Walmart and Canada’s Retail
Sector: Some Obvious and
Less Obvious Implications
Alice O. Nakamura, Masao Nakamura and Philip
Davidson
November 25, 2011
Alice Nakamura and Philip Davidson are with the Univ. of Alberta School of Business.
Masao Nakamura is with the Sauder School of Business at the Univ. of British Columbia.
Alice Nakamura is the corresponding author: alice.nakamura@ualberta.ca.
This talk was prepared for the November 25, 2011 Annual Workshop of the ERCA
Research Network on the Structure and Performance of Agriculture and Agri-products
Industry (SPAA). The location of the workshop is the Renaissance Room of the Fairmont
Chateau Laurier Hotel, 1 Rideau St., Ottawa, Ontario.
This talk is based on a paper that is available from the corresponding author.
1
Retail sales, (monthly) (Seasonally adjusted)
Sept.
2010
Aug.
2011r
Sept.
2011p
$ millions
Retail trade
Aug. Sept.
2011 - 2010 Sept. Sept.
2011 2011
% change
36,661
37,831
38,212
1.0
4.2
8,696
8,699
8,714
0.2
0.2
Supermarkets and
other grocery stores
6,210
6,183
6,175
-0.1
-0.6
Convenience stores
546
558
551
-1.3
1.0
4,628
4,775
4,808
0.7
3.9
Department stores
x
2,259
2,255
-0.2
x
Other general
merchandise stores
x
2,517
2,553
1.4
x
Food and beverage
stores
General merchandise
stores
2
Global Top 10 Retailers, 2009 (largest to smallest)
Company
Base
country
Walmart
Carrefour SA
US
France
Metro AG
Net
# of
2009 retail profit Return Retail countries
sales
margin
on
sales
of
(%)
(US$mil)
assets growth operation
405,046
119,887
3.6
0.5
8.7
0.8
0.9
-11.2
16
36
Germany
90,850
0.8
1.5
-3.2
33
Tesco PLC
UK
90,435
4.1
5.1
4.8
13
Schwarz Group
Germany
77,221
na
na
1.4
25
The Kroger
US
76,733
0.1
0.2
1.0
1
Costco
US
69,889
1.5
4.9
-1.5
9
Aldi Gmbh
Germany
67,709
na
na
3.8
18
Home Depot
US
66,176
4.0
6.5
-7.2
5
Target
Top 10
US
63,435
1,127,381
3.8
2.6
5.6
5.3
0.9
0.2
1
3,763,535
3.1
4.9
1.3
Top 250
Top 10 share of 250 total
30%
Source: 2011 Global Powers of Retailing -- Deloitte, pp. G12 and G16.
3
Top Canadian Retailers and Top Retailers Selling Food in Canada
Company
1. Loblaw
2. Couche-Tard
3. Empire
Company
4. Metro
Base
country
Canada
Canada
2009
2008
40
37
48
50
2009 retail
sales
2010 food
sales
(US$mil)
(Can$mil)
20,070
16,440
31,609
1,100
15,723
Canada
58
68
14,228
Canada
87
7
(Costco)
24
(Safeway)
1
(Walmart)
49
(Coop)
81
9,525
11,408
69,889
6,770
Costco Canada
US
Canada Safeway
US
Walmart Canada
US
Co-op’s
Global rank
Switzerland
(just Sobeys)
6,737
4,960
3,350
Overwaites
5. Shoppers
Canada
99
102
8,790
6. Canadian Tire
Canada
127
112
6,955
2,915
770
Not on
CIBC list
Source: 2011 Global Powers of Retailing -- Deloitte, pp. G12 - G14 for all columns
except the last which is from CIBC World Markets.
