Walmart Canada’s market share just keeps growing, but its drive to expand in a hypercompetitive retail sector weighed on the company’s quarterly results Thursday, which marked the mass merchant’s sixth-consecutive quarter of falling same store-sales and traffic.
The retailer saw an overall revenue gain of 1.2% in the period, while same-store sales, a key retail industry bellwether that strips out the effects of added square footage year-over-year, fell 1.4%.
Walmart, battling Target and aggressively expanding its grocery business in Canada, saw customer traffic slide 2.8% compared with the same quarter last year. That was moderated by a rise in average customer spending at the till, which was up 1.4%.
“The broader battle for customers between Walmart Canada and Target Canada has affected the promotional pricing of high-traffic [merchandise], categories as Target seeks to attract consumer trial,” analyst Keith Howlett of Desjardins Securities said in a note to clients. “We expect competitive intensity within the grocery market to moderate in the second half of 2014 as the opening of Target stores a year ago is fully cycled.”
Meanwhile, Canadian grocers Loblaw, Metro and Sobeys have been citing more aggressive price competition in the market for the last year, and in addition to stepping up promotions, they are building more stores under their discount banners No Frills, Food Basics and FreshCo.
“Our continued price investment resulted in an increased price gap to competitors,” David Cheesewright, president and chief executive of Walmart’s international division, told analysts on a conference call Thursday, in reference to Canadian results for the period ended April 30.
Arkansas-based parent company Wal-Mart Stores Inc. does not fully break out its Canadian sales and profit figures, but industry analysts peg sales at roughly $23-billion annually.
Operating income outpaced sales, Mr. Cheesewright said, while online sales at Walmart.ca were up 134%, a figure incorporated into same-store sales growth.
“Sales were strongest in food and consumables, and according to [industry research firm] Nielsen, we increased market share 42 basis points for the 12 weeks ended April 19,” Mr. Cheesewright said.
Walmart is spending $500-million in Canada this year to upgrade its stores and add more food space, enhance its fresh food distribution network, and strengthen its e-commerce division. Two-thirds of the retailer’s 390 big-box outlets now include a full grocery store.
“The opportunity for food is vast, both for putting it in the remainder of the stores that have yet to become supercenters, and also for just continuously getting better at being a fresh food retailer,” Shelley Broader said in a recent interview with the Financial Post. Walmart is building additional capacity for fresh food distribution “so we can get the product from the field to the fork faster,” she said.
The additional square footage in Canada’s grocery retail sector has put pressure on competitors.
“It’s major competition and it’s a fact of life,” Metro Inc. chief executive Eric La Flèche said on a recent conference call with analysts to discuss first-quarter results, including a sales lift of 1.7% and same-store sales growth of 1%.
In Loblaw’s first-quarter earnings presentation, the country’s biggest grocer noted its own square footage grew 0.8% in the period year-over-year, but was up 3.6% in the industry overall compared with a year ago. Revenue and same-store sales gains were thin, rising 1.2% and 0.9%, respectively.
