retail trading area. As I say, they know how to compete and one of the ways they compete is by not competing. And they do that by not co-locating.

But they also understand the shoppers will sometimes buy multiple items from different stores. In that kind of business, you don’t have to necessarily win with each shopper every time he or she shops. You may not have the person who buys on every trip but if on one out of every three trips they buy something at your shop, then you can still create a successful business. It’s a very different form of business  when you’re a supermarket.

In contrast, the objectives of a Pusateri’s or a McEwen are precisely to allow shoppers to find the exotic foods or imported items that cannot be found elsewhere. They charge a higher price so they don’t need the volume of a prototypical supermarket: as long as a specialty grocer like Pusateri’s has a steady flow of customers, the business model is viable. Whatever big city you go to you’ll see these types of stores. In London, England, you see Fortnum and Mason and in Paris, you see Fauchon which is the same sort of shopping experience, for wealthier people who want special jam or imported escargots imported from a certain region of France. But these grocery stores don’t have a negative influence on the business of the larger chains.

Overall, Canadians have a wide selection of places where to do their shopping. It’s convenient to be able to go to a Walmart or Costco and buy many different types of products and get things done all at once. So I think this is a good development for customers.