4
Combined Hypermarket/Supermarket Percentage
Share of Food Retail Industry Revenue in Canada
Top Grocers
Loblaw
Sobeys
Metro
Safeway
Walmart
Canada
Souche-Tard
Total for Top
Grocers
2008
24.8
13.7
9.6
6.7
4.3
2009
24.0
13.6
9.7
6.3
6.0
2010
23.9
13.4
9.5
6.2
6.7
1.8
60.9
2.0
61.6
2.1
61.8
Source: New Zealand Trade and Enterprise (2011)
5
Walmart to Open 40 Supercenters with Grocery in
Canada 2011-2012
By Marcus Cyganiak – January 29, 2011
This week Walmart Canada announced that it plans to open 40 new
Supercenters with Grocery sections across the country between February 1,
2011 and January 31, 2012. This will ... result in over a billion dollars of
investments into Canadian communities.
Target Canada: Retailer Plans To Hire
'Thousands' Ahead Of Canadian Expansion
6
Statistics Canada keeps bringing out reports purporting to show that
overall productivity for Canada is poor compared to the US.
However, Erwin Diewert of the University of British Columbia gets very
different results for Canada versus the US.
New Estimates of Canadian TFP Growth and the Contribution of
Changes in Real Export and Import Prices to Real Income
Growth
May 7, 2009
W. Erwin Diewert and Emily Yu
Department of Economics
University of British Columbia
Email: diewert@econ.ubc.ca
Using new data from Statistics Canada, the paper shows that the
productivity performance of the business sector of the Canadian
economy has been reasonably satisfactory over the past 47 years.
In particular, traditional gross income Total Factor Productivity (TFP)
growth averaged 1.01 percentage points per year over the period
1961-2007 and when a net income framework was used, TFP
growth averaged 1.04 percentage points per year.
7
Table 1. Canada-US Relative Labor Productivity
and TFP by Industry (US=1)
Sector or
Industry
Primary
Relative
Canada/U.S.
GDP per
worker
Relative
Canada/U.S.
TFP
1995 to 2004
changec
GDP/worker TFP 1995 2000 2004 1995 2000 2004
(1)
(2)
(4) (5) (6) (7) (8) (9)
+.17
-.08 0.81 0.83 0.98 0.84 0.74 0.76
Manufacturing
-.30
-.27
0.88 0.74 0.58 0.93 0.77 0.66
Services
-.07
-.04
0.62 0.61 0.55 0.65 0.65 0.61
Total Business
-.09
-.06
0.72 0.70 0.63 0.72 0.71 0.66
Wholesale
trade
Retail trade
-.15
-.17
-.04
-.06
0.77 0.74 0.62 1.07 1.00 0.90
0.64 0.70 0.60 0.79 0.83 0.73
Source: Derived using the results reported in table 1 of Rao, Tang and Wang
(2006a) who base their calculations on Statistics Canada and U.S. Bureau of
Economic Analysis (BEA) data..
8
Table 2. Canada-U.S. M&E Capital
Intensity Gap by Industry (U.S.=1)
Relative
Relative M&E
M&E Capital
Capital
Intensity
Intensity
1995 to 2004 199 200 200
Industry
changeb
5
0
4
(1)
(3) (4) (5)
+.22
0.30 0.37 0.52
Primary
-.20
Manufactur
0.74 0.62 0.54
ing
-.02
0.51 0.52 0.49
Services
-.04
Total
0.60 0.59 0.56
Business
Wholesale
+.02
0.15 0.19 0.17
Retail trade
+.12
0.39 0.50 0.51
+.04
FIRE,
0.55 0.59 0.59
management
9
Management matters in retail
Working paper 13, APRIL 2010
• In this Working Paper, we further extend this
management research to our retail businesses.
• In the summer of 2009, a team of analysts at the Institute
interviewed senior managers at 661 retail outlets in total –
409 in Canada, 152 in the US, and 100 in the UK....
• [T]he productivity of Canada and the US retail industries
differs – sales per employee are 33 percent higher in the
US and average wages are 35 percent higher.28 We are
able to determine that our retail industries are very similar
in their make-up (i.e., the percentage of industry sales in
each sub-sector like clothing or furniture).” (p. 25)
• Bloom et al. find that “the presence of multinationals
within a region serves to assist in the transfer of best
practice to local firms… possibly through the migration of
employees and knowledge and through commercial
interactions between the two groups.” p. 32
10
“Across all countries in the manufacturing sector, Bloom
et al. find that “the presence of multinationals within a
region serves to assist in the transfer of best practice to
local firms… possibly through the migration of
employees and knowledge and through commercial
interactions between the two groups.” p. 32
• This result is reinforced in the retail sector across the three
countries sampled.
