How Amazon Canada Is Chipping Away at Grocery Stores

When the king of Web retailing enters the fray, competitors should be nervous.

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By Cameron Conway

Just when Canadian grocers thought things couldn’t get any worse after the opening of Target stores in Canada, a new player has entered the grocery isle: online retail juggernaut Amazon.com (NASDAQ:AMZN).

Amazon recently announced that it had created a new Grocery and Gourmet Food department at Amazon.ca, and it boasts more than 15,000 dry food products, most of which are eligible for Prime or super saver shipping.  Since the start of the year, Amazon.ca has “more than doubled” its offerings in the grocery, auto, toys, and office categories.

In other words, in typical Amazon fashion, it’s a win for customers and a major pressure point on competitors. Unlike Target’s entry into Canada, Amazon should be striking fear in the big grocery players such as Loblaw (TSX:L), Sobeys (TSX:EMP.A), and Metro (TSX:MRU).

With 15,000 items, the range is huge, but to give a quick flavor, the next time you’re ordering a new Blu-ray, you can now also stock up on pantry necessities, baby food, local favourites like Dare cookies and Canadian maple products, and even flowers. Amazon has included many $1 and $2 items that it hopes can be easily be tacked onto what consumers may already be ordering from Amazon.

Prices on most products vary right now, but historically, Amazon has been willing to make little to no money on each sale just to crowd out the competition and win more of the consumer’s wallet.

Between, Amazon, Target, and Wal-Mart, Canadian grocery chains are facing more competition than ever. The added pressure has already sparked the mergers of Loblaw and Shoppers Drug Mart, along with Sobeys and Safeway and even synergy-partnerships such as TD Bank & Loblaws’ new Ugo mobile wallet.

With Christmas just around the corner, this could prove to be a pivotal and perhaps costly year for Loblaw and Sobeys. The question is: Are these companies prepared, equipped, and willing enough to fight a battle both on the streets and online?

One thing is clear: Whether or not shareholders win, Canadian consumers will.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Cameron Conway does not own shares of any companies mentioned.  David Gardner owns shares of Amazon.  The Motley Fool owns shares of Amazon. 

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