With this week's preliminary purchase of Shoppers Drug Mart by Loblaw, Bloomberg reports that Loblaw is trying to move the battle against Walmart (NYSE:WMT) into friendly territory: Canadian cities. The second-biggest grocery acquisition of the past decade will see Loblaw gain a drugstore chain with more than 1,240 small-format stores, many in inner cities. The downtown stores allow Loblaw to sell more groceries in the Shoppers' drug stores, while adding more pharmacy items in its food outlets.
Target (NYSE:TGT) is also on Loblaw's radar, as Target plans to open 124 stores in Canada this year, growing to 200 outlets by 2020. Wal-Mart is adding 37 stores to its 379 locations, while expanding its fresh-food offerings.
"With the urbanization of the Canadian market, small stores that can offer a really compelling combination of goods and services is a fantastic bolt-on for us," said Galen G. Weston, Loblaw's chairman and son of Canada's second-wealthiest man.
In the U.S., Walmart has found urban areas especially challenging and Loblaw is hoping to exploit—and reproduce—that weakness in Canada, where Loblaw also has the proverbial home field advantage.
The Bloomberg story pointed out that recent changes in Canadian demographics are helping to fuel this battle. "As populations shift from the suburbs to cities, Canadian retailers are racing to open smaller-format stores in densely populated areas. More expensive real estate and a scarcity of good locations are two of the challenges facing retailers," the story said. "Wal-Mart found this out earlier this year when residents of Toronto's Kensington Market neighborhood collected 75,000 signatures for a petition opposing a new outlet planned by the world's largest retailer."
The strategy has two components. The first is to fight Walmart in the cities, but to also strengthen marketshare and revenue by pushing urban growth as much as possible, given that cities have such a disproportionate part of the population. "It gives Loblaw prime locations in urban areas where Wal-Mart and Target don't compete as much," said Alex Arifuzzaman, a partner of Interstratics Consultants Inc., a Toronto-based retail consulting firm. "They're getting out of that really hectic competition in the suburbs and the big boxes and now they have a lot of access to the urban locations which are growing."
- See Bloomberg story
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