According to Euromonitor retail sales in the packaged food market should reach US$59.1 billion in 2022. That makes Canada the 11th largest packaged food market in the world. That represented a growth rate of nearly 20% or US$9.8 billion from 2018.
They also forecast growth in this category to reach US$71 billion by 2026. This is an increase of US$11.8 billion, and a period growth of another 20% from 2022.
High growth categories in the forecast include:
- Ready Meals
- Cheese
- Edible Oils
- Dairy (Ex. Cheese)
- Sweet Spreads
- Ice Cream & Frozen Desserts
- Savory Snacks
FAS Ottawa reports that U.S. exporters are encouraged to look at Canada as a country of five regional markets and develop market entry strategies for each region: Ontario, Quebec, Atlantic Canada, Prairies, and Western Canada. As the market is consolidated
in both the retail and the food service sector, new exporters need to familiarize themselves with the major retail banners, operators, and Canadian processors in each regional market to secure long-term success. Nearly 75% of total retail beverage
and food sales in 2020 were attributed to five companies: Loblaws, Sobeys, Metro, Walmart, and Costco. More than 7,000 independent retailers across Canada, including convenience stores, ethnic and natural food stores represent an excellent opportunity
for new-to-market products to establish a presence in the Canadian market but will also require greater due diligence and oversight.
The Canadian food market displays a dichotomy of demand, one for low priced quality foods and the other
for premium and specialty food items. Some premium consumer-packaged food products are sold in Canada at three times the comparable U.S. retail price. Customarily, U.S. companies selling natural, organic, or specialty foods will create
demand and sales among the independents before tackling larger accounts. Proven sales in Canada are important to help persuade category buyers to list new products.
Unlike in the U.S., a number of retail category buyers from the larger
chains rely on food brokers, distributors, and importers to identify new products. More importantly, they also rely on these intermediaries to manage the relationship with U.S. companies and to guide U.S. companies through required compliance
steps, the nuances of the Canadian retail market, and development of promotional strategies to help sell the product in Canada.
According to Euromonitor the increased competition from hypermarkets and intense price competition from discounters
and warehouse clubs diluted retail value sales growth for supermarkets in the last few years. However, growth spiked in 2020, driven by Coronavirus (COVID-19)-induced demand. Consumers stockpiled before stay-at-home restrictions were in
place and they also shifted consumption from restaurants to grocery stores during the lockdown period. Moreover, throughout the year, economic uncertainty saw consumers cut back on discretionary spending, while allocating a higher proportion
of their total spend towards essential grocery products.
Grocery e-commerce sales also witnessed exponential growth over the year. Both home delivery and curb-side collection benefited from consumers shifting online. This shift
has been made easier since large supermarket chains in Canada have effectively focused on building a stronger digital presence and providing a bigger product selection. Supermarkets continued to benefit from COVID-19 restrictions for these reasons
during the first half of 2021, but as Canada entered a phase of recovery in the second half of the year, growth rates, especially in e-commerce, have started to show signs of plateauing.
Supermarkets responded to increasing consumer demand
for convenience in the form of ready-to-eat meals and online delivery by introducing and/or strengthening these services. This strategy served supermarkets well during the pandemic. Within the arena of ready-to-eat meals, Sobeys continued
to benefit from its recent introduction of Easy Meals, while other supermarket operators, such as Metro Inc, adopted similar meal kit concepts to gain more traction with restaurants closed and subsequently subject to ongoing limitations. Metro’s
purchase of a major stake in the online meal kit service “MissFresh” led to the offer of meal kits in stores, enabling customers to buy individual boxes without committing to a weekly subscription.
The strong price competition
from discounters and warehouse clubs, which do not offer consumer foodservice, encouraged many supermarkets like Loblaw’s T & T to develop in-store mini-restaurant models to offer healthy and affordable foodservice options. Due to
the need to observe social distancing and other best safety practices, in-house dining in supermarkets was either limited or temporarily unavailable. However, as consumers moved back towards pre-COVID-19 norms, they have started to shift their
expenditure from everyday grocery essentials to experiences like eating in restaurants, which slowed the growth in sales of supermarkets at the end of 2021.
A stronger digital presence and wider product offer have become key strategies
for supermarkets seeking to ward off the online competition from Amazon. Both Loblaw and Sobeys have taken major steps in this direction. Loblaw continued to increase its e-commerce offerings and expand its click and collect online grocery
shopping service in different store brands. Meanwhile, Nova Scotia-based Sobeys launched the Voilà by Sobeys online grocery delivery platform in Vaughan, Ontario, in partnership with UK-based e-commerce company Ocado, in June 2020.
Using the Ocado-powered automated warehouse as its customer fulfilment center (CFC), Sobeys rolled-out Voilà by Sobeys across the Greater Toronto Area in subsequent weeks, and then expanded the service to Ottawa and major cities across
Quebec via another CFC powered by Ocado’s Smart online grocery platform in 2021. Meanwhile, Empire Co Ltd, the holding company for Sobeys, is set to complete the purchase of a majority share of Longo Brothers Fruit Markets Inc. (Longo’s)
and its Grocery Gateway e-commerce business in 2022.
