Asian Persuasion

MARK HAMSTRA

The Great White North is becoming decidedly less white in its ethnic profile, and food retailers are seeking to step up to the challenge.

A fast-growing Asian population — a mix of ethnic profiles from Chinese to Pakistani — is reshaping the food-retailing landscape across the country.

“We just saw over the last five to six years an absolute explosion of independent grocery stores across Canada, and it was largely an explosion of stores run by Asian grocers,” said Perry Caicco, an analyst with CIBC World Markets, Toronto, which recently completed a detailed report on the topic. “These are not mom-and-pop operations. They are big, sophisticated, full-scanning, 50,000-square-foot, gleaming stores opening up in some of the suburbs of Canada with a high ethnic presence. It's an entirely new experience for the grocery industry here, and an entirely new set of competitors that they hadn't seen before.”

The new breed of ethnic stores is exemplified by T&T Supermarkets, the high-volume Asian banner acquired last year by Toronto-based Loblaw Cos., Canada's largest supermarket operator, and by H Mart, the Korean-owned chain that is also expanding throughout the U.S.

In some cases, independent Asian grocers have begun with small stores in urban areas, but have expanded out into surrounding communities with bigger stores, often moving into spaces that have been vacated by larger traditional retailers, Caicco explained.

These stores are serving a rapidly expanding ethnic market in Canada, where about a quarter of a million new immigrants are allowed in each year and the minority population is expected to total one-third of the total population by 2031. According to Statistics Canada, the government-sponsored data collection agency, as of 2006, when the last census was taken, about 5 million people in Canada belong to what it calls a “visible minority.” About half of those are either Chinese (about 1.2 million people as of 2006) or South Asian, a group that includes East Indians, Pakistanis and Sri Lankans, among others (about 1.3 million people as of 2006).

Caicco estimated the size of the ethnic grocery segment in Canada as between $4 billion and $5 billion, or roughly the equivalent of Walmart Canada's grocery sales. The total grocery market in Canada is estimated at about $80 billion.

“If it is a force that is the size of Wal-Mart's food business in Canada, then it is a force that has to be dealt with,” Caicco said. “In the next 10 years, 70% of the growth in spending will come from visible minority groups, so [mainstream supermarket operators] had better figure this out.”

As these groups have grown, they have retained much of their culture, and have gravitated to the stores that provide the traditional products they prefer, he explained.

“They tend to retain their foods, and their festivals, rather than blend in and adopt the way of life at Loblaw's or Sobeys; they are attracted to their own types of retailers,” Caicco said. “A number of groups have risen up to serve these populations — the Chinese grocers, which are building big stores, and Korean grocers, which are building big stores, and these stores are not just serving one ethnic community. They go after everybody, because they are the new class of independent grocers in Canada.”

The stores are garnering the attention of conventional supermarket operators, Caicco explained, because of the quality of their offering.

“Five to 10 years ago, there were concerns that these [ethnic] stores were small, and not necessarily the cleanest, but boy have they turned things around,” he said.

The stores tend to price aggressively — they are competitive with Canada's traditional discount grocery segment — and carry high-quality produce and meats, Caicco explained. In some categories, such as seafood, these ethnic retailers “dominate” their competition, he noted.

Sobeys’ FreshCo banner offers a range of ethnic products in the perishables departments and in the dry-grocery areas.

Because of the quality of the offerings and the strong presentations, in many cases such stores have also gained a large contingent of mainstream, non-ethnic shoppers — as much as 40% to 50% of the traffic in some stores, Caicco said.

“As they have grown, they have started to attract a non-ethnic clientele, simply because they are great stores,” he said. “Part of it is that the stores they are building are in many cases takeovers of mainstream stores. They give it a renovation, and the non-ethnic people who shopped there before give it a try, and low and behold, it is a pretty good shopping trip.”

The flip side is that traditional supermarket operators are capturing some sales to Asian consumers with their discount stores, Caicco explained, but over time he said such shoppers tend to gravitate to the newer ethnic retail offerings. Conventional supermarkets, he said, generally tend to be viewed as too expensive for these shoppers, and the quality of the perishables does not meet ethnic shoppers' expectations.

That poses a dilemma for these traditional operators, he said, who have blanketed the country with traditional stores that are ill-suited to meet the shopping needs of the fastest-growing segment of the population.

