As international export markets begin recovering from the COVID-19 pandemic, it is important to stay up to date on how your target markets are doing.
Food Export-Midwest and Food Export-Northeast have developed this blog series to bring you front-row insights from our network of In-Market Representatives (IMRs). Each blog will focus on one international market and give an overview of the recovery efforts in that market. This time we’ll examine Canada.
This week’s spotlight is all about Canada. Learn about the changes that took place in this market as a result of COVID-19 and practical tips that our In-Market Representative (IMR) for Canada, Kathy Boyce, has to offer to U.S. exporters looking to enter or re-establish themselves in the market.
1. What is the situation in your market regarding pandemic recovery at present?
Over 80% of the eligible Canadian population (5+) are fully vaccinated. Children five years and older are now eligible to be vaccinated. Third doses are being offered to those over 50 years of age and several provinces are allowing anyone over 18 to get a booster. As each province has jurisdiction over their health care, regulations on COVID restrictions are managed provincially. Canada introduced a vaccine passport which some provinces use to allow for entry into restaurants, sporting events, gyms, entertainment facilities, banquet halls and event spaces and several provinces have developed their own vaccine passport.
Canada continues to be cautious with travel across Canada. The federal government has placed restrictions on plane and train travel to allow only those fully vaccinated. There are restrictions interprovincially with some provinces only allowing fully vaccinated Canadians to enter without self-isolation and all travelers, regardless of vaccination status, must fill out entry forms prior to arrival. International travel to Canada is restricted to those fully vaccinated who must show a negative PCR test that was conducted within three days prior to entry.
The pandemic has exacerbated pre-existing labor shortages in Canada. Recent surveys have indicated that 30% of all Canadian businesses, and as high as 82% of manufacturers, report a shortage of workers. Many Canadians have retired in the past year and some of those due to retire in the next several years have left the workforce early because of the pandemic. By 2024, more than 20% of the working age population are expected to be 65 years or older. While Canada has been increasing legal immigration to grow its workforce for the long-term, the pandemic slowed the inflow substantially in 2020-2021, causing fewer new entrants to the workforce. Some Canadians who were forced to work from home by the pandemic have found a better life balance and are not willing to go back to the workplace full time. Housing prices continue to rise which has increased the number of people moving away from large cities to find more affordable housing. All of these factors make the labor shortage a challenging situation likely to continue.
2. How is that playing out in the food sector? What are you seeing in the retail sector? foodservice sector? Is there anything to note in specific industry sectors such as feed, pet food or seafood?
Western Canada has had severe weather which has impacted the food industry. Drought and overbearing heat have affected crops. Canada’s wheat production, which is grown in Alberta, Saskatchewan and Manitoba, is down approximately 35% from 2020. Durum production is down 39.2%, barley 27% and oats 20%. This in turn has affected supply for both food and livestock feed manufacturers across the country. Beef production has been hit especially hard.
Besides overbearing heat waves this summer, British Columbia has also suffered from forest fires and flooding that has devasted many regions. Besides food and livestock production, the flooding has caused blockages in rail and truck transportation, further impacting ports. These weather-related issues will continue to increase food costs.
As of September 2020, Canada’s food prices rose nearly 4% over the previous year with more increases expected in the next few months. In fact, food prices are expected to rise by 7% in 2022. The price of meat products rose 9.5%, seafood 6.2%, chicken 10.3%, butter 6.3%, cheese 4.6% and eggs at 5.4%. With Canada’s growing season now over, it is anticipated that imported produce will see heavy price increases due to the shortage of trucks and the container issues continuing at the ports. For example, produce coming through Vancouver typically takes 15 days to reach the market but now takes up to 60 days, significantly increasing spoilage and creating shortages.
The travel and hospitality sectors have been some of the hardest hit sectors because of the pandemic. With shuttered entertainment venues and lack of tourism, many restaurants have had to close down. Statistics Canada reports that half of restaurant employees have since found employment in other industries. As restrictions loosen, restaurants and event facilities are struggling to hire staff. Many are reducing hours, offering take-out only, reducing food offerings on menus and having to offer higher wages to try and entice new hires. These factors have led to price increases on menus.
