02/04/2014 07:41 EST | Updated 04/06/2014 05:59 EDT

Walmart's $500 Million Canadian Expansion Will See 35 New Superstores

TORONTO - Walmart is placing its bets on the fresh food business, as it announced Tuesday it will open 35 more Canadian supercentres as part of nearly $500 million in planned investments this year.

The world's biggest retailer said its long-term plan is to offer groceries in each of its Canadian stores, a move which will increase the pressure on its retail rivals.

"We love the idea of our customer coming in and buying ground turkey and taco seasoning and salad mix and diapers, getting their oil changed, picking up a pair of eyeglasses and riding home on a new bike. I mean you can get it all done at Walmart and we love the idea of that, " said Shelley Broader, Walmart Canada's president and CEO, in an interview.

The discount chain, which celebrated its 20th anniversary in Canada last month, is investing more than $376 million to build, expand, relocate or remodel its stores.

It said six of the stores will be new, 10 will be expansions and 18 will be retrofitted to add a fresh food section. One store will be relocated.

The company currently has 389 stores, including 247 supercentres that carry a combination of groceries, apparel, and household goods. It expects to have a total of 395 stores by the end of January 2015, with 282 supercentres and 113 discount stores.

Details of specific store and distribution centre projects will be announced as they become finalized, but it's expected to focus on eastern Canada where it opened its first supercentre in 2013.

Broader said the new stores will create about 7,500 jobs across the country, with the majority of the positions being temporary construction jobs. About 2,600 will be permanent Walmart store staff.

About 250 will be at the company's distribution centres and 60 will be in its e-commerce division.

The retailer, which came to Canada in the early 1990s, has become the country's largest department store retailer by sales. It's also one of the biggest employers in Canada with more than 95,000 employees.

This latest announcement is expected to solidify the retailer's role as a serious grocery offering, and increase competition for Canadian retailers — especially for the food, pharmacy and clothing chains — who compete with Walmart.

Two main rivals include U.S. retailer Target Corp., which began expanding into Canada last year, and online behemoth Amazon, which started grocery delivery to Canadian customers last December.

Grocery chains, such as Loblaws (TSX:L), Metro (TSX:MRU) and Sobey's (TSX:EMP.A), have consolidated and cut prices to lure in more customers.

Walmart said it wants to become a one-stop hub for food, general merchandise and household products such as toilet paper, laundry detergent and dish soap.

"When we were primarily a general merchandiser and dry grocery house, we gave people a reason to go somewhere else," said Broader.

While small grocers are experimenting with discount small-store formats, Broader said Walmart is focused on its supercentre locations— which can range anywhere between 63,000 square feet to 220,000 square feet.

The chain spent $450 million to open or expand 37 additional supercentres in 2013-14.

Although Walmart is adding a million square feet of new retail space, Barclays analyst Jim Durran said the expansion is on the "low end" of what he expected the mega retailer to announce this year.

Durran viewed the news as "slightly positive" for other Canadian retailers, who have an opportunity to step up the competition in what is expected to be a tough year.

"We expect 2014 to be another difficult year for the incumbent Canadian food retailers due to the current promotional intensity of the market, a weak Canadian consumer, and an increased risk of margin drain from (foreign currency)," he wrote in a note.

"However, Walmart's F2015 supercentre plans reinforce our expectation that the sales drain they are inflicting upon the grocery industry will ease materially in the second half of 2014."

Even the arrival of competitor Target in Canada did not lead Walmart to drastically reduce its grocery prices, he added.

Last week, rival Target announced plans to open nine more stores in Canada, with a total of 133 locations expected to be open by the end of the year.

Target has faced high expansion costs and disappointing sales since its highly anticipated arrival in Canada with shoppers complaining about near-empty shelves and notably higher prices than at its U.S. locations.

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