Walmart Canada makes bigger push into grocery game

Walmart plans to convert 29 additional stores to "supercentres" and build six new Canadian locations that will support grocery aisles. Scott Olson/Getty Images

It’s the first week on the job for Doug McMillon, the new head of Walmart Stores Inc., and he’s put a big bulls-eye on one major target: Canada.

The world’s largest retailer said Tuesday it will spend roughly half a billion dollars to open new stores, expand existing locations and light a fire under its burgeoning e-commerce strategy to sell more items to Canadians through the Internet.

But the main aim of the expansion efforts – which the company says will generate thousands of new jobs – is for Walmart to win a bigger cut of your weekly grocery budget.

READ MORE: More bargains in grocery aisles expected as supermarket wars heat up

All that money will only amount to six new locations and represents about a two per cent increase in total store square footage. By comparison, the amount of square footage dedicated to grocery items is expanding by about seven per cent.

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In addition to the six new locations, 29 existing stores are being transformed into “supercentres” that sell food products alongside the tens of thousands of other day-to-day items Walmart carries, while more money will be plowed into re-aligning its supply chain to serve the deeper push into the grocery aisle.

Experts at Desjardins said in a note on Tuesday after the announcement they expect Walmart to focus the expansion efforts on Quebec and Atlantic Canada initially.

But by the end of the year, more than 280 of Walmart’s Canadian locations – or about 70 per cent – will be carrying groceries, experts expect.

That move, combined with the continued expansion north of the border by other U.S. retailers Target Corp and Costco will keep up on pressure on Canadian chains like Loblaw Cos. Ltd., Metro Inc. and Sobeys.

In response to Target’s arrival last year, Canadian grocery chains quickly consolidated to protect their turf and give them more heft that they could leverage to squeeze lower prices from suppliers.

In July, Loblaw agreed to buy Shoppers Drug Mart Corp., a megadeal that followed Sobeys’ bid for the Canadian stores of U.S. grocer Safeway.

Loblaw and Metro have also sought to reset wages among some union workers.

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READ MORE: Grocers look to grind down wages as Walmart, Target take aim 

The moves have helped keep their prices competitive with the bigger U.S. competitors, experts say. But the Canadian grocery chains will continue to feel the heat this year.

Target said last week it will open another nine locations in Canada in 2014, bringing its total to 133 locations. Costco is opening three more stores to add to its 85 current locations.

Target generally sets aside several aisles in each store for grocery goods and frozen food items. In the U.S., it sells fresh produce, as well, something not present offered in Canadian locations.

Consumers have and will continue to be the beneficiaries of the intensifying battle for household grocery budgets, experts say.

There is an emerging concern however that the drive to cut margins and lower prices to stay competitive is pushing down overall inflation. If developments spiral into actual price deflation, the economy could ultimately suffer, experts say.

Walmart said Tuesday its expansion efforts will create 7,500 jobs, a figure that includes temporary construction jobs related to the building of new locations.

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