Canada’s 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.
“There’s all sorts of things that … people are doing, but one of them is looking for cheaper options. And so they are going to discount stores,” 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 “banners”—from high-end to conventional to discount. Loblaw’s main discount banners are No Frills and Maxi, while Metro owns Food Basics and Super C, and Empire owns FreshCo.
All three Canadian grocers’ recent earnings reports have shown sales at discount stores are major drivers of overall sales growth. However, 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 company’s annual report. “There is a shift to discount, and we see the opportunity that exists for discount stores,” said Melanie Singh, president of Loblaw’s new “hard discount” division, made up of No Frills and Maxi.
The grocers are taking different approaches when it comes to discount, said a recent industry report from commercial real estate firm JLL—Empire isn’t pursuing further significant expansion into discount, focusing instead on its current portfolio. However, it noted that Empire has already made some conversions and is taking a strategic approach in Western Canada. Metro currently has 247 Super C and Food Basics stores, up from 236 in 2020.
Discount grocery stores often use simpler signage and displays, carry more private label products, employ fewer staff, and are often in lower-rent districts. All this adds up to likely very similar margins to a full-service store, according to Mr. von Massow. Grocers are likely picking conversions strategically—“They’re going to convert underperforming stores to discount stores,” he said. If consumer behavior does shift back toward full-service stores over the longer term, the grocers can continue evolving.