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© IGD 2010
Insights from Canada
© IGD 2010
Introduction
• This is IGD’s latest insight from our base in Canada, part of our quarterly market update series
• We work closely with retailers and suppliers in the market to develop our research and understand the implications
• This quarterly series will help you to:
– Understand current trading conditions and plan for the months ahead
– Keep up to date with key economic indicators
– Enable you to better understand the priorities of your key trading partners
– Assist in identifying sector trends
© IGD 2010
Agenda
• Introduction
• Economic Indicators
– GDP
– Retail sales
– Inflation
• Retailer Results & Strategies
– Loblaw
– Sobeys
– Metro
– Safeway
– Walmart
– Couche‐Tard
• Summary
– Interest rates
– Unemployment
– Population and ethnicity
© IGD 2010
Key Findings
1. A return to an inflationary environment should help boost sales growth rates, although the pace of economic growth may be slower than originally anticipated
2. The food and grocery sector will remain highly competitive, as retailers focus on expanding and improving their discount formats
3. Although emphasising price credentials will remain important, retailers will also be seeking added value opportunities to capitalise on improving consumer sentiment
4. Targeting ethnic shoppers will become a key priority for mainstream retailers in 2011
5. Retailers are changing their ways of working; understanding category management techniques, the role of shopper insights and the commercial implications of supply chain decisions will be key competencies for vendors in the year ahead
© IGD 2010
© IGD 2010
GDP: a return to economic growth
• Real GDP increased by 0.3% in third quarter compared to the previous quarter, reflecting weaker exports and subdued housing activity
• The Bank of Canada has recently revised its outlook for the future and now expects the economic recovery to be more gradual than it had projected in July
• This more modest growth profile forecasts growth of 3.0% in 2010, 2.3% in 2011 and 2.6% in 2012.
GDP seasonally adjusted at annual rates, at market prices
Source: Statistics Canada (380‐0002)
© IGD 2010
Retail sales remain under pressure
• Although total retail sales increased by 3.3% in the year to October, the rate of growth has continued to fall since May
• Having outperformed the wider retail sector throughout 2009, sales growth through food and beverage stores has been lower for nine out of the ten months reported for the 2010 year to date
• However, supermarkets have been the strongest performing of all food stores
Seasonally adjusted($), growth month on same month previous year
Source: Statistics Canada (data is latest which is available)
© IGD 2010
Health and personal care stores outperform
• Sales growth through convenience stores has now slowed, reflecting falling gas prices
• Sales growth through health and personal care stores has also fallen to the lowest level for five years, as supermarket operators increase their competency in this area, and drug prices come under pressure of regulatory reform
• Supermarkets are currently delivering the strongest level of sales growth
Seasonally adjusted ($), growth month on same month previous year
Source: Statistics Canada (data is latest which is available)
© IGD 2010
Inflation edges downwards
• Consumer prices rose 2.0% in the 12 months to November 2010, down from the 2.4% increase in October
• Energy prices rose 6.7% during the 12 months to November, following a 9.1% increase in October. Prices at the pump were 7.2% higher than a year earlier, following an 8.8% increase the previous month
• Food prices rose 1.5%, following a 2.2% increase in October
Source: Statistics Canada
© IGD 2010
Interest rates remain historically low
• Canada’s dollar continues to trade at strong levels versus its US counterpart on speculation that the Bank of Canada may need to raise interest rates sooner than economists predict
• The currency is also benefiting from international central bank interest in the currency
• Higher than expected inflation levels driven by higher commodity prices, particularly in agricultural commodities, could also lead to further increases in the interest rate
Source: Bank of Canada 2010
© IGD 2010
Unemployment rate remains high
• In November, unemployment edged downwards to 7.6%, the lowest since January 2009
• Over the past year, part‐time employment has grown by 4.0% (+127,000), a faster pace than the 1.4% growth in full time employment (+192,000)
• The unemployment rate remains well above its pre‐recession level of 6.2%
Source: Statistics Canada, December 2010
© IGD 2010
Population diversity – a snapshot
• Approximately three in ten Canadians (between 29% and 32%) could be a member of a visible minority group in 2031
• The visible minority population would be over‐represented in the younger age groups
• According to the reference scenario, in 2031 nearly one Canadian in two (46%) aged 15 and over would be foreign‐born or would have at least one foreign‐born parent, compared to 39% in 2006
Source: Statistics Canada
