Canada Country Profile

Market Overview:

According to Euromonitor Canada’s economy will slow, growing at a moderate pace in 2018. Private consumption, fueled by cheap credit, will be a major driver. A rebound in energy production should boost growth of related industries while a cheaper dollar provides modest support for exports. Growth of real Gross Domestic Product (GDP) will average about 1.7% in the medium term.

Several factors add to the uncertainty of the Canadian economy’s future performance:

  • These include the renegotiation of NAFTA
  • US policies on protectionism and climate change
  • The timing and form of “Brexit” the U.K’s exit from the European Union
  • Economic activity is shifting from the energy to non-energy sectors but the necessary structural changes will still complicate Real GDP which will grow by 2.3% in 2018 after gains of 3.2% in 2017

Canada’s population is growing at a decelerating pace, reaching 36.6 million in 2017. The country’s median age is also rising. It was 41.0 years in 2017 – up from 36.8 years in 2000. Immigration accounts for more than 50% of Canada’s population gains and will be responsible for virtually all growth in the labor force in the future. Canada has the highest immigration rate of any major economy. As birth rates decline, Canada is also experiencing a moderate-to-rapid ageing process. In 2030, 22.9% of total population will be over 65 years of age compared with 17.4% in 2017.

In 2017, U.S. agricultural exports to Canada totaled nearly US$20.5 billion, a modest increase of 1% but enough to allow it to once again become the top U.S. export destination. Canada accounted for nearly 15% of total U.S. food and agricultural product exports of US$138.4 billion. Canada remains the top market for U.S. exports of consumer-oriented products. U.S. exports of these products reached a US$16.2 billion in 2017, the same as the prior year.

That amount is nearly twice that of the #2 consumer food export market Mexico. This also accounted for nearly 80% of total U.S. food and agricultural product exports to Canada. Canada is also the top market for U.S. processed food exports, a decline of 1% but still totaling more than US$12.8 billion in 2017, but more than twice the value of Mexico. Top U.S. processed food exports to Canada in 2017 included:

  • Food preparations
  • Non-alcoholic beverages
  • Snack foods
  • Chocolate and confectionery
  • Prepared/preserved meats
  • Condiments and sauces
  • Pasta and processed cereals
  • Dog and cat food.

Since 1993, the U.S. agricultural export total has grown by 286%. Canada’s grocery product and food service trades have been quick to seize opportunities under NAFTA, which has permitted the expansion of sourcing from the U.S.

Much of U.S.–Canada agricultural trade is influenced by a substantial amount of intra-industry trade, particularly with value-added products. The elimination of import duties under the trade agreement has resulted in significant gains for U.S. consumer-ready and food service products. Although, as similar as the U.S. and Canada are, there are differences that exporters need to recognize. Understanding the nuances of a marketplace is as critical to a successfully launching a product here as it is in any foreign market:

  • There are also tariff rate quotas for certain products, particularly dairy, which make it a challenge for U.S. exporters to enter the market
  • Often, because of the dominance of three large grocery retailers it is difficult to reach them without the use of a broker as intermediary
  • For smaller U.S. exporters this is a particular challenge due to the increased cost
  • This also leads to higher landed costs, particularly on smaller shipments
  • There are distinct differences in standard package sizes, chemical residue tolerances and nutrition labeling
  • Conversion of measurements to metric system is required and standard Canadian English is required on the labels which also need to be bilingual (English & French) for products in retail
  • A sophisticated selection of product is already available in the Canadian market, which makes for intense competition on added value and costs.

Retail Sector:

According to Euromonitor retail sales in the packaged food market reached US$41.3 billion in 2017. That ranks Canada the 11th largest foreign market in the world. That also represented a growth rate of nearly 10% or over US$3.7 billion from 2013. They also forecast growth in this category to reach over US$45.2 billion by 2022. This is an increase of US$4.4 billion, and a period growth of 21.3% from 2017. High growth categories in the forecast include:

  • Sweet biscuits, snack bars and fruit snacks
  • Spreads,
  • Edible oils,
  • Dairy products,
  • Processed fruit and vegetables,
  • Baby food,
  • Rice pasta and noodles,
  • Savory snacks,
  • Sauces dressings and condiments.

Post reports that at the end of 2016, Statistics Canada reported total retail sales amounted to US$397 billion, an increase of 3.5% from the previous period in 2015. Food and beverage sales in Canada contributed US$86 billion, and retail food sales amounted to US$70 billion representing 17% of the retail landscape.

The Office of Consumer Affairs of Canada reports that in the last five years the retail landscape has changed considerably, a shift from the independent to chain stores. In addition, there has been consolidation by two major retail chains acquiring regional grocers and drug retailers. More recently, the strong U.S. dollar has placed pressure on all food suppliers to remain competitive in the market.

In 2016, approximately 58% of food sales were sold through traditional grocery stores. This channel is primarily dominated by the ‘Big Three’4 – Loblaws, Sobeys and Metro. However, non-grocery retailers, particularly Costco and Walmart have gained market share in the last five years as they now account for 20% share of the retail grocery market. The discount retail channel has grown since the recession, whereby today 36% of all grocery items are sold either through this channel or through sales promotions, compared to 27% in 2010. Each of the Big Three grocery retailers maintains discount banners, like Loblaws’ No Frills and Sobeys’ FreschCo. This trend is predicted to grow as even discount merchandisers as Dollarama are offering more food staples to their customers.

