BUSINESS

A war in the aisles

Outsiders test Quebec’s supermarket status quo

BRENDA BRANSWELL April 13 1998
BUSINESS

A war in the aisles

Outsiders test Quebec’s supermarket status quo

BRENDA BRANSWELL April 13 1998

A war in the aisles

BUSINESS

Outsiders test Quebec’s supermarket status quo

BRENDA BRANSWELL

The scene might have been that outside a major tourist attraction. Last Tuesday afternoon, a non-stop stream of cars rolled into the packed parking lot in the Montreal suburb of Longueuil, Que., disgorging scores of people who filed eagerly through the doors of an enormous building. Their purpose: to be among the first to get a peek at the muchheralded first Montreal-area Loblaws store. After months of anticipation and controversy over its expansion plans in Quebec, the Ontario-based food chain, Canada’s largest, opened its 6,500-square-metre Longueuil supermarket on March 27. And the early response, at least, should warm the heart of Loblaws executives. “It will be difficult to compete with this,” said Jean-François Fortin, a marketing manager who travelled 20 km to check out the store, ordering lobster at the fish counter. “I don’t know how the other chains will react in Quebec.”

The question is a good one for consumers and business alike. In recent years, Quebec’s $16-billion-a-year supermarket industry has been dominated by two Montreal-based chains: Provigo Inc. and Métro-Richelieu Inc. Competing retailers from beyond Quebec’s borders who entertained thoughts of breaking in confronted not only the established market presence of those firms, but, in at least one case, outright hostility from provincial authorities. In 1989, the Quebec government succeeded in blocking an

attempt by Loblaws to take over the Montreal-based Steinberg supermarket chain, financing a rival bid led by Quebec businessman Michel Gaucher (the chain subsequently went bankrupt). Loblaws’ current plans to expand in the Montreal area have also met opposition in the form of several petitions expressing concern over traffic congestion and the megastores’ impact on nearby merchants. Still, Loblaws, which boasts annual sales of $10 billion, seems to be taking the long view. The company says it intends to open 12 to 15 stores in the Montreal area by 2002. “It has the size, the strength and the persistence to keep going,” says Perry Caicco, an analyst with Toronto-based First Marathon Securities.

And Loblaws is not the only out-ofprovince player that has recently elbowed its way past opponents and now finds itself poised to shake up Canada’s second-largest market for groceries. Stellarton, N.S.based Sobeys Inc., which is rapidly expanding in the province, now boasts 18 Quebec stores. Already strong in the Quebec City area, it opened its first Montrealarea supermarket last month and plans to open at least three more in the area by next spring. Warren Fenton, an analyst with Eagle & Partners, a Toronto-based brokerage house, predicts Quebec’s grocery market will never be the same. “The combination of the two, one coming in from the east and the other from the west,” says Fenton,

“will have a meaningful impact.” Their presence has already dramatically altered the environment for Quebec’s established supermarkets. Some industry observers maintain that the two dominant food chains have fallen behind the cutting edge of retail innovation in Canada because they have enjoyed a protected market. Increased competition „ will force them to adapt, analysts I say. “Loblaws continually resets u the bar,” says Caicco. With their I large, well-designed stores and I popular President’s Choice prodg ucts, he adds: “They’re always I setting the standard higher.”

E Quebec’s native retailers contest I the charge that they have been 5 uncompetitive. Provigo, for instance, says it was a pioneer in opening superstores when it established the Maxi discount chain in the early 1980s. But neither are Quebec’s established food chains taking their new competition lightly. Provigo and Métro-Richelieu spent more than $80 million last year to remodel and expand their stores. (Officials at third-ranked Agora Food Merchants Inc., which controls Quebec’s IGA stores, declined to be interviewed.) As well, Provigo, the leading food chain in Quebec with $5.9 billion in sales last year, is expanding its own horizons: it recently opened three Maxi & Co. stores in the Toronto area, which sell a wider range of goods than conventional Maxi stores, including food, cosmetics, toys and CDs. It plans to open up to 10 more Ontario outlets this year. ‘We don’t have any fears about comparing the prices at Maxi to Loblaws,” asserts Jean-Guy Duchaine, a senior vice-president with Provigo. “For a grocery order,” he adds, “a consumer will find a better price with us than Loblaws.” Métro-Richelieu, which posted sales of $3.4 billion last year, is also gearing up for battle. It plans to increase the size of its new stores, although not to the scale of Loblaws. “It’s not our market segment,” says Robert Sawyer, the company’s senior vice-president of retail. Instead, Sawyer says, the company, whose stores are mostly operated by independent owners, plans to focus on such perceived strengths as customer service.

Some observers question whether there is room for five food chains in Quebec. But whatever the impact on the rivals’ bottom lines, most observers expect consumers to benefit from increased competition. “You’re probably going to see a year with very, very good prices,” predicts George Condon, the editor of Canadian Grocer, a trade magazine. That prospect, at least, should meet with little opposition from Quebec shoppers.