Proportion of the population belonging to a visible minority group by age group
© IGD 2010
Driving an increased focus on ethnic shoppers
Acquisition of specialist chains
Loblaw acquired Asian specialist retailer, T&T, in 2009, helping to
deliver new insights for the larger business
Sobeys’ discount format sees
increased space allocated to grocery and fresh ethnic
ranges
Food Basics is currently trialling an enhanced range of ethnic produce within selected
outlets
Independent specialists can
easily identify gaps in local catchments
Range enhancements
Ethnic focused mainstream formats
New independent development
© IGD 2010
Implications
• A revised forecast for growth reveals that the pace of recovery will be slower than anticipated; retailers and vendors will need to adjust their own forecasts for growth
• Inflation has turned around, although vendors will continue to find it difficult to push through commodity based price increases
• However, a return to higher levels will help bolster growth levels, particularly for those retailers who are continuing to experience deflation in many categories; volume growth will however continue to be challenging
• The increase in inflation and a strong Canadian dollar could increase the pressureon further increases in interest rates; a strong dollar will also impact exporters and fuel cross‐border shopping
• With unemployment remaining significantly above pre‐recession levels, value based propositions and messaging will remain important throughout 2011
• Although population growth is only marginal, tapping into the ethnic demographic offers strong growth potential going forward
© IGD 2010
© IGD 2010
Recent results: latest same store sales
‐0.4%
0.0%
‐0.5%
1.6%
‐2.0%
‐0.4%
1.2%
Loblaw Sobeys Metro Couche‐Tard* Safeway** Walmart Canada
Shoppers Drug Mart
Reporting Periods
Loblaw (Q3) 16 weeks to October 9Sobeys (Q2) 13 weeks to October 30Metro (Q4) 12 weeks to September 25Couche‐Tard* (Q2) 12 weeks to October 10Safeway** (Q3) 12 weeks to September 11Walmart (Q3) 13 weeks to October 31Shoppers Drug Mart (Q3) 16 weeks to October 9
* Merchandise sales, Canada only
** Identical store sales, ex‐fuel, inc US
Source: Retailers
© IGD 2010
Loblaw
President’s Choice gets up‐weighted marketing support through in‐store end‐cap activity, sampling stations, TV advertising and
the publication of the annual ‘Insider’s Report’
‘No Frills’ becomes a national network following store openings in the Atlantic region, and will be one of the key formats for
growth in 2011
Recent developmentsRecent developments
ImplicationsImplications
• New product development and marketing support for President’s Choice shows no sign of slowing down. Vendors should plan for further growth of private label, beyond the current penetration level of 25% within Loblaw.
• Geographic expansion of the No Frills network is likely to be replicated by competitors, which may lead to the same level of price competition that is currently being experience in the Ontario market.
© IGD 2010
Sobeys
Price Chopper conversions continue and are scheduled for completion by mid‐2011
As the store base grows, the focus is now on building awareness and further refining the offer to make it even more locally
relevant
Recent developmentsRecent developments
ImplicationsImplications
• The trend to make offers more locally relevant will require vendors to be armed with shopper insights rather than category insights in order to influence their trading partners
• Vendors will also need to be adept at mining shopper data given that all the major retailers have access to unique data through loyalty programmes and/or financial services
The launch of the new BMO Club Sobeys Master Card is another lever within Sobeys to drive loyalty to the brand, whilst also
providing it with valuable insights about its customers broader shopping patterns
© IGD 2010
Metro Inc
The new customer centric strategy is driving a strong focus on consumers and how they behave, with loyalty card data being used to drive better decisions in terms of assortment, pricing,
category structures, promotions and marketing
New ethnic ranges have been introduced into the Food Basics estate, as the company seeks to attract more ethnic shoppers, a growing part of the market, and also to cater for the demand for
more varied products from its existing customer base
Recent developmentsRecent developments
ImplicationsImplications
• Using shopper loyalty card data to drive business decisions is likely to result in significant shifts in category space and adjacencies, driving SKU rationalisation in some categories
• Expect to see increased amount of space dedicated to ethnic ranges across all the major retailers; this should help bring new customers into mainstream outlets
© IGD 2010
Safeway
Further conversions of stores to the Lifestyle format have been completed in Canada during the second half
The retailer has also converted a number of its Starbucks’concessions to Tim Horton’s as it also leverages local credentials
Following a trial in Hawaii, the ‘just for u’ programme has now been extended across the US, enabling customers to select offers
which are most relevant for them. Will Canada be next?
