The Evolution of the Discount Banner with Canadians
The grocery sector has evolved, and will continue to evolve. I grew up in a small town: Streetsville, Ontario, 1 hour west of Toronto. When my parents went grocery shopping, they had 2 options, Dominion, and a franchisee owned IGA. Those two banners have subsequently been purchased by Metro and Sobeys respectively. Today, I have multiple banner options just 5 -10 minutes away including the following discount banners: No Frills, Freshco, Food Basic, Walmart, Costco, and Dollarama.
The food inflationary wars have altered consumers’ shopping habits. This includes 49.7% of all purchases in Canada being sold on promotion in 2024 (9-month period ending September 2024)[1] to consumers switching to private label. The biggest advancement is consumers opting to shop at discount retailers. “Discount grocery stores have long been a draw for budget-conscious consumers, but with rising food prices and a higher cost of living, even those who once filled their carts without a second thought are now seeking ways to trim their grocery bills”.[2] Over the past year, nearly two-thirds of Canadians have switched their primary grocery store to score better deals.[3]
When was the First Discount Store Opened in Canada?
It is thought the first discount banner (No Frills) opened on July 5, 1978, in East York, Toronto. The store was a converted Loblaws outlet slated for closure. Today, on a national basis, Canada has more than 3,700 discount outlets, not including Loblaw’s newest discount banner. Please refer to Table 1 – Appendix 1.
Who is Canada’s Newest Discount Banner?
This past fall Loblaws announced the pilot of a new concept, value based “No Name” discount banner in 3 Ontario locations: Windsor, St Catherines, and Brockville.
Outside entrance to St. Catherine’s location Inside entrance to St. Catherine’s location
When I visited the St Catherine’s location, I had the opportunity to speak with their store manager. The new store will help customers save up to 20% on everyday grocery and household essentials. I only witnessed 3 employees working the front of the store, including their store manager. Their square footage is less than 10,000 sq ft. They offer 2- employee run checkouts, and 3-self checkouts. They have no security provisions.
No advertising is done by the banner to save on costs. The approximate breakdown of the stores sq footage:
- 80% shelf-stable foods
- 15% pallets, fruits, and vegetables
- 5% frozen food bunkers.
The make-up of the store: 60% private label / 40% branded. Though they offer frozen foods, they do not carry refrigerated items such as milk and eggs. An example of the savings: 1) Bag of Mcintosh apples: $6.00. Traditional grocer: $7.99. 2) President’s Choice No Name sparkling water: $4.75. Traditional grocer: $5.00
Please refer to Table 2 – Appendix 1 for a category comparison (coffee / tea, potato chips, cookies) between Loblaws “No Name” and “No Frills” banners.
What is the Discount Banners Market Share in Canada?
Discount grocers once had a limited impact in most markets. These players primarily offered cheaper prices for a narrower range of products. Today, discounters have evolved from stripped-down, no-frills stores to having become a genuine alternative for consumers. In the process, they have ensured the shopping experience is on par with conventional supermarkets. This is reflective of the discount banners’ market share. For the 52-week period ending September 28, 2024, their market share (mass, club and dollar stores included) exceeded 53%
- Grocery discount: 21.8%
- Mass Merchants: 15.3%
- Club: 14.9%.
- Dollar stores: 1.4%
Discounts basket size was $61.75 (+0.1%) vs. $44.64 (-2.1%) for conventional.[4]
Which Consumer Group is Driving the Shift to Discount Retailers?
Contrary to consumers’ myths, the shift to discount retailers has been driven by higher-income households. This is in line with the dollar stores growth in which 47.3% of their customer base in 2023 came from household incomes of +$70K.[5] For the 52-week period ending September 7, 2024:[6]
- Household incomes: $70-$99K: +9% vs a year ago.
- Household incomes: $100 -$124K: +11% vs a year ago.
- Household incomes: >$125K +10% vs a year ago.
Please refer to Chart 1, Appendix 1
What is the Future of Discount Grocers Moving Forward?
The main driver for discount stores is price. Retail is king. Per Mr. Amar Singh, Senior Director at Kantar Retail, “In our forecasting at Kantar, the value channel, which includes all the discount grocers, Dollarama, Dollar Tree and Giant Tiger, are going to outpace the category average of all other channels,” says Singh. “So, the value channel is going to be the fastest growing through 2029.”[7]
Food Distribution Guy’s Closing Thoughts
Consumers have changed how and where they shop for groceries. Seventy-three percent (73%) of consumers use more than one channel during their buying journey [8], and greater than 81% of consumers research online before buying a product in brick-and-mortar stores.[9] To survive in today’s grocery environment brands must:
- Have a unique point of differential that embraces healthy eating.
- Execute a multi-channel strategy.
- Be competitively priced, offering great value.
- Embrace a promotional budget to self-promote their brand 3-4x per year.
- Establish a consumer marketing plan to create brand awareness, and stimulate trial purchases.
[1] Consumer Outlook: From Cautious to Conscious Consumption, A View into the Canadian Consumer, Nielsen IQ, November 2024
[2] Retailers are Betting on Discount, Will the Momentum Last? www.canadiangrocer.com, December 2024
[3] Canadians Shopping Habits Increasingly Driven by Discount, The Globe and Mail, February 2024
[4] Consumer Outlook: From Cautious to Conscious Consumption, A View into the Canadian Consumer, Nielsen IQ, November 2024
[5] Nielsen IQ, 2023
[6] Consumer Outlook: From Cautious to Conscious Consumption, A View into the Canadian Consumer, Nielsen IQ, November 2024
[7] Retailers are Betting on Discount, Will the Momentum Last? www.canadiangrocer.com, December 2024
[8] 52+ Omni Channel You Can’t Afford to Ignore in 2024, www.firework.com
[9] What are Omni Shoppers, www.productsup.com