Whole Foods faces Canadian challenges, opportunities

Mark Hamstra 1 | Jan 20, 2017

Whole Foods still faces a price-image challenge in Canada that may be contributing to a recent cutback in store-opening plans, but it likely has opportunities north of the border in the long term, local observers said. 

The Austin, Texas-based natural-and-organic specialist recently confirmed that it would not open previously planned stores in Calgary and Edmonton, both in a Central Canadian region where the economy has been hard-hit by the drop in oil prices in the last two years. 

“Whole Foods is probably wisely reallocating its capital, because these are really tough markets now, especially for retailers appealing to more affluent consumers,” said Bruce Winder, cofounder of Retail Advisors Network, Toronto. 

Whole Foods is “committed to expanding in Canada” and is moving forward with planned store openings in Toronto and North Vancouver in 2017, Beth Krauss, a spokeswoman for the company, told SN. Whole Foods, which entered Canada in 2002, currently has 12 stores in the country — six in the Vancouver area, five in the Toronto area and one in Ottawa.

In 2013, Whole Foods CEO John Mackey said he hoped to open 40 stores in Canada and generate sales of $1 billion, but did not give a timeline.

The Vancouver and Toronto markets hold ongoing potential for Whole Foods, said Binder.

“Those are the two markets that are growing, that are affluent, and would have the type of consumers that would appeal to Whole Foods’ value proposition — great, fresh food at a premium price,” he said. “Down the road, if Whole Foods wants to grow in Canada, there will be room to grow — especially in places like Toronto and Vancouver, and probably in Montreal and Ottawa. The next tier would be cities like Calgary and Edmonton, but the timing is probably off right now.”

Toronto is Canada’s largest city, and the greater metropolitan area is home to about 6.5 million people. That’s roughly the size of the Atlanta market in the U.S., which also has about a half-dozen Whole Foods locations. 

Tom Balkos, senior VP at real estate firm CBRE in Toronto, agreed that Toronto and Vancouver offer Whole Foods the most opportunities for growth in the current environment.

Vancouver in particular, he said, has “a concentration of young, urban, affluent, health-conscious people who are interested in organic and pursuing a healthy lifestyle.”

Traditional rivals

In addition to the economic pressures in central Canada, and a flat Canadian economy overall, Whole Foods also faces increasing competition from Canada’s traditional supermarket chains.

“The national supermarket chains in Canada have improved their offering, and have a much more sophisticated and easily accessible ‘organic/Whole Foods-like’ selection,” said Balkos. “This, combined with domestic grocers’ loyalty programs, pharmacy offering and range of formats … makes them a much more convenient and economic shop.”

Loblaw in particular has been an effective competitor in Whole Foods’ space, noted Winder of Retail Advisors Network. In addition, local gourmet grocery Pusateri’s — which last year began opening Pusateri’s’ Food Halls inside Saks Fifth Avenue locations as that luxury retailer entered Canada — could also be providing competition for Whole Foods in Canada, he said. 

Both Balkos and Winder agreed that Canada’s most cosmopolitan cities also may hold potential for Whole Food’s nascent small-format, urban concept, 365 by Whole Foods Market.

Although Whole Foods has not unveiled any plans for 365 in the country, the concept could be a good fit for Canada’s urban Millennial population, Winder said.

“I think that format would be quite welcome in places like Toronto and Vancouver, and potentially Montreal as well,” he said.

While Balkos agreed that while 365 by Whole Foods “does potentially have legs in Canadian markets” such as Toronto, Vancouver and Montreal, the growth of the concept would be limited by the scarcity of high-density urban centers.

“There are surprisingly few pockets with enough critical mass within their trade areas to support a 365 store,” he said.

Balkos also noted that as with its full-size format, Whole Foods faces competition from Canada’s established chains in the urban, small-format niche as well.

“Canadian chains such as Sobeys, Loblaw and Longo’s have all introduced smaller formats for urban environments,” he said. “They are all on-concept and operate formats that compete with Whole Foods' 365 offerings, so 365 would be coming into an environment where the Canadian domestic players are firmly entrenched and having great success.

“Whole Foods was once regarded as the only player and market leader in their category, now that is simply not the case,” said Balkos.