• We saw a picture of two solitudes of Canadian retailing. We
saw Canadian-owned, domestically focused retailers, with
dramatically inferior management teams to international firms
competing in Canada.
• We need to ensure that our small business policies are
aimed at encouraging growth, and not simply owner lifestyle.”
(p. 45)
11
Experts differ on how the spread of Walmart
(and other US retailers including Target) in
Canada will affect prices, employment and
wages.
Many experts claim that Canadian
consumers will benefit from the US influx
no matter how this works out for the
incumbent retailers and the producers and
services providers that make up their
supply chains.
12
Roger L. Martin,
Chairman of the Institute for
Competitiveness & Prosperity
and Dean of the Rotman School of
Management, University of Toronto
“[T]he productivity of Canada and the US retail industries
differs – sales per employee are 33 percent higher in
the US and average wages are 35 percent higher.
We are able to determine that our retail industries are
very similar in their make-up (i.e., the percentage of
industry sales in each sub-sector like clothing or
13
furniture).” (p. 25)
14
What we foresee:
More competition will not result in the Canadianbased firms doing better and starting to export
more.
The competition will not make it more likely that
Canada will spawn a new firm that will have
Walmart-like success – indeed we foresee
almost no chance of this.
We believe changes are needed in transportation,
means of payment, EI and data regulations and
practices for Canadian retailers and other
businesses to be able to do better.
15
Transportation Issues
Transportation and grocery retail issues are intermingled in
the North American history of measures to control price
discrimination: a history briefly reviewed here.
Price discrimination control laws were introduced in the US
as part of the 1887 Interstate Commerce Act. The
objective was to stop railroads from giving rebates to
large shippers that were not available to others.
The term price discrimination means that the same
products are offered to different parties at the same point
in time for different unit prices, with the price differences
being unrelated to the costs of supply.
16
Anti-A&P Act
In 1936, the US Congress further strengthened the prohibitions against
price discrimination with the passage of the Robinson-Patman Act,
also known as the “Anti-A&P Act.” Understanding the reasons for
the association of this Act with the Atlantic & Pacific (A&P) grocery
store chain requires a little historical background. In 1920 A&P had
4,000 stores. The company grew rapidly.
A&P claimed this growth was based upon “greater efficiencies” -- that
is, upon productivity growth. However, a 1936 investigation by a US
House Judiciary Committee concluded that the growth was due
primarily to the company’s success in extracting lower prices from
suppliers than what competitors were able to obtain.
In the US Congressional records, the specter of “a few great economic
overlords” was raised and actions were recommended to prevent a
drift back toward “economic feudalism.” Preserving democracy in
governance was said to depend on preserving “democracy in
opportunity.” It was stated too that sometimes the public may have
to pay more to keep markets competitive and to protect a level
playing field (Tedlow, 1990).
Yet the evidence on which the House Judiciary Committee had to base
its decisions suffered from a lack of price data with store identifiers
for the observations: the same lack that is responsible for Canada
having no studies of the direct or the indirect price effects of the
growth of Walmart here. ] US Congressional Record 27th May 1936
17
What happened for transport:
• Subsequently, however, the anti-price discrimination
rules for freight shipping were abandoned. Arguments
were made that permission to engage in joint pricing
activity was needed to stabilize rates and service.
• With the passage of the 1984 Shipping Act, shipping
lines regained the right to offer different rates to different
customers, though the terms of contracts still had to be
made public.
• Four years later, the Ocean Shipping Reform Act of 1998
got rid of the requirement of public access to contract
terms. Similar changes were enacted for trucking.
• Hence the post 1998 shipping cost information is mostly
anecdotal because there no longer is a requirement for
shipping rates to be reported.
