Retail Sector

According to Euromonitor retail sales in the packaged food market reached US$44.5 billion in 2019.  That ranks Canada the 11th largest foreign market in the world.  That also represented a growth rate of nearly 7.5% or US$3.1 billion from 2015.  They also forecast growth in this category to reach over US$52.1 billion by 2024.  This is an increase of US$14.2 billion, and a period growth of 6.4% from 2020.  High growth categories in the forecast include:

• Savory snacks
• Ice cream and frozen desserts
• Ready meals
• Baked goods
• Dairy products
• Sweet Biscuits, Snack Bars and Fruit Snacks
• Processed Meat and Seafood
• Confectionery

Post reports that Canada’s retail market is mature and consolidated with five major stores that include three traditional grocers and two general merchandisers that command 77% of the US$75 billion market. Retail sales among the traditional grocers have been flat since 2015, but Costco, Walmart and other general retailers (including dollar stores) have contributed to US$3.4 billion to grocery sales. Ontario, Quebec and British Columbia represent 74% of Canada’s retail market and are the provinces in which most of the convenience, drug, grocery and mass merchandise stores are located.

In 2018, food and beverage sales in Canada exceeded US$96 billion representing a 3% increase compared to US$94 billion in 2017.  Grocery stores represented 75% of sales followed by alcoholic beverages at 19% and specialty food stores at 6%.  Canada retailers rely on imported foods to fill their shelves for consumers with relatively high disposable income.  Through access to established global food supply chains, fresh produce and many iconic U.S. brands are readily available throughout the year.

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 can sell for three times the U.S. retail price. U.S. companies offering natural, organic, or specialty foods tend to create product demand and to generate sales through smaller, independent retailers before tackling the majors. Proven sales in Canada can be important when persuading major retailer category buyers to list new products.

The three major grocery chains market their products to consumers across the country under the following main banners:

Euromonitor reports that ethnic food retailing is growing rapidly in Canada, bolstered by the growing ethnic population, as well as the increasing consumer desire to seek authentic ethnic food. Sobeys, Metro and Loblaw, the big three companies in supermarkets in Canada, have been expanding their ethnic brands, offering a more diverse product mix to meet consumer demand. Metro acquired the majority stake in Marché Adonis in 2011 to tap into the interest in Mediterranean and Middle Eastern food. Since purchasing the minority interest from Adonis’s three founders in 2017, Metro aims to continue expanding Adonis in Quebec and Ontario. Owned by Loblaw since 2009, T & T is expanding quickly and has become the largest Asian supermarket in Canada, with a strong foothold in British Columbia, Alberta and Ontario. With a positive outlook for ethnic food, ethnic supermarkets are set to continue their rapid expansion to serve the ethnically diverse population in Canada.

According to Euromonitor, Organic Garage, an independent organic and natural foods grocery chain, aims to lead in natural food grocery with fast outlet expansion. The chain positions itself as the go-to place for 100% certified organic products while offering prices 18-24% less than those in other organic shops. Organic Garage increased its Canadian store network again in 2019, and though its main focus is Toronto, it has locations in Ontario and has now set its sights on British Columbia after further development in the former two provinces.

Meanwhile, Canadian chef Mark McEwan has opened a third McEwan grocery store with an emphasis on casual dining experience. Located at the base of the One Bloor East skyscraper, it is a hybrid grocery store and restaurant (“Grocerant”) that offers grocery, grab-and-go and sit-down dining options. While the grocery store area mainly offers brands from the McEwan Group, the foodservice areas include a café featuring Lavazza coffee, a Fabbrica pizza counter and a sushi bar, all of which boast offerings prepared with freshly made, organic or homegrown ingredients.

Moreover, as supermarkets face intense price-competition from discounters and warehouse clubs, many are moving to the mini-restaurant model to offer healthy and affordable food service options. For instance, T & T has launched a seafood bar at its Richmond location, which invites shoppers to purchase fresh prawns, lobsters and clams in the store and have them cooked for eating on-site. This serves to maximize consumer time at the supermarket and thus their spending.

The supermarkets channel in Canada faces increasing competition from many alternative channels. Convenience stores offer consumers an easy option for shopping for small-value items with their extensive retail networks. Pure online players such as Amazon provide fast home delivery and offer a large selection of household products. Pharmacies such as Shoppers Drug Mart also compete in groceries with expanded offerings of fresh produce.

