Canadian grocers are taking different approaches with their discount offerings than American grocers, according to commercial real estate firm JLL’s Grocery Report on the North American market.
“Loblaw is focusing on expanding its discount banners – Maxi and No Frills – but Empire is opting to focus on its current portfolio of stores without pursuing further significant expansion in the discount sector,” said the report.
“The demand for discount banners, deals, and private-label products remains strong, as grocers aim to meet the value expectations of Canadian consumers amid higher inflation and economic uncertainty. Companies have witnessed strong performance from their discount banners and products, leading to increased same-store sales, footfall, loyalty membership, and market share,” it said.
“Loblaw is embarking on an ambitious conversion of its full-service Provigo banner to its discount Maxi banner across Quebec. In 2023, the company opened more than twenty new Maxi stores and plans to convert up to thirty more this year.
“On the other hand, Empire believes that focusing on full-service stores will position it favorably in the future. The grocer argues that customers shop at both full-service and discount stores, providing an opportunity to deliver value within their existing locations. While Empire does not foresee significant expansion in the discount sector, the company plans to strategically convert some stores in Western Canada. The company has already converted Safeway and Sobeys stores to FreshCo in the region.
“By maintaining its full-service approach, Empire is banking on a period of decreasing inflation and interest rates, when customers might prioritize the shopping experience over steep discounts.”
Nick Aspros, Senior Vice President, Retail at JLL in Canada, said there is a major push for discount stores, as the consumer is seeking value. “Consumers are completing multiple grocery store shops to satisfy their needs – top line banners for certain items and discount stores for all the regular products that are priced lower,” he said.
“I can tell you that deal making in the urban environment is challenging. Many of the opportunities being presented are for second floor space and most of the time these locations do not work. Second floor grocery stores need to be located in high foot traffic nodes – be a part of the office lunch crowd, in close proximity to much residential density and on public transit routes (preferably above a subway station).
“The discount stores have been performing extremely well and thus the push to open more discount stores. But not every Landlord/Developer is keen on having a discount store in their project. When dealmaking, grocers have the ability to be any banner within their portfolio.”
Aspros said the condo slowdown is also making it increasingly difficult for grocers to keep the deal pipeline flowing as in the years to come there will be a shortage of new large format space as projects are not being delivered.
“A number of mixed use developers have also built projects where the retail component has been an afterthought. While the grocer may really like the location, the retail offering is compromised and not enticing. Poor loading, odd floor plan configurations, poor underground parking and residential elevator shafts in the middle of the retail space do not make for a successful store,” he said.
“Construction costs are also quite high and in order for these deals to pencil, developers are asking for higher rental rates. At a certain rental rate the grocers need to take a pass on the opportunity.
“The Grocery industry believes that the development community needs to treat their use as an amenity to the project and not just a block of space that commands high rents. Developers are building urban communities and having a grocer as part of the project animates and brings the project to life. A grocery store is most likely the best large format retail use to have and in essence it becomes the leasing platform for the balance of the project as it will attract Banks, Pharma and Alcohol.”
The JLL Grocery Report found that the return to in-store shopping and increased competition from restaurants has furthered steady growth for grocery e-commerce, despite new partnerships with third-party players for on-demand grocery delivery services.
Despite ongoing challenges, the grocery industry continues to adapt. For example, grocers expanded their budget-cost private-label brand offerings and established in-house retail media networks.
“Looking ahead, grocers who aim to stay relevant and remain competitive will be those who effectively establish personal connections with consumers and continue to innovate in response to changing consumer preferences,” said the JLL report.
