Could Canada Get a New Grocery Chain?

As grocery prices continue to anger Canadian shoppers, federal Industry Minister François-Philippe Champagne has been courting a U.S. grocery chain in a bid to shake up the domestic market and challenge Canada’s Big Five supermarket chains (Metro, Loblaw, Sobeys, Walmart and Costco).

What if Canada were to get a new entrant into its grocery market? Would it succeed? How long until it was operational? And what would the plan be for winning over Canadian shoppers?

Matthew Jackson, Vice President with CBRE’s National Retail Group, has helped foreign retailers break into Canada. He says it is not an easy path forward.

“A number of international grocers have taken a look at the Canadian market, one could assume Aldi or Trader Joe’s, for example – we’ve been hearing about it for years,” says Jackson. “But Whole Foods is likely the last big name to pull the trigger when they entered the Canadian market in 2002.”

As grocery prices continue to anger Canadian shoppers, federal Industry Minister François-Philippe Champagne has been courting a U.S. grocery chain in a bid to shake up the domestic market and challenge Canada’s Big Five supermarket chains (Metro, Loblaw, Sobeys, Walmart and Costco).

What if Canada were to get a new entrant into its grocery market? Would it succeed? How long until it was operational? And what would the plan be for winning over Canadian shoppers?

Matthew Jackson, Vice President with CBRE’s National Retail Group, has helped foreign retailers break into Canada. He says it is not an easy path forward.

“A number of international grocers have taken a look at the Canadian market, one could assume Aldi or Trader Joe’s, for example – we’ve been hearing about it for years,” says Jackson. “But Whole Foods is likely the last big name to pull the trigger when they entered the Canadian market in 2002.”

Daunting Prospect

That’s because it’s a daunting prospect for an international grocery chain to break into the Canadian market and expect to provide meaningful competition at the scale a grocery giant like Aldi might expect.

Target’s failure in Canada, and the departures of Nordstrom and Lowes in more recent years, increased the caution level for U.S. retailers looking at entering Canada. “There’s a fair bit of general hesitation about coming here and grocery is more complicated and competitive,” Jackson says.

Grocery supply chains deal with perishable food items that require cold storage facilities, for example, and they require food terminals and transportation networks to get those groceries to stores in a reasonable time frame.

“There’s a big difference between dealing with clothing or Rolex watches versus lettuce,” says Jackson. “It’s a whole other set of problems, which is likely a major reason why we haven’t seen a grocery chain come to Canada in decades.”

Room for More

Can the Canadian market even accommodate a new grocery entrant?

Large incumbent grocery players like Loblaw and Empire have real estate arms and control many prime locations for grocery stores.

Exclusive use clauses, known as restricted covenants in leases, effectively make it impossible for landlords to allow rival stores to open up near one of Canada’s Big 5 grocery chains, who control more than two-thirds of domestic grocery sales. Those lease clauses allow grocery stores, and other retailers, to ensure that their investments are safe from excessive competition.

But Jackson says there is still “a ton of space” in Canadian markets for a new grocery chain. “Many new residential developments have at-grade and second-floor commercial spaces in their podiums that would be ideal for grocery use, especially for a smaller shop like a Lidl.”

And shopping centre landlords, who witnessed the resiliency and profitably of having a grocery anchor in their malls during the pandemic, are looking to lure more grocery stores and are willing to spend capital to make room for them, including consolidating smaller spaces to create a larger one for grocery use.

“Everybody wants a grocery tenant now,” says Jackson. “People generally shop for food one to two times a week and other tenants benefit from the traffic generation.”

“Landlords are seeing the added value of higher rents and higher occupancy rates that typically come with a grocery store. And enclosed mall landlords will create space to accommodate a grocer by assembling under-performing retail units.”

Success Isn’t Guaranteed

Jackson believes there is strong demand from Canadian consumers for competition in the grocery market to provide an alternative to the Big 5, and for new product brands, too.

And while there are many cautionary tales like Target, there are also stories of international brands having had big success in Canada, including Apple, TJX, Sephora, and Zara.

Those weren’t grocery chains, though, and the last significant grocery brand that did come to Canada, Whole Foods, has not experienced much growth, with only 14 stores nationwide in its 22 years of operating north of the border.

“It is established and has a loyal following, but that success hasn’t translated into a widespread national presence,” Jackson says, noting that Eataly has seen success in the Toronto market of late and may become a new national chain competing with the Big 5 in the niche market of Italian items.

Securing Space

Where else could the grocery stores locate? Newer mixed-use buildings generally have the space and capacity for loading and cold storage, making them ideally suited for grocery use.

“Food delivery wasn’t a thing when older mixed-use condo projects were built,” says Jackson. “But new ones have cold storage rooms for deliveries. That means there will be opportunities for a grocery store to go into voids in the urban Toronto, Montreal and Vancouver markets.”

Grocers will also have to determine how to get the perishable food supplies to stores via a distribution network. A U.S. grocer may be able to leverage an existing logistics network to send non-perishable goods across the border. Even with that starting point, they will still likely need warehouse and distribution facilities in Canada and there is a higher demand for industrial space than retail space at the moment.

Plus, a new grocer will need to account for Canadian language laws on packaging, as well as operating under a different taxation system. And their trademarks and brand names might conflict with existing companies in Canada.

CBRE Helps

“It can be quite overwhelming, but that’s where retail and real estate advisors bridge the divide,” says Jackson, who notes that he and his team have worked with the rollout of major American brands and can partner with clients to forge a path forward into Canada.

With all the boxes checked, how soon could a new grocery store open here?

“Assuming the retailer has dealt with all legal requirements, and the real estate and distribution logistics, it’s not unreasonable to expect we could see shopping carts rolling through the aisles of a new grocery chain within 12 to 18 months,” Jackson says.

It can’t come soon enough as Canadian grocery shoppers salivate at the prospect of more competition, greater options and, hopefully, better pricing.