With more challenges ahead, some supermarkets are trying to enhance their value proposition by focusing on downtown areas in major Canadian cities, as there is a high population with income levels sufficient to justify taking up a premium positioning. As points of differentiation, premium fresh food offerings and high-quality products are marketed to residents from upmarket condominium towers and professional workers from nearby office buildings.

Euromonitor reports that as the biggest chains expand in the country, the convenience stores channel is seeing increasing consolidation. The two leading players, 7-Eleven Canada (7-Eleven) and Alimentation Couche-Tard (Circle K and Couche-Tard) increased their combined share once again in 2019, accounting for the majority of value sales within convenience stores. Their combined value share increased by three percentage points over the course of the review period, at the expense of the share of “others”. It is likely that this consolidation trend will continue in the forecast period, especially as these two leaders are actively innovative. For instance, 7-Eleven has partnered with Foodora and launched a delivery service in several major cities across Canada, including Toronto, Vancouver and Calgary. It is a trial with the aim of making convenience stores even more convenient.

Growing through acquisition has been a long-term strategic focus of Alimentation Couche-Tard Inc. Aside from acquisitions, the company also places emphasis on organic growth by evolving and building on its current strong position. To build a stronger image internationally, Alimentation Couche-Tard is developing its global convenience brand Circle K in over 20 countries, including Canada, where some other established brands and newly acquired sites have been converted and rebranded. To increase its product offering in growing categories, the company concentrates its efforts on providing more made-on-site food and positions itself as a convenient one-stop-shop for quality food at competitive prices.

Post reports that the bulk of Canadian food imports are predominantly imported directly by a large importer, broker, distributor or wholesaler; perishable items and multinational food companies may ship directly to a national retail chain’s distribution center.

Best Product Prospects

Post reports that the demand for organic, healthy, and natural products market in Canada is growing briskly. Prospects are excellent for organic and natural ingredients, consumer-ready processed foods and beverages and fresh organic fruits and vegetables. Canadian health-conscious consumer are continuously looking for products that are all natural; no artificial colors; low sugar/sugar free; no artificial flavors; and low fat/fat free. 

Food Service Sector

Post reports that in 2018, total foodservice sales exceeded US$68 billion, with a growth of 5% from the previous year. The Canadian foodservice industry includes both commercial and non-commercial foodservice establishments, and the industry is organized into three main subsectors: restaurants, accommodation foodservice, and institutional foodservice.

Since 2014, Canada’s food service has steadily grown an average of 5% per year. The Canadian national restaurant industry group has projected 2018 growth rate at 4.3%. Between 2019 and 2021, food service sales are forecasted to grow each year by 4% per year. Restaurants sales accounted for US$53 billion, or 80%, of total food service sales in Canada in 2018, followed by accommodation sales at US$6.8 billion and institutional sales at US$3.6 billion.

The largest subsector growing within the restaurant channel are grocery sales from prepared meals for takeout and their own foodservice sales from their own dining space located in their stores. Millennials represent the largest category of foodservice spenders in Canada. Many households are turning to foodservice as they look for convenience and value.

Accounting for 80% of total foodservice sales, the commercial foodservice segment is the main driver in this sector. British Columbia generated the highest sales growth rate in 2018 (8%) due to rising wages, increases in tourism and the wealth effect from the high-priced housing market in and around Vancouver. In Ontario, sales increased by 6% and are expected to continue in 2019 due to a growing population and healthy job creation numbers. Quebec and Nova Scotia followed the trend with a 5% and 6% growth respectively. Alberta and the remaining provinces in the Prairies and Atlantic regions had a modest growth ranging between 1% and 3%. The number of commercial foodservice units increased slightly by 2% in 2018 reaching 97,939 units.

Sales growth in the non-commercial foodservice segment reached 4% growth in 2018, mainly on strong sales in the retail and accommodation foodservice segments. The strong pace of growth in the retail foodservice is forecasted to continue as more convenience stores and grocery stores compete with restaurants to offer prepared meals and snacks that are convenient and affordable for consumers. As for accommodation foodservice, the growing consumer desire for experiences through lodging and travel is expected to drive the growth in this segment in the future.

Total institutional foodservice sales in Canada reached US$4.9 billion in 2018, representing 5% of the foodservice industry. The sector consists of hospitals, residential care facilities, schools, prisons, factories, remote catering, and patient and inmate meals at correctional facilities.

The bulk of Canadian foodservice imports are predominantly imported by large importers, brokers, foodservice distributors or through intra-company sales among international restaurant chains. Much of the perishable and specialty items, such as fresh meat products, are imported and distributed by foodservice distributors.