Recent developmentsRecent developments
ImplicationsImplications
• The completion of the Lifestyle programme in 2011 will see Safeway with one of the most modernised store estates within Canada
• The ‘just for u’ programme reflects the trend for retailers to increasingly personalise and better target their promotional offers, potentially enabling vendors to drive a better rate of return on their promotional investment
© IGD 2010
Walmart
Walmart announced plans to increase its focus on fresh produce, moving towards 24 hour lead times in Ontario, and a
commitment to local sourcing, including a goal to purchase 30% of fresh produce assortment locally on an annual basis, and
100% when local produce is available
Applications for the Walmart Mastercard are exceeding expectations, supported by the fast and low‐cost checkout based
process
With full banking status, further financial products can be expected in 2011
Recent developmentsRecent developments
ImplicationsImplications
• Developing increased capabilities in fresh produce is a critical element of the retailer’s strategy to attract shoppers from mainstream grocers as it expands its Supercentre footprint
• The Walmart ‘Rewards’ programme further enhances the retailer’s value‐based proposition and is likely to drive stronger loyalty amongst cardholders
© IGD 2010
Couche‐Tard
Despite its failure to acquire Casey’s in the US, the retailer acquired 25 new stores in the US in September, including 12
stores from Crystal Flash Petroleum and 10 Compac Food Stores
The retailer is now accelerating its foodservice development initiative, which will assist the retailer in growing merchandise
and services revenue, and drive margin improvements
Recent developmentsRecent developments
ImplicationsImplications
• Couche‐Tard continues to deliver strong sales growth in both Canada and the US, out‐performing the majority of mainstream grocery retailers, reflecting the robustness of the convenience sector and the improvements that continue to be made to the proposition
• Foodservice is likely to play a stronger role within the offer, with space for traditional c‐store categories under pressure
© IGD 2010
Priorities in 2011
Continued innovation in private label, national expansion of No Frills and delivering increased supply chain capability through progressing its 2012 initiatives
Completing the FreshCo store conversions and re-focusing its marketing to drive its core business with emphasis on freshness and uniqueness and category management
Leveraging customer insights to deliver its customer first focus, impacting products, pricing and promotional decision making
Investing in its foodservice capabilities should help to drive a step-change in performance in this area
Further tailoring of the offer to demonstrate its local relevance
Around 40 further Supercentres will open in 2011, helping it to demonstrate its commitment to fresh produce retailing
© IGD 2010
Implications
1. An improved economic backdrop provides the conditions for added value NPD, although vendors will be challenged to deliver genuine NPD as opposed to brand extensions and product re‐launches
2. However, do not expect any easing of competitive pressures, particularly in the Ontario market, as retailers continue to develop their discount formats; despite higher commodity costs, price increases are likely to be the exception rather than the norm
3. With the major retailers investing in supply chain capability, greater flexibility and transparency is likely to be expected of vendors
4. Leveraging shopper insights is an increasing priority as retailers seek to understand how shopping behaviour and patterns have been impacted by the recession, and how ‘sticky’ any new behaviours have become; vendors will be expected to deliver more than historical category performance
5. Further experimentation with smaller, urbanised formats can be expected as retailers seek new growth channels; understanding the small store shopper can assist vendors deliver credible ranging strategies
© IGD 2010
Date for your diary – February 16th, 2011
Register your interest at www.igd.com/cpgseminar
• Unique free half‐day CPG Seminar, held in Toronto, which will help you to get up to speed with the key trends, developments and opportunities in the food and grocery sector
• Opportunity to meet and engage with IGD analysts and understand how IGD can help you to succeed in a new global trading environment
• Latest insight from IGD in a number of areas including:
– The outlook for the Canadian grocery retail sector in 2011
– The latest format, marketing and innovation best‐practice from Europe
– The changing role of supply chains and key initiatives underway
– Understanding the relevance and importance of Category Management in today’s retail environment
© IGD 2010
For more information
• Visit the Canada Country Page on Retail Analysis
• Use the IGD Datacentre for key statistics on retailers in Canada including
Loblaw, Sobeys, Metro, Safeway, Walmart, Shoppers Drug Mart, Couche‐
Tard and Costco
• IGD can provide you with a bespoke briefing, covering all aspects of
retailer strategy. For more information, please contact our analyst in
Canada:
Stewart SamuelSenior Business Analyst
stewart.samuel@igd.com1‐604‐721‐7064