How Canadian retailers are responding to hypermarket pressures

Stewart Samuel
Program Director - Canada

Date : 18 November 2019

The latest results from Walmart and Loblaw indicate a challenging time for non-food categories in Canada. We look at what this could mean for the future of the hypermarket in the country.

Popular with Canadian shoppers

Walmart and Loblaw account for almost all hypermarkets trading in Canada, over 500 stores in total. Offering a blend of food and non-food items, it has been a popular format with Canadian shoppers and resilient through challenging trading environments. However, results calls this month revealed that while both retailers are seeing solid growth in their food operations, non-food categories are under pressure.

”In terms of the overall strategy, I would say, in terms of apparel, we're quite pleased with what we're seeing. But I think we will have to think about whether we allocate as much space to general merchandise or whether we give the space to other things like micro-fulfilment.”

Sarah Davis, president, Loblaw

”Trends in Canada for Q3 were about the same as in the first half of the year. We’re doing well in weekly shop categories like food and consumables, but we need to do more to improve sales of general merchandise and apparel. The new team has made this a priority.”

Doug McMillon, president and CEO, Walmart

Competitive trading environment

Canadian hypermarkets face three key challenges:

  1. With most of the non-food categories falling into consumers’ discretionary spending needs, sales will be impacted by the ability and willingness of consumers to spend. While the economic backdrop remains relatively healthy, many consumers are challenged by elevated debt levels. Recent statistics reveal that some consumers have started to rebalance their budgets, which could have impacted spend in-store.
  2. Although both retailers have developed their own ecommerce operations, including their non-food ranges, the continued growth of ecommerce in the market will be having an impact. Over time, a greater proportion of general merchandise sales will shift online.
  3. Competition from traditional non-food retailers also remains intense. Companies continue to exit the market while discounts of up to 40% have become the norm for many leading operators. Value-focused operators including H&M, Uniqlo and Winners continue to have expansive strategies in place.

Loblaw: refocused the offer

Over the last five years, Loblaw has strategically refocused its general merchandise offer within its hypermarkets, withdrawing from categories which offered limited growth opportunities, including large electronics. The stores, which mainly trade under the Real Canadian Superstore banner, have also seen significant investment to improve fresh food presentation and enhance their value credentials. Its Joe Fresh clothing range is the central element, accounting for most of the general merchandise space. It also has a well-developed homeware and kitchenware offer which is complementary to its food business. Private label plays a key role in these categories. Toys is also a key focus area as part of its aim to win with families.

Source: IGD Research

Loblaw: optimising the strength of Joe Fresh

The retailer can continue to optimise the strength of the Joe Fresh brand in this part of the store. New branding and graphics have added to the impact of the offer. It can also further align it with its beauty offer. Loblaw has significantly improved this element over recent years, drawing on expertise from its Shoppers Drug Mart business. In terms of repurposing space, next year the retailer will be using one of its hypermarkets to test automated micro-fulfillment for grocery ecommerce. However, with these systems only requiring 10,000-15,000 sq ft of space, the retailer may look towards other opportunities to repurpose space or downsize stores.

Source: IGD Research

Walmart: developing a new vision for the Supercentre

At Walmart, a new vision for the Supercentre, its hypermarket business, has recently been launched. The store features a new design and layout, new technology solutions, an updated product range and a broader range of third-party partnerships. These include Freshii, The UPS store, MINISO and Naoki Sushi. An existing McDonald's has been renovated. These new partners have been selected to build appeal with younger shoppers and families. The retailer has also developed the ‘Party Shop’ concept, bringing together all relevant ranges into one part of the store with a dedicated service desk. This is a great example of how to build a new offer that optimises some of the existing ranges and aligns with the needs of its core customers. 

Source: IGD Research

Walmart: testing concepts to re-purpose space

The most significant of its third-party partnerships is MINISO. This is a fast-growing, value-focused, non-food retailer. A dedicated store-in-a-store concept has been developed, occupying around 8,000 sq ft in the store. The retailer has also created a dedicated space to showcase ranges from its wider offer, including opportunities for suppliers to created temporary, branded pop-ups.

Source: IGD Research

Opportunity to develop longer-term solutions

While both retailers are pursing solid strategies which will help to ensure the relevance of their hypermarkets in the near-future, more creative solutions may be required over the longer-term. Over time, a greater proportion of general merchandise sales are expected to shift online, which could further pressurise in-store sales. However, the rate of ecommerce adoption in Canada has been slower than in the US, providing the retailers with some time to consider their strategic options.

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