CanadaB次元官网网址檚 biggest grocers are investing money and space in discount stores such as No Frills, Food Basics and FreshCo as shoppers look for ways to save on food amid the higher cost of living.

Converting grocery stores to discount is a relatively easy move, experts say, and one that is helping the grocers keep profits steady despite consumers seeking ways to rein in their spending.

B次元官网网址淭hereB次元官网网址檚 all sorts of things that B次元官网网址� people are doing, but one of them is looking for cheaper options. And so they are going to discount stores,B次元官网网址� said Michael von Massow, a food economy professor at the University of Guelph.

Each of the major Canadian grocers has several different store brands, also known as B次元官网网址渂annersB次元官网网址� B次元官网网址� from high-end to conventional to discount. LoblawB次元官网网址檚 main discount banners are No Frills and Maxi, while Metro owns Food Basics and Super C, and Empire owns FreshCo.

All three Canadian grocersB次元官网网址� recent earnings reports have shown sales at discount stores are major drivers of overall sales growth.

But when it comes to expanding, Loblaw is leading the pack with more than 30 new Maxi and No Frills stores opened last year, through new locations or converting full-service stores into discount, according to the companyB次元官网网址檚 annual report.

B次元官网网址淭here is a shift to discount, and we see the opportunity that exists for discount stores,B次元官网网址� said Melanie Singh, president of LoblawB次元官网网址檚 new B次元官网网址渉ard discountB次元官网网址� division, made up of No Frills and Maxi.

The growth shows no sign of stopping. A few days before its February earnings release, the grocer announced a capital investment plan worth more than $2 billion that will result in more than 40 new discount stores.

B次元官网网址淚 think itB次元官网网址檚 a great strategy for them,B次元官网网址� said Lisa Hutcheson, a retail analyst at J.C. Williams Group.

B次元官网网址淭heyB次元官网网址檙e investing in this approach because theyB次元官网网址檙e recognizing people need that budget-friendly approach, but it will also be a very strong strategy for them financially.B次元官网网址�

The grocers are taking different approaches when it comes to discount, said a recent industry report from commercial real estate firm JLL B次元官网网址� Empire isnB次元官网网址檛 pursuing further significant expansion into discount, focusing instead on its current portfolio.

Empire bought Ontario chain Farm Boy in 2018 and has since expanded it, and bought a majority stake in specialty grocer LongoB次元官网网址檚 in 2021.

B次元官网网址淏y maintaining its full-service approach, Empire is banking on a period of decreasing inflation and interest rates, when customers might prioritize the shopping experience over steep discounts,B次元官网网址� the report said.

However, it noted that Empire has already made some conversions, and is taking a strategic approach in Western Canada.

In the last six years, Empire has opened 52 new FreshCo stores in Western Canada and Ontario, bringing the national total to 147 stores, said spokeswoman Tshani Jaja in an email. The company has also expanded its private-label and value-size offerings, and it launched an 11-week program lowering or locking in prices on around 1,000 items mid-February, she said.

Metro currently has 247 Super C and Food Basics stores, up from 236 in 2020, said spokeswoman Stephanie Bonk in an email. Three Super Cs opened in the companyB次元官网网址檚 latest quarter, and another Food Basics is slated to open this year.

B次元官网网址淲eB次元官网网址檝e seen a shift in customers shopping our discount banners over conventional. Private label sales are continuing to grow at a faster pace than national brands and promotional penetration remains high,B次元官网网址� said Bonk.

Discount stores tend to be smaller than market stores, said Singh, and they have a simpler operating model with less variety among items.

YouB次元官网网址檙e also more likely to see certain B次元官网网址渧alue-addedB次元官网网址� things at a market store, such as a deli counter, or bakery items being baked on-site, she said.

One thing that the market and discount stores have in common, however, is that their offerings are partly informed by the local community, said Singh.

B次元官网网址淲e lean into a lot of data to inform those decisions,B次元官网网址� she said.

Discount grocery stores often use simpler signage and displays, said Hutcheson. They also often carry more of the companyB次元官网网址檚 private label products, which generally have better profit margins, and employ fewer staff, she added.

Discount stores are also less likely to have specials and promotions, said von Massow, and the stores are often in lower-rent districts.

All this adds up to likely very similar margins to a full-service store, he said.

B次元官网网址淚 think that the grocers are agnostic to where we shop, as long as they can adjust to that,B次元官网网址� he said. B次元官网网址淎nd thatB次元官网网址檚 what weB次元官网网址檙e seeing them doing.B次元官网网址�

Grocers are likely picking conversions strategically, said von Massow: B次元官网网址淭heyB次元官网网址檙e going to convert underperforming stores to discount stores.B次元官网网址�

One thing Loblaw has noticed that speaks to demand: when it converts a store, it sees sales rise at that location, said Singh, and yet its other discount stores in the area donB次元官网网址檛 take a hit.

Converting a market store into a discount store is simpler than building a new one, said Singh B次元官网网址� often, they can even keep the store open while changes are being made, with just a brief closure.

B次元官网网址淲eB次元官网网址檝e converted several Maxis where we would close it for two weeks, put the sign up on the building, and then reopen it as a Maxi, but construction still goes on in different parts of the store.B次元官网网址�

With inflation driving consumers to trade down, Loblaw is best positioned, followed by Metro and then Empire, according to RBC Dominion Securities analyst Irene Nattel in a note about LoblawB次元官网网址檚 latest earnings.

In an earlier note on MetroB次元官网网址檚 earnings, Nattel said EmpireB次元官网网址檚 B次元官网网址渙verweight exposureB次元官网网址� to the full-service part of the sector is a B次元官网网址渞elative disadvantageB次元官网网址� against its competitors amid ongoing price sensitivity.

But Hutcheson says she doesnB次元官网网址檛 think having specialty or higher-end brands is necessarily a hindrance.

B次元官网网址淎s long as they are understanding their value proposition to their customer and theyB次元官网网址檙e delivering what they want B次元官网网址� I think thatB次元官网网址檚 fine.B次元官网网址�

If consumer behaviour does shift back toward full-service stores over the longer term, the grocers can continue evolving, said Hutcheson.

B次元官网网址淚 think that making this kind of shift is fairly low risk, because discount stores are easy and rather inexpensive footprints to build or shift to, and then from there they can adjust accordingly.B次元官网网址�

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Rosa Saba, The Canadian Press