Are discount grocery stores becoming a myth?

Have you noticed your local discount grocer isn’t such a discount anymore?

During any given week this summer at the biggest “value” supermarket in the country, No Frills, the deals featured on the front pages of its flyers have been, on average, less generous than in the past.

“No Frills is running generally weak flyers,” experts at CIBC World Markets who track grocery deals said in a recent research note.

Experts say deals have started drying up at value chains for a few key reasons, chief among them being the loonie’s fast descent to its lowest level in more than a decade.

Discounts have also grown scarce since No Frills and other value grocers such as FreshCo and Food Basics took a step back from their ongoing scrap with Walmart Canada, a ceasefire brought about by Target’s departure, which has made life easier for all.

Those forces — a low dollar and waning competitive intensity between grocers — is beginning to lift prices across the discount segment to levels more in line with more expensive banners, like Loblaw, Metro and Safeway, some say.

Loonie’s fall

Discount grocery stores are affected by the lower loonie the same way all retailers are who sell imported goods.

With the dollar in free fall – hitting levels not seen since late 2004 this week — food that’s brought in from the U.S. is climbing in cost for Canadian wholesalers, retailers and shoppers alike.

Inflation numbers released by Statistics Canada last week showed another strong jump in food prices in June, up 3.4 per cent compared to the same month last year. Meat increased 6.6 per cent as beef hit all-time highs. Prices were also up for dairy products, fresh fruit and baked goods.

To worsen matters, big U.S. packaged goods giants have also begun putting pressure on Canadian grocers to cough up more money for centre-aisle products, experts say. Until recently, those prepackaged products had resisted the tug of Canada’s worsening foreign exchange rate.

“That is starting to happen,” Weston said.

Alive and well

A shift up market by discounters also doesn’t fit with income trends that are pulling consumers into high or low-end categories — most retailers are fleeing the middle, not moving into it.

MORE: Dollarama, Hudson’s Bay thrive as Canada’s retail landscape ‘transitions’

Still, there’s one big compelling reason why discount supermarkets may be experimenting with their merchandising strategies to nudge their offerings up a notch.

Walmart effect

While the dollar issue is raising prices at discount stores, it’s universally true for supermarkets high and low, experts note.

CIBC retail analysts say though there is in fact a narrowing price gap between no-frills supermarkets and higher-end banners; they’ve detected grocers changing up the product mix at discount stores, introducing more premium products and expanding fresh aisles, for example.

The reason for those moves is partly to nudge pricing up, but as importantly, it helps them stand out from Walmart which has put a bull’s-eye on the discount grocery segment.

Walmart may be taking a small breather, but it’s playing the long game on supermarket sales and discount chains are grasping at ways to avoid a head-to-head price war with the world’s largest retailer.