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Meet the big-box retailer that’s muscling in on Canadian supermarkets

Click to play video 'Costco continues to muscle in on Canadian supermarkets' Costco continues to muscle in on Canadian supermarkets
Costco continues to muscle in on Canadian supermarkets – Jan 28, 2016

When the country’s largest grocery store operator, Loblaw, reports its latest sales results in a few weeks, it’s expected to show growth roughly in line with what Metro, another big Canadian grocer, just posted, give or take a percentage point or two.

That means a gain of about three per cent, experts say, a fair number reflecting a steady business posting decent growth. Still, it’s not nearly as good as what a competing store is posting as it continues to quietly steal more and more business away from traditional supermarkets.

That would be Costco.

“Costco has continued to post exceptional same-store sales growth in Canada,” retail analysts at Desjardins Securities said in a research note this week.

How exceptional? The U.S. warehouse retailer is growing sales across its 90 or so Canadian locations at three times the rate of Canadian supermarkets, experts estimate (see chart below).

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Only Wal-Mart, which continues to push aggressively into grocery sales, is generating sales momentum that comes anywhere close to that – and that’s only been recently and still it trails significantly.

‘Supermarket-type merchandise’

Observers may think Costco, which sells everything from appliances to slippers, isn’t exactly a supermarket, but experts say there’s plenty of overlap. Approximately 60 per cent of what the warehouses sell is “supermarket-type merchandise” Desjardins analyst Keith Howlett said.

Evidence that more customers are heading to Costco for their traditional weekly grocery shop is also seen in the “tonnage” or amount of food moving through supermarkets. Tonnage is measured and publicly discussed by supermarkets to provide a sense of how well their businesses are doing.

Of late, tonnage has been slipping. The loonie is a factor for sure, as consumers are forced to spend more for less food in volume terms. But so too is the Wal-Mart and Costco factor.

“Tonnage is soft at the three major reporting grocers [Loblaw, Metro and Sobeys] not because consumers have cut back on meals but because Wal-Mart and Costco are growing much faster,” CIBC World Markets analysts said this week.
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