WAL-MART CANADIAN SUPERCENTERS DEBUT AS 'YOUR FRESH MARKET' BANNER

BRIAN DUNN

TORONTO - The battle has begun in earnest between Loblaw Cos. here and Wal-Mart Canada with the Oct. 18 opening of the first two Wal-Mart Supercenters in the Ontario towns of Ancaster and London. A third is set to open next month north of Toronto in Stouffeville.

Wal-Mart has taken a slightly different approach from its U.S. operations, supplanting its "Supercenter" banner with "Your Fresh Market" for its Canadian stores. It also appears to be expanding its natural and organic and private-label food offerings, observers said.

Perry Caicco, an analyst with CIBC World Markets, Toronto, who recently toured the Ancaster store, said Wal-Mart's Canadian supercenters seem to have a perishable department similar to a new "upscale" experimental store in Plano, Texas, with wider aisles, a larger food assortment, organic products and ready-to-go meals.

He also speculated that Wal-Mart will relaunch its 500-item Great Value private-label program and add a premium tier to compete with Loblaw's private-label President's Choice. That assessment was not denied by Wal-Mart Canada, which said its private-label program was being refined.

The Ancaster store has a 15,000-square-foot fresh food area. It had a soft opening last week with the grand opening slated for it and the other two supercenters next month, according to Wal-Mart Canada spokesman Kevin Groh.

The Ancaster and London locations are expansions of existing Wal-Mart discount stores, he said. The Stouffeville store will be the first ground-up supercenter in Canada.

Competition could soon get nasty, according to two retail consultants.

"This will be a very formidable grocery entry," Caicco said in a report. While Lob-law prepares to gradually lower costs and create distinctly superior food offerings over the long term, "investors should prepare for a pricing bloodbath," he said.

But he cautioned that if Wal-Mart wants to be a credible player in the Canadian grocery industry, it cannot simply duplicate the food strategy of its U.S. operations.

"The Canadian market is too sophisticated and too multicultural for that. Canada is a well-developed discount market with very high standards for produce, meat, deli, bakery and seafood," Caicco said.

Retail consultant Wendy Evans of Evans & Co., Toronto, agreed: "There are higher expectations of grocery stores in Canada. Loblaw led the way originally with a great assortment and great fresh food, but frankly, Loblaw is not doing it as well as the others right now, so Wal-Mart is trading on its weakness."

One of Wal-Mart's two main competitors in Ancaster is a 75,000-square-foot Loblaw-owned Fortino's, whose perishables department is bigger than the entire Wal-Mart food department. It also has superior service, selection and quality, Caicco noted. But prices are also 10%-15% higher, and it will probably lose between 8%-10% of its $765,000 (U.S.) in weekly sales to the supercenter, he added.

The other main competition comes from a 30,000-square-foot Metro-owned Food Basics, which is undergoing major renovations, adding new signs and new cases for meat and dairy to prepare for Wal-Mart, Caicco said.

The store does over $325,000 per week and is priced 15% below Fortino's, but could still lose up to 7% of its business to Wal-Mart, Caicco estimated.

Although Wal-Mart hasn't revealed its long-term plans for supercenters in Canada, it is scheduled to have a total of seven operating in Ontario by the end of next year.