August 29, 2008 / 12:31 PM / in 9 years

Wal-Mart cuts staple food prices in Ontario

OTTAWA (Reuters) - Wal-Mart Stores Inc WMT.N said on Friday it would cut prices on bread, milk, butter and eggs in the province of Ontario, where the economy has been struggling, putting pressure on its rivals.

<p>A customer shops at a Wal-Mart Supercenter in Rogers, Arkansas June 5, 2008. REUTERS/Jessica Rinaldi</p>

The discount retailer said price cuts of up to 35 percent on staple foods in some locations would help consumers in the heavily industrialized province, which has been hit hard by high oil prices and the U.S. economic slowdown.

As Wal-Mart expands food sales in Canada, grocers such as Loblaw Companies Ltd L.TO, the country’s biggest supermarket chain, have been cutting prices to try and keep customers.

That strategy has already pinched profits for the sector.

“It’s further intensification of the same pressures in this sector so it will continue to impact the usual suspects,” said Anil Passi, analyst at credit rating agency DBRS.

Loblaw has been affected most by Wal-Mart’s push into the grocery business, followed by Metro Inc MRUa.TO, Canada’s No. 3 grocer, Passi said.

Loblaw shares were down 1.1 percent late in Friday’s Toronto Stock Exchange session, while Metro was down 0.5 percent and Empire Co Ltd EMPa.TO, which owns No. 2 grocer Sobeys, was down 1 percent.

Starting Friday, Wal-Mart’s Ontario stores will carry standard lower prices on the staples, reversing a flexible pricing policy. Of its 104 stores in the province, 22 are super-centers with a broad range of groceries, with the remaining traditional stores carrying a more basic selection.

Wal-Mart said it decided to cut food staple prices in Ontario because of its strong grocery business and “a uniquely pressed consumer” who faces back-to-school costs, higher gas and food prices and a struggling economy.

“What we’re doing in Ontario currently is for this market only, but we would never say never in terms of bringing similar deals to other parts of the country,” spokesman Kevin Groh said.

Ontario, home to half Canada’s manufacturing output, has come under severe pressure from the U.S. economic slowdown, currency appreciation and high oil prices.

Growth in its consumer spending slowed to 0.6 percent in the first quarter of this year from 2.3 percent in the previous quarter, the province’s finance ministry said.

Ontario’s economy shrank 0.3 percent in the first quarter, compared with a 0.1 percent contraction for the Canadian economy overall, according to Statistics Canada.

As food prices rise, shoppers are trying to stretch their dollars by buying cheaper store-brand products, avoiding costly cuts of meat, consolidating trips, clipping coupons and constructing well-researched shopping lists.

To lure shoppers, Wal-Mart touts low prices and selectively cuts prices in its food aisles. The cost of staples is a key factor in where customers choose to shop, it said.

“It’s classic Wal-Mart. Keep their competitors on their toes,” Passi said.

“It’s a little bit unsuspected. I think a lot of analysts were starting to believe that the recalibration of the sector that was taking place with Wal-Mart’s entry into the full grocery service business in Canada, was starting to run its course.”

Wal-Mart Canada has 309 outlets and employs 77,000 people.

($1=$1.05 Canadian)

Additional reporting by Aarthi Sivaraman, Editing by Jeffrey Jones

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