Across the country, vaccination passports are mandatory for entry inside food establishments and event venues. The required passports and the continued hesitancy of Canadians to enter indoor establishments have meant a decrease in customers. Families with young children are more inclined to pick up food through drive-through restaurants or meals-to-go at grocery stores. With the unknowns of the Omicron variant, there will likely be even fewer customers entering facilities which will further impact foodservice operations.
3. Have there been any structural changes in the market – ex. consolidations or ongoing issues related to imports (ex. testing) of which U.S. suppliers should be aware?
Canada has a very consolidated retail market. The five major retailers, Loblaws, Sobeys, Metro, Walmart and Costco, cover almost 80% of the market. The market continues to consolidate with the most recent purchase of Longo’s, an Ontario independent retailer with 30 plus stores, by Sobey’s.
4. What trends or developments have you seen in your market during the pandemic that you think are most likely to continue into the recovery and post-recovery period?
Consumers have become more price-sensitive due to pandemic job loss or reduced hours. At the same time, prices are rising due to supply chain issues and extreme weather issues in Western Canada. These conditions have created more demand for private label with private label sales volume growing by 10% during the pandemic compared to 8% for brands.
Canadians are also changing their eating habits. Substantial price increases have taken place in the past several months with prices for animal products such as meat, poultry, seafood, and dairy meat up between 5 – 10%. Consumers are therefore cutting back on meats or purchasing cheaper cuts and reducing consumption of higher-priced dairy products.
Manufacturers are shrinking the size of products but charging the same price. Manufacturers are also reducing the number of SKUs to help cut costs. Likewise, retailers are reducing SKUs on the shelf.
A rising consumer focus is sustainability, especially with Gen X, Millennials, and Gen Z consumers. They are concerned about the environment and climate change and want more sustainably-packaged and ethically-produced products, particularly for fresh items. Canadians also have a growing interest in buying local products, even showing a willingness to pay a premium price to support local producers.
Plant-based foods continue to grow in demand with an increase of 25% just in the last year. The number of consumers who are vegan or vegetarian continues to climb, but the general population is also adopting more plant-based foods in their diet and it is estimated that 25% of Canadian households purchase plant-based alternative meat and dairy products. A growing number of Canadians feel plant-based options are healthier, better for the environment and plant-based proteins and dairy alternatives fit the bill of sustainability and can be more economical. Some products are now promoting on their label they are plant-based including fresh baked goods.
E-Commerce has grown exponentially due to the pandemic. Although Canadians embraced online shopping for non-food items pre-pandemic, online food sales were minimal and online grocery retail was in its infancy. However, lockdowns created the opportunity to purchase groceries online as a safer way to shop. Grocery retailers had to accelerate their development of online shopping programs for one-click shopping for pick-up or delivery. E-commerce continues to grow with concern over COVID-19 exposure. E-commerce sales on sites such as Amazon.ca are especially beneficial for consumers who have health conditions that influence their diet and can search for specific foods. Other categories with growth of online sales on these sites are gourmet foods, confectionery, and non-alcoholic beverages.
5. Could you share some practical marketing tips for U.S. suppliers to best position themselves to take advantage of the trends/developments you identified above?
No matter what the trends are, it is important to conduct research about your product category to understand the market, your competitors and the price points needed to be competitive. Be aware of labelling regulations that differ from the U.S. and confirm your ingredients are permissible, as there are some items which Canada does not allow in food products, such as monk fruit sweetener.
Understand and respect that the Canadian market is different from the U.S. and therefore entry into this market may vary from how a company entered the U.S. market. With a highly-consolidated market, it is critical to align yourself with partners that will help build the best strategy for entry. Promotional funds should be part of the equation to help create consumer awareness.
Check out the Food Export’s Canada Country Profile for further details.
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