Competition to cut food inflation in Canada: report

Mon Dec 12, 2011 1:38pm EST
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TORONTO (Reuters) - Target Corp's impending arrival in Canada, paired with Wal-Mart Stores Inc's expanding grocery business in the country, will help slow food inflation next year and keep established grocers under pressure, researchers said on Monday.

Food prices will rise no more than 2 percent in 2012 according to a new forecast from University of Guelph professors Sylvain Charlebois and Francis Tapon, a significant drop from the 4.3 percent year-over-year price gain that Statistics Canada has estimated for October.

"The bottom line is the food distribution landscape across the country in 2012 will likely change. It will probably become more competitive, which will probably put some pressure on food prices downwards," Charlebois said in an interview.

Canadian grocers are already facing tough competition from Walmart Canada, which accelerated its "supercenter" rollout after Minneapolis-based discount retailer Target said it would open 135 stores in the country starting in 2013.

Walmart's supercenters sell a wider array of grocery items than its regular stores. Target's Canadian stories will also stock groceries.

Existing grocery companies Loblaw Cos Ltd and Metro Inc will have to reposition themselves next year to compete with Target in 2013, said Charlebois, who studies food distribution and policy at Guelph's College of Management and Economics.

"We're going to see a fundamental shift in the next few years, and I would say that Loblaw will be significantly under threat, because it's No. 1 right now," he said.

Empire Co Ltd's Sobeys Inc is in a different position due to its grocery supply deal with Target, Charlebois said. The country's No. 2 grocer has signed a long-term wholesale agreement with Target.

Charlebois said other factors moderating food inflation in 2012 include macroeconomic uncertainty, which will depress demand for commodities in emerging markets, and a stronger Canadian dollar, which would make food imports cheaper.

(Reporting By Allison Martell; Editing by Peter Galloway)