Shoppers vs. Loblaws – The Competition Heats Up

On March 5th, Shoppers Drug Mart announced its intentions to increase its interest in the Canadian grocery business by launching a line of organic products under the private label “Nativa” later this year. Nativa will include more than 170 non-perishable organic food products that will compete directly with Loblaws’ PC Organics food line (which includes both perishable and non-perishable goods). This decision is largely seen as a corporate reaction to Loblaw’s recent announcement that it will continue to expand into Shoppers’ core business of health & beauty and pharmaceutical items.

My initial reaction to this news is: “Great defensive move, Shoppers! Loblaws, how do you continue to get yourself into these messes?” After the whole incident with Wal-Mart moving into Canada, I thought Loblaws had finally figured out that the best way to remain competitive in the grocery industry is to focus on their core grocery business. This is a distinct advantage to Loblaws, since Wal-Mart and Shoppers seem unwilling to stock a large amount of perishable products. However, every few years, Loblaws seems to lose sight of their core business and become tempted by higher margin items. Previously these higher-margin items were furniture and clothing (to compete more directly with Wal-Mart), now this seems to be beauty and pharmacy (to compete with Shoppers).

So why do I think that this was a good move on Shoppers’ part? Not only will this decision continue to threaten Loblaws’ position as the dominant food retailer in Canada, but this also attacks one of Loblaws’ most valuable differentiation points, its president’s choice private label. Since Loblaws’ dominance in the organics market and the private label food market are fairly uncontested at this point, Shoppers is working on developing both an organic brand competitor (ouch!) and building up their own private label portfolio to compete with President’s Choice (double ouch!).

However, I think the main question here is, “What does this mean for the customer? How does this affect each retailer’s value proposition?” I think this is where Loblaws wins back a few points. Specifically, thus far, Loblaws has done a much better job of getting its customers to purchase health and beauty items than Shoppers has at getting its customers to purchase grocery items. I do believe, however, that this has come a little bit at the expense of the customer – customers didn’t necessarily want furniture and clothing, but Loblaws put them in anyway. Customer confusion may have been created, but customers at Loblaws have now become accustomed to purchasing non- grocery items. And while Shoppers has been stocking food items for the past few years, food items have never been a major focus for the company.

So far, Shoppers has rolled out its Nativa product line in a pilot which was considered “very successful”. I think that if Shoppers is able to effectively convince its customers to buy into this new product line, Loblaws will have to reconsider their new retailing strategy – yet again! Unfortunately, President’s Choice and the organics line are categories that are too important for Loblaws to lose their dominance in.

References:
http://www.financialpost.com/story.html?id=355062
http://www.canada.com/saskatoonstarphoenix/news/business/story.html?id=c6fbbe7a-28c7-4d48-bc2c-1eddbab813b6