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Feb 20, 2018

Canadian grocers facing 'major bloodbath' at Amazon's hands: Retail analyst

Canadian grocers facing 'major bloodbath' at Amazon's hands: Retail analyst


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Canadian grocers will soon face a “major bloodbath” in pricing, according to one retail analyst.

While Walmart (WMT.N) reported quarterly Canadian sales figures on Tuesday that were seemingly unaffected by the bread price-fixing scandal that has loomed over major Canadian grocers recently, there’s a greater monster for the likes of Loblaw (L.TO), Metro (MRU.TO) and Sobeys (EMPa.TO) to fear looming on the horizon: Amazon.

“There’s going to be a major bloodbath in margins and pricing in the grocery sector once Amazon starts to get significant scale up here,” Retail Advisors Network co-founder and partner Bruce Winder told BNN in an interview on Tuesday.

“Once Amazon starts selling fresh food here and they get their A-game on, similar to what they’re doing in some of the big U.S. cities, the grocers will have a very hard time,” he added. “They don’t have that overhead in their business model, so they can sell for considerably less.”

Amazon (AMZN.O) – which already sells packaged foods on its online platform – completed its US$13 billion-plus takeover of Whole Foods on Aug. 28, 2017, setting the Seattle-based retailer up to move in to the fresh food business.

In the months since, Amazon has positioned its acquisition to compete among the bricks-and-mortar grocers. In late August, Whole Foods slashed its prices on fresh foods like avocados and ground beef. On Feb. 8, Amazon announced that it would roll out delivery at Whole Foods

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Winder said that access to product without having to pay for retail space positions Amazon to undercut grocery prices and, in the process, push more Canadians into signing up for its Prime service.

“Just based on their margins, they can take grocery – which they know is a very, very important item to all Canadians – and use that as a beachhead to get traffic and get Prime membership up,” he said. “I do expect – all things being equal – there’s going to be some deflation in food [prices] once Amazon does start to become a force here.”

Unfortunately for Canada’s grocers, competition from major U.S. retailers is not the only hurdle to jump.

“They’re being attacked on all fronts right now,” Winder said. “When you look at Amazon, you look at the [minimum] wage increases, you look at some of the other players like Walmart and Costco - it’s really tough to be a grocer right now.”