Feds pitch reluctant global grocery chains on move to Canada

The federal government is sending out invites asking foreign grocery chains to come to Canada, but like a sad birthday party, it’s doubtful anyone will show up.

Catch-up: Canada’s Industry Minister is trying to lure 12 different foreign grocery chains to set up shop in the Great White North, part of an effort to increase competition in the grocery sector, per The Wall Street Journal.

  • Two of the most prominent names on the feds list were German discount grocers Aldi and Lidi, both of which already have a significant presence in the U.S.

Why it’s happening: The feds hope a fresh challenger or two will force the industry’s five biggest chains — which currently control ~80% of the country’s food retail market — to reduce their prices, a dynamic that brands like Aldi have already sparked in other countries.

  • Since Loblaw, Sobeys, and Metro own almost all of the discount brands in Canada, they don’t face the same competition that big chains in other markets get from price-conscious grocers like Lidi and Aldi.

  • Research showed that when Walmart entered the Canadian market and undercut its competitors on price by up to 35%, it forced the whole sector to reduce prices. 

Why it matters: More competition might be the best way to bring down grocery prices, which have surged 25.9% in the last five years and led to heightened scrutiny of the big grocery chains' practices. 

Yes, but: Foreign grocery chains that want to take the Industry Minister up on his offer will face a lot of the same challenges that have doomed the Canadian expansion of other international brands like Target.

  • International chains have cited the added costs of developing Canadian-specific products, bilingual labelling requirements, and the headache of navigating each province's regulations as reasons for staying out of Canada. 

  • High borrowing and construction costs have also made it less likely that a foreign grocer will take the risk of building a network of stores in an uncertain market. 

Zoom out: If the feds were to force a big chain to sell one of their discount banners, as some experts suggest, it could give an international competitor the entry point (and existing network of stores) that it needs to break into the market.—LA