18
http://www.thestar.com/business/companies/walmart/article/
823669--wal-mart-canada-issues-rewards-basedmastercard
Published Tue Jun 15 2010
Dana Flavelle
• Walmart Canada announced on June 15, 2010 its new
rewards-based credit card.
• This Wal-Mart Rewards MasterCard is the first of
several financial service products that will be issued by
the new federally licensed Wal-Mart Canada Bank, the
retailer said.
• Cardholders will earn 1.25 per cent of the value of all
their purchases in Wal-Mart stores and 1 per cent on
purchases in all other stores that accept MasterCard,
the retailer said.
• The rewards can be redeemed at a Wal-Mart cash
register.
19
EI Issues
• Failure to control intentional repeat use is
especially hard on retailers and their
workers.
• Lower wage retail workers pay on every
dollar earned and relatively rarely collect
benefits.
• Canada-based retailers trying to compete
with companies have very thin profit
margins.
20
The Data Problem: Big Retailers Have Lots of
Data for Information Based Decision Making,
but Now Smaller Ones or the Public or
Government
In the Statistics Act, companies are given
privacy with respect to official statistics
data collection, making reliable research
on impacts of particular companies nearly
impossible.
21
A Price Transparency Solution Approach:
Treat the right to convenient price
information as basic to free markets.
Grocers are required by law in virtually all jurisdictions
of the United States and Canada to display product
prices either with stickers on the product items or on
the store shelves.
However, these laws pre-date the electronic
information revolution, and lawmakers so far have
failed to update them. Hence the laws do not
require grocers to publish their prices in electronic
forms.
All grocers over some minimum size could be
required, by law, to publish their prices online daily.
22
Transport Solutions
The old rules requiring transport prices to be
public would help smaller retailers better
manage their transport costs and inventory
levels.
Smaller Canadian businesses would be
much more likely to begin participating in
international trade if getting information on
the costs of alternative shipping services
were easier and the services were more
dependable for smaller shippers.
23
Means of Payment Solutions
The Retail Council of Canada (RCC) argues for flat
merchant fees for debit card transactions, the
elimination of higher merchant fees for premium credit
card transactions, real competition for merchant
acceptance and a formal stakeholder-driven
mechanism for all elements of the Canadian
payments system, including new and emerging
technologies.
More specifically, RCC argues for a regulated made-inCanada framework that preserves Canada’s low-cost
debit system and allows for enhanced competition
and greater transparency and accountability; RCC
argues also that there should be cost certainty and
clarity about the underlying principles of Canada’s
payments system so that merchants can better
manage costs associated with debit and credit card
transactions.
24
EI Solutions
• Get rid of the regional variable entrance
requirements and extended benefits. Don’t pay
for regional redistribution through the EI fund.
• Make EI a separate fund. The biggest program
abuse comes from using EI funds to pay non-EI
costs of government because it is far easier to
raise the EI premiums than it is to raise the
personal or corporate income tax rates.
• Bring back the Intensity Rule.
25
Data solutions:
Give the Competition Bureau and academics who
obtain special certification access to
confidential official statistics data for Canada,
much the way that medical doctors are given
access to confidential patient information
because that is necessary for them to play their
needed roles.
Require retail prices for large retailers, including
grocers, to be fully public in electronic form on
a daily basis.
Require all transportation prices and contract
details to be public for businesses operating in
Canada as either providers or purchasers of
tranportation services.
26
Quotes to keep in mind:
Wen (2001) writes on the state of the data available to the
Canadian competition authorities:
“It will be evident to the reader that there are
comparatively few empirical studies on food retailing, still
fewer that look at Canada. Taken as a whole, the
existing studies often make conflicting assumptions,
suffer from econometric identification problems, and do
not arrive at a fixed conclusion. Any policy advice is
therefore rather tentative, unfortunately.”
The Canadian economist John Kenneth Galbraith (1967, p.
217) was right, we think, when he wrote of the practice
of “protecting” merchant price information from
disclosure: “It is not the individual’s right to buy that is
being protected. Rather, it is the seller’s right to manage
the individual.”
27