In the CIBC study, Caicco said the firm looked at some Canadian markets with large ethnic populations, such as Markham, Ontario, and found that there were much fewer conventional supermarkets than would be expected, with those stores having been replaced by either discount supermarkets or ethnic outlets.

“The grocery evolution in that town is remarkable,” he said. “While a town of that size might be expected to have 15 mainstream conventional stores, they are down to about eight.

“That's seen as an interesting predictor, because the ethnic minorities came first to the cities, and now they are moving out to the suburbs. There might be some of these ethnic grocers now operating a few downtown stores, but in a couple of years, they move out of downtown and start operating in the suburbs, and they become a big factor, competitively.”

The large, mainstream Canadian grocers are seeking to appeal to these consumers in various ways — Loblaw through its acquisition of T&T Supermarkets, Sobeys through its FreshCo discount conversions in Ontario, and Metro through improvements at its Food Basics discount stores and in a test store in Brompton, Ontario.

Loblaw, Caicco said, might be the best positioned among the traditional supermarket companies to capitalize on the growth of the ethnic consumer in Canada because of its acquisition of T&T last year. Loblaw is allowing T&T to run itself as a separate division of the company, and it already has begun to borrow some product and merchandising ideas from the chain and incorporate them into its mainstream offerings.

“The last thing you want to do is mess with T&T, because it is a great operation,” Caicco said. “I think they might be doing some things behind the scenes to take out costs, but most of it is going to go the other way, where they pull products and ideas from T&T and put them in their regular stores. For now it is ‘kid gloves’ treatment.”

Earlier this year, Loblaw said it was seeing some success with taking some produce items it offers at T&T and placing them in its traditional stores, and Caicco said it has also added some baked goods from T&T to its No Frills discount banner.

FRESHCO CONVERSIONS

Sobeys, meanwhile, is making an effort to capture a larger share of this market as well as it converts its Price Chopper discount stores in Ontario to the new FreshCo banner. As of this week, 18 stores, which measure about 30,000 square feet, had been converted, and nine more were in the process. Sobeys has said “dozens” of its Price Chopper stores could eventually become FreshCo units.

Offerings in the stores are being tailored to the ethnic composition of individual markets, Rob Adams, general manager of discount stores for Sobeys, told SN last week.

“To be successful in grocery, you need to learn how to cater to multicultural consumers,” he said. “FreshCo is a limited-line discount operation focused on improving our fresh shopping experience to the customers, but it is well-known and approached as a great ethnic store as well.

“It is not a cookie-cutter approach as far as the assortment,” he said. “It is very much catered to the neighborhood.”

Sobeys has taken pains to study the way products are merchandised in local markets and seeks to replicate the selection and packaging in the FreshCo stores, Adams explained.

“We've gone to the vendors and tried to get them to package the product especially for us,” he said, citing as an example the use of clear packages for certain lentils and beans, rather than branded offerings. “It has really taken off well for us — it is what they would find and shop in their local independent stores.”

Other ethnic offerings in the FreshCo stores include a separate halal meat section in the meat case, along with some processed halal meats and cheeses, and frozen halal foods in a dedicated, signed frozen section as well. The dairy case includes Asian noodles and cheeses.

Sobeys is also sourcing some baked goods from local bakers for its FreshCo stores, including many items that cannot be found on the shelves of traditional competitors, Adams explained.

The largest ethnic product assortment in the FreshCo stores is in a dedicated international aisle, however, which is the first aisle shoppers see in the flow of the stores.

The sections are well-signed, Adams explained, with sections devoted to various ethnic cuisines, such as Mediterranean, Asian and Caribbean.

“It is easy to find, and even our non-ethnic shoppers can find things they like there, so it is fun to shop,” he said. “It has been a win-win.”

The company is making an effort to make sure its ethnic offerings are neither too deep nor too thin, he explained.

“We're not trying to be everything to everyone,” Adams said. “We don't have 10 different brands in a category, but we make sure it is meaningful variety in the categories that we choose to play.”

Sobeys hopes to apply some of the ethnic merchandising efforts it is deploying at FreshCo into more of its traditional banners, Adams said.

“We will be able to leverage it throughout the business,” he said.