Wal-Mart Readies Fresh-Food Fight With Target

Wal-Mart Stores Inc. plans to expand its fresh-food offerings to every store in Canada from about 50 percent now as it takes on grocer Loblaw Cos. and girds for Target Corp.’s arrival in the country this year.

Wal-Mart will add food sections to stores in Canada’s Maritime provinces this year and plans to increase its food line to as many stores as possible, Shelley Broader, 48, chief executive officer and president of Wal-Mart’s Canadian unit said in an interview yesterday at Bloomberg’s Toronto office.

“The addition of fresh food through supercenters a few years ago has really not only driven our growth trajectory in Canada, but it is really meeting the needs of the consumer base that was under-served,” Broader said. “I would like to put fresh food in every facility that I can.”

The Bentonville, Arkansas-based retailer, said yesterday it will spend C$450 million ($454 million) to build new stores and renovate other locations in Canada, adding at least 37 superstores in the next year to the 379 current locations. Wal-Mart shares fell 14 cents to $69.44 at 9:50 a.m. in New York and are up 14 percent in the past 12 months.

The fresh food expansion allows Wal-Mart to set it apart from Target, which is more focused on clothing and housewares. Target, based in Minneapolis, plans to open about 125 Canadian stores starting in March or April in its first expansion outside the U.S.

“Let’s be honest here, Target is going to take some market share,” said Brian Yarbrough, an analyst at Edward Jones & Co. in St. Louis. The renovations and focus on food help Wal-Mart “differentiate” itself from Target, he said.

Pushing North

Lisa Gibson, a spokeswoman for Target Canada, could not immediately comment on the company’s plans for Canada and competition with Wal-Mart on items such as food.

Target joins a push north by U.S. companies including clothing retailers Express Inc. and J.Crew Group Inc. just as Canada’s economy starts to lag the U.S., and consumer debt levels reach records. Lowe’s Cos Inc., the home-improvement retailer, and Nordstrom Inc., the department store chain, are also expanding in Canada.

The world’s 11th-largest economy grew 0.6 percent in the third quarter, compared with 3.1 percent in the U.S., while the ratio of consumer debt to disposable income reached a record 165 percent, according to Statistics Canada. The growth in household debt has prompted policy makers such as Finance Minister Jim Flaherty to warn Canadians against taking on too much debt.

Low-cost Food

Wal-Mart Canada data show Canadians may be taking heed. The company’s spending power tracker showed that while disposable income per household increased C$96 in November from a year earlier, people devoted the excess cash to savings, Broader said. About eight out of 10 Canadians shop at Wal-Mart now, the CEO said.

“In the more touchy-feely aspects of dealing with our customers they tell us that they are concerned about meeting their budget, that low cost of food is incredibly helpful for them, that they are willing to travel further to get to a store that will provide them with lower-cost basic needs,” said Broader.

Wal-Mart will create more than 7,000 store and construction jobs through the expansion. The company’s 94,000 Canadian employees represents about 4 percent of its workforce and puts it among the top five employers in the country, Broader said. Its staff exceeds the 80,000 employed by Royal Bank of Canada, Canada’s biggest publicly-traded company.

Older Stores

Some of the work may be needed for older stores that don’t have the special equipment needed to sustain a fresh food section, said Kenneth Wong, who teaches marketing at Queen’s University in Kingston, Ontario.

“For everyday items Wal-Mart should be able to offer the best value,” he said, adding, “that’s what I think the renovations are all about.”

Wal-Mart last year had $318 billion of sales in the U.S. or 72 percent of its total, versus $125.9 billion abroad. Sales growth outside the U.S. has been faster, according to data compiled by Bloomberg, with the American growth rate over three years at 1.7 percent and international sales gaining at an 8.4 percent pace.

Wal-Mart has been in Canada since 1994, and has found Canadian shoppers differ from other countries because there is a smaller gap between what they tell retailers they want to buy and what they actually purchase. Even richer Canadians seek out low prices, Broader said.

A basket of groceries costs about 12 percent less at Wal-Mart than grocery stores, Broader said.

“Canadians are also, regardless of income level, very frugal and very value conscious, which isn’t necessarily true in other developed countries.”

Financial Services

Wal-Mart’s strategy isn’t geared toward any single competitor such as Target, Broader said, while making references throughout the interview to focusing on cutting prices.

“Our business has been based on the needs of the consumer and bringing lower prices is what we have always been about,” said Broader, who started the interview by handing out business cards about two-thirds the size regular ones. “Competition is good for the marketplace and competition is good for the customer.”

Broader said the company plans to add “traditional financial services” to the MasterCard it introduced in 2010.

“We will look at the other opportunities that come along with financial services,” Broader said without elaborating.

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