Euromonitor reports that retail value sales growth slowed in 2021 for supermarkets, following the spike experienced in 2020. This was largely due to strong competition from other
channels, including e-commerce, but also the return towards pre-pandemic lifestyles. The retail value (constant 2021 prices) growth rate is projected to slow in the early-to-mid-forecast period, before declining, albeit marginally-to-slightly
up to 2026, as total household spending on groceries stabilizes with a return to normality.
However, a potentially higher unemployment rate and concerns over the economic outlook brought on by COVID-19 are likely to benefit supermarkets
in the shorter term, leading to a rising demand for private label and more spending on essential products available in supermarkets. Supermarkets are also expected to continue to see a growing share of online grocery, albeit at a slower rate,
given the fast increments witnessed during the pandemic. Nonetheless, more consumers are open to online ordering, home delivery and curb-side pick up as convenient ways of grocery shopping.
Sobeys is well placed to maintain its strong leadership
of supermarkets in the forecast period. In 2021, the player held slightly more than one half of retail value sales in the channel. Strong digital engagement is a critical component of its marketing strategy, as evinced by the expansion
of new lunched services like Voilà. Voilà represents Sobeys’s first effort to offer its own online grocery delivery service, enabling customers to shop online at Voila.ca or use the Voilà mobile app to shop for thousands
of grocery products (including fresh fruit and vegetables) at comparable prices to those found in its stores.
Voilà also provides products from Sobeys’s Farm Boy chain and Well.ca, a health-and-wellness e-commerce website.
Once an order is received, robots assemble the items efficiently and safely, with minimal product handling, after which Voilà personnel deliver the orders directly to the customer’s home within as little as a one-hour timeframe. With
convenience and health and safety likely to remain key concerns, at least in the short term, strong digital engagement and services are set to maintain the dynamism of Sobeys’s offer.
Supermarkets continue to face intense competition
from other grocery channels like hypermarkets and discounter, which offer attractive value propositions like one-stop shopping or discounts and special deals or promotions. In this light, a more comprehensive range of grocery offerings and improved
shopping experience, online and offline, is crucial for supermarkets to maintain their strong footprint in grocery retailing.
Convenience stores benefited a lot from being considered essential retailers in 2020 and 2021; therefore, these
grocery outlets did not face reduced hours or closures related to the measures introduced to cope with the Coronavirus (COVID-19) pandemic in Canada. Consumers sheltering at home during lockdowns, and home seclusion in general, including for reasons
of remote working and distance learning, continued to pile up treats and snacks. The robustness of demand helped convenience stores to keep afloat during the pandemic.
Lifestyle changes, on the other hand, acted as a barrier to growth
in convenience stores. Many consumers working or studying from home, as well as consumers in general home seclusion mode, started to order their required grocery products via e-commerce, which resulted in much lower traffic in physical convenience
stores. Overall, mobility data suggests that major convenience store consumers like office employees and college students did not have to go outside as much as they used to. Therefore, unplanned or on-the-go visits to convenience stores
continued to be significantly reduced during 2021, as in 2020, despite a relaxation of pandemic restrictions and return to the workplace and school classroom and socialization outside the home. Many companies continued to employ work-from-home
polices, while many consumers remained more home-centered than in the pre-pandemic period due to economic and residual health concerns regarding COVID-19.
Convenience stores players in Canada tried to strengthen their retailing shares by
increasing their focus on private label and developing multichannel strategies to broaden their reach and sales avenues. Some convenience stores focused on private label offerings to provide more competitive prices, which appealed to consumers
in a tough economic climate in the wake of COVID-19, and a more consistent brand message. Larger players also aimed to take advantage of their extensive outlet networks. Led by Alimentation Couche-Tard Inc, large chained convenience stores started
to direct consumers to their gourmet food offerings (a similar model is already quite well developed in the US and Asia Pacific).
Convenience stores are likely to see a soft recovery over the next few years due to weaker demand and channel
blurring, despite retail value sales receiving a boost as pre-pandemic traffic patterns continue to normalize. However, the proximity and convenience of other retail channels, such as supermarkets and drugstores, will allow consumers to shop
for packaged goods in different retail formats, which can be expected to take a toll on convenience store sales as the forecast period progresses. In this light, retail value sales are predicted to fall moderately, as the number of outlets and
selling space are set to see slow, but steady decreases through the forecast period. In current value terms, higher inflation is set to exert upward pressure on unit prices and see positive, if small, increases, at least in the short term.
Best Product Prospects:
FAS Ottawa reports that among the consumer-oriented products exported to Canada in 2021, the top three consumer-oriented agricultural product categories were bakery goods, cereals, & pasta
(US$2.2 billion), fresh vegetables (US$1.9 billion), and fresh fruits (US$1.7 billion). Over the next five years, the pet foods category is expected to grow by 13.2%, making this category the most opportunistic one for U.S. suppliers.
As the pandemic continues to evolve consumer shopping behaviors will continue to adapt to it. With COVID-related financial insecurity in the country, normally price conscious Canadian consumers are expected to remain cautious in the near term,
driving sales of private label products and tempering the pace of “premiumization” (i.e., consumers upgrading to more premium products).