Sysco and Gordon Food Service are the two largest national food service distributors in Canada, representing approximately 40% of the market. Regional and specialty commodity/product distributors play an important role in meeting foodservice sector needs and present opportunities for imported products with smaller production volumes.

Small to medium sized U.S. companies are recommended to partner with a Canadian food broker/food distributor/importer. Most foodservice distributors are not in the business of pioneering or finding new foodservice accounts for U.S. firms. Instead, Canadian distributors prefer to warehouse products that have a steady turnover rate.

Foodservice brokers do not take title of the goods, but act as a sales representative and work at pioneering the product and establishing new food service accounts with restaurant, hotel, and other institutional accounts. They establish a distribution network throughout the country or designated region. U.S. companies should seek a potential food broker with expertise and contacts in the foodservice sector as competition and establishing pricing can be challenging within a smaller, consolidated market in Canada.

Best Product Prospects

Best prospects for U.S. suppliers in the foodservice industry mostly mirror those sold in the retail sector. Healthy eating has been a growing trend in Canada over the last several years. As a result, many Canadians have become more aware of what their food contains and have identified certain ingredients they would like to exclude. Demand for foods that are free of gluten, trans-fats, sugar and/or lactose is growing. Functional foods and organics also continue to be popular. Voluntary sodium reductions are taking place in processed products of all kind to take advantage of this trend.

Food-Processing Sector

The Canadian food and beverage processing sector is among the most sophisticated in the world. 2018 total Canadian food and beverage manufacturing shipments were US$87 billion, of which export shipments comprised one-third, making Canada the fifth largest global exporter of processed food and beverage products. A relatively weak Canadian dollar, as well as the entry into force of two large free trade agreements since September 2017 (the Comprehensive Economic and Trade Agreement with the European Union and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership), have bolstered Canadian food and beverage exports, with the Conference Board of Canada reporting that the Canadian food-manufacturing sector is operating at 90% capacity. The Canadian Government goal to increase food and agricultural exports to $75 billion CAD (approximately US$58 billion) by 2025 is built in large part on projected strong growth of processed food and beverage exports.

Canadian food processors rely on imported raw, semi-processed, and processed ingredients to grow their operations, though a strong ‘buy local’ ethos drives Canadian companies to source locally whenever possible. For example, certain baking ingredients, such as nuts, that have become essential to the food processing and baking industries are largely imported, with many products sourced from the United States.

Multi-national manufacturers that are well-established in Canada – including Saputo, PepsiCo, Kraft, and others – contribute to the cross-border trade between Canada and the United States as these companies leverage supplier networks on both sides of the border to optimize global supply chain operations. Sourcing from the North American market creates efficiencies and fosters innovation between the United States and Canada. Canada’s leading processing sectors are: meat and poultry processing (US$22 billion); dairy product manufacturing (US$12 billion); beverage manufacturing (US$9 billion); grain and oilseed processing (US$9 billion); and baking (US$8 billion).

Post reports that although, there are 6,500 food and beverage processing establishments in Canada, less than 1% of the firms are larger companies with over 500 employees or more. An estimated 94% of Canadian food processors maintain fewer than 99 employees. U.S. firms evaluating the market may face a trade-off between working with larger food processors (that have significant pricing power within the consolidated market landscape) and with smaller food processors (that may require U.S. businesses to cobble together relationships with multiple companies to reach the same sales volume/value). Aside from these challenges, processors must be prepared to distinguish their product and their company from their competition in order to establish long term sales in Canada.

For small- to medium-sized Canadian manufacturers, many will source their ingredients from specialized Canadian food ingredient brokers or distributors. If their production volumes are high enough, some Canadian manufacturers may be able to import directly from U.S. growers or exporters. U.S. firms, particularly small- to medium-sized firms, are recommended to partner with a Canadian ingredient broker or distributor. In most instances, a food distributor would import, take title of, and warehouse the product. The ingredients would be part of the distributor’s catalog of offerings. Most distributors are not in the business of pioneering products or finding new manufacturing or industrial accounts for U.S. firms. There are a select number of ingredient brokers that are prepared to serve as a sales force for ingredient products and to pioneer ingredient products to established manufacturers and industrial accounts.

Best Product Prospects

Best prospects for U.S. exporters in this sector include most of the materials that are used to create retail and foodservice products: Although no data exists on the total value of imported inputs / ingredients destined to the Canadian food processing sector, exports indicate that both semi-raw products, selected fresh fruits and vegetables, nuts, and other products and processing inputs not readily grown in Canada are in high demand and continue to be largely imported from the U.S.