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The discount disruptors to watch through 2020Tuesday, April 03, 2018 > 12:13:16
The ongoing growth of discount retailers in Canada isn’t intuitive. Canadians reported record consumer confidence last year, reaching a 10-year high by August. This also translated to strong spending, as seasonally adjusted retail sales grew nearly 7%.
While we’re ready to spend, we’re also frugal. Consumers continue to demand value for money, as Kantar’s Global Monitor data illustrates. Despite shoppers’ elevated confidence, more Canadians agreed in 2017 that they always look for sales compared to attitudes four years earlier (85% vs. 82%).
On top of looking for deals, we also continue to look for value through store choice. Between 2012 and 2017, the sales growth among chain discount retailers (including clubs, dollar stores, hypermarkets and soft discounters such as No Frills) increased more than double Canada’s overall retail chain sales. Over the next five years, Kantar forecast’s these discount channels will continue to growth at roughly 1.5 times the rate of overall chain retail.
Discount players are a key growth driver in the market, second only to e-commerce, and the continued growth in this space will be led by two key players.
One is Costco, a retailer that resonates strongly with Canadians and already has incredible reach. Kantar’s 2017 Canadian ShopperSpective data finds that roughly 40% of household shoppers shop at Costco for groceries and consumables. Over the next five years, the retailer is set to open more clubs in Canada than they did in the past five. This is to help them go after distinct audiences (small businesses) and because management realized they can put clubs closer together without cannibalizing sales very much.
The other is Dollarama. As the retailer successfully pivoted into an everyday consumables destination, its trip frequency and average basket size continues to grow. On top of strong same-store sales performance, management is also aggressive about adding news stores. The retailer’s target store count was recently raised to 1,700, versus the roughly 1,150 locations today.
Competitors across markets see the rising discount channel opportunity and are keen to get in the game. Given this, there are also two foreign disruptors to plan against. While it’s popular to assume this means Lidl and Aldi; it does not. I see them as a longer-term versus an immediate threat to the market; they are both too distracted with Lidl’s entry into the United States right now.
The current entrants rising on the discount-retail scene are Dollar Tree Canada and Miniso. Throughout 2017, Dollar Tree’s management emphasized the strong performance and growth opportunity they see in Canada. Its president, Gary Phibin, even asserted in August that they “have an opportunity for 1,000 stores” in Canada, up from roughly 225 locations. This expansion would give Dollar Tree nearly the same footprint that Dollarama has today.
At the same time, Dollar Tree is also expanding its reach in national brands and is reporting strength in categories including stationery, health and beauty care. This retailer, along with Dollarama, will step-up competitive pressure on drug stores’ front-end convenience proposition.
Miniso is the other discount entrant worth watching closely. Launched in Canada last spring, it already has more than a dozen locations across British Columbia, Alberta and Ontario. The company aims to have 100 stores by the end of this year, with a goal to reach 500 sites. It targets millennials with small stores, unique and trend items, and low price points across home décor, accessories, stationery, and health and beauty care. This retailer will heat up competition with mall variety stores and dollar stores – likely pushing dollar stores further toward grocery and consumables to differentiate.
To hear more about the changing retail landscape, join us at Kantar Consulting’s Canadian Retail Conference on September 19th, 2018 in Toronto, Ontario.