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I could have put this in the cavern, but discussion here in the politics forum is so much better. ;)

'Wal-Mart effect' feeds grocer price wars


TORONTO — Wal-Mart Canada Corp.'s aggressive expansion into groceries has plunged Ontario supermarkets into an “irrational†price war, the head of a leading rival says.

The pricing frenzy will continue “for the foreseeable future,†Bill McEwan, chief executive officer of Sobeys Inc., predicted Wednesday.

As a result, Loblaw Cos. Ltd., the hard-pressed market leader, is not alone in feeling the wrath of Wal-Mart. Sobeys, the No. 2 grocery chain in Canada, saw its third-quarter profit drop 27 per cent — to $33.3-million or 51 cents a share — as it raced to revamp its operations to take on the stiffer competition. Since last fall, Wal-Mart has opened its first seven Supercentres in Ontario, and it's expected to expand rapidly across Canada in the coming years. The mega-outlets carry a full array of food along with everything else.

“The marketplace went a little irrational,†Mr. McEwan told a conference call. “We wanted to make sure that we protected the price competitive position that was so hard fought and so difficult to achieve over the last two to three years with all our investments. We had no intention of letting it slide, irrespective of the impact on the short-term results.â€

While Mr. McEwan doesn't think that a similar tumble in prices will happen when Wal-Mart starts rolling out Supercentres in Western Canada — expected later this year — others weren't so sure.

Robert Gibson, retail analyst at Octagon Capital, said Loblaw would likely react quickly to the new entry in Western Canada by lowering its prices, forcing Sobeys and others to follow suit.

“It's the Wal-Mart effect,†Mr. Gibson asserted.

“When I think of a price war, I think of a temporary period of time that will end. With Wal-Mart in here, I don't know if this is temporary. This could be the new reality,†Mr. Gibson said. The Wal-Mart factor is forcing all players to find new ways to operate more efficiently to boost profits, he said.

Wednesday, Sobeys warned that it faces further restructuring costs in the next two quarters, which analysts said will pinch margins.

On the Toronto Stock Exchange, Sobeys shares slid 4.2 per cent or $1.75 on the day to close at $39.91.

The major grocers have been overhauling systems and slashing their prices to battle discounter Wal-Mart, the world's largest retailer. Loblaw has seen a steady drop in its profit over the past couple of years as it tried to get ready for the inevitable. But the restructuring went awry, and now it's working it over under new leadership.

Analysts said the food pricing environment is a nail-biter for investors — and will remain that way for the next couple of years — but a treat for consumers.

“This is just the cost of doing business now,†added Don Povilaitis, retail analyst at Standard & Poor's bond rating agency. “You have to keep reinvesting in your back end to keep competitive in your front end.â€

Sobeys, Loblaw and others are pouring money into upgrading their backroom distribution systems in order to run a tighter ship and keep prices down at the “front end†— that is, the store. It leaves the companies with razor-thin profit margins.

Still, Mr. McEwan said he thought Sobeys is well prepared for the Wal-Mart Supercentre entry into the Western provinces. He said Sobeys has already lowered prices in that part of the country.

But Mr. Gibson said that even so, Loblaw will probably cut its prices in the face of the arrival of Supercentres in the West, forcing Sobeys and others to do the same.

In the latest quarter, Mr. McEwan said that Sobeys managed to make a 1.8-per-cent gain in same-store sales, compared with a year earlier — even in the tough environment. Same-store sales are those in stores open a year or more, and are considered a key measure in retailing.

“Our third-quarter results reflect our continued solid same-store sales performance and commitment to sustain our price position as competition intensified, particularly in Ontario,†he said. (However, same-store sales increased 4.1 per cent in the same period a year earlier.)

Mr. McEwan said it will take a few more years to get Sobeys' systems in place to be fully prepared for the sharper competition. That follows major restructuring over the past few years to improve productivity.

so, i guess we'll be seeing "for rent" signs on all loblaws soon, eh?

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they're all shit, IMO.

I go to the Provigo here (I think it's quebec's Lawblows) about once every 3 months and am amazed at how depressing and EXPENSIVE it is. Everything pre-packed and shrink-wrapped, all from their limited range of "Provigo approved" brands, and consistently 10-20% more than my local, independant grocers, unless I feel like I need 100 of whatever item in the mega-bulk supersaver size.

My local guys have all sorts of interesting food items, in a smaller (reasonable) space, and charge less, instead of more, for local products. Suport your local grocer!

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