Although, Loblaw, Sobeys and Metro continue to be the market leaders, there are regional retailers that should not be overlooked by a U.S. exporter. Getting a product listed in one of the regional partners may be more attainable in establishing a foothold in Canada, rather than expending efforts to get listed in a national chain. For example, the Overwaitea Food Group in Western Canada with 145 stores in Alberta and British Columbia has made a significant headway in providing new product offerings such as introducing 7,000 Asian food products to their customers. Longo’s in the Greater Toronto Area, owned by the Longo Brothers Fruit Markets has gradually expanded in the last few years offering a better shopping experience for their customers by equipping several of their 26 stores with a full-service restaurant. A few of the ethnic retailers have grown from mom and pop family stores to upscale operations, such as Nations Fresh Food Market with six locations in Toronto, and a one more store is slated to open up just North of Toronto. Their flagship store that opened in 2014 is located in downtown Hamilton and covers 55,000 square feet another one is slated for Toronto in 2017.

Post reports that imported food products into the Canadian marketplace may be sold directly to the retailer or to importers, brokers, distributors and wholesalers. A significant amount of U.S. agricultural and food products are shipped as an intra company transfer to the Canadian corporate entity as a branch or subsidiary operation. All the larger Canadian retail chains are involved in wholesaling and retailing operations. They maintain sizable distribution centers strategically located across Canada. These distribution centers not only supply their own store outlets but may also supply to franchised stores and independent grocers.

Importers, distributors and some wholesalers can sell a specific category or line of products to the chain distribution centers, as these centers will breakdown the quantities to ship to their individual stores. In addition, as in the U.S., some brokers, distributors, and importers sell directly to specified chain units by providing a direct store delivery. However, the product and designated stores must be approved by the chain’s head office.

Larger chains have the ability to procure directly from the foreign supplier, particularly for large quantities of perishable products, such as dairy, produce, meat, poultry and some packaged goods. Some retailers, such as Loblaw Co. Ltd. and Sobeys Inc., employ procurement offices in the United States for this sole purpose and educate U.S. suppliers to meet all government and store regulations.

Both retailers and suppliers are seeking efficiencies to reduce operational and labor costs associated with their operations. As in other business sectors, the category buyers of larger retailers are looking to reduce their list of food suppliers they work with and prefer working with representatives that carry an extensive line of products offering a range stock keeping units (SKUs). In response to this trend, the broker/distributor industry is making an effort to consolidate products while introducing unique novel products into the market.

Larger brokerage/distribution firms are acquiring smaller specialty brokers/distributors either to offer national coverage or enhance the company’s product offerings. For example, U.S. firm, UNFI in Toronto, a leading distributor of natural, organic, and specialty retail products acquired food service distributor specializing in more hard to find specialty products. Brokers and distributors focus on selling to the appropriate category buyer at each head office and larger brokerage or distribution firms with established accounts will offer added services to their food manufacturers, like merchandising store checks. Merchandising staff will help to monitor the placement and turnover of the products, as well as help negotiate sampling opportunities with the store chain.

In the last two years, there has been growth in the small independents retailers with a 4.2% annual growth as shoppers are more likely to find specialty food products in this channel.

Best Prospects:

Canada's wholesale, retail, and food service industries watch and follow the trends in packaged and processed foods in the U.S., anticipating they will soon have traction in Canada. While there are differences in the consumption patterns of selected food items in the two countries, there is a growing demand in Canada for innovative value-added foods that are market-proven in the U.S.

Best product prospects for U.S. exporters in this sector include:

  • Sugar free and low sugar as well as low sodium foods, functional and super foods
  • Organic products, and gluten free items,
  • Pre-packaged foods with low levels of trans-fats, low glycemic diet food, functional/superfoods,
  • Low calorie snack foods and what is known as “clean diet” foods, which are those in which the ingredients can be easily pronounced by the common consumer.
  • A trend on buying “local foods” is also taking place with emphasis on supporting the local economy. 

Food Service Sector:

Euromonitor reports that consumer food service in Canada continued to record steady growth in 2016. The industry’s performance was generally in line with the weak economic climate in Canada. Sales benefited from busy consumer lifestyles and a strong premiumization trend. Consumer food service also continued to profit from the introduction of new healthy ingredients and flavors. Growth, however, was constrained to a certain extent by rising economic concerns, a weak Canadian dollar and a high debt-to-income ratio for many consumers. Recent trends in the foodservice market in Canada include:

  • Millennials drive demand - Millennials are perceived as more adventurous with their food choices in comparison to baby-boomers, often seeking distinctive taste experiences and superior ingredients. Millennials care about the source of ingredients and their quality and taste. They prefer fresh local food.
  • Leading chains benefit from acquisitions and takeovers - Competition between the key foodservice players in Canada intensified in 2016 as a result of takeovers and acquisitions. Leading players such as Cara Operations, MTY Food Group and Restaurant Brands International continued to benefit from new acquisitions, enabling them to extend their presence and achieve both wider national and international penetration.
  • Independents continue to struggle as competition intensifies - Increased competition in the industry drove less profitable independent restaurants out of business.
  • Growth in consumer food service in 2016 was largely driven by chains, with many independents seeing overall sales stagnate as they struggled to compete. Chained players benefit from stronger economies of scale, with this enabling them to cater for consumer demand for premiumization without heavy price increases.

However, there were some channels in which independents outperformed chains. Independent outlets can easily shift towards higher quality, healthier and more ethical ingredients so as to appeal to the demanding consumer. They are also often preferred by millennials thanks to their greater individuality, authenticity and good service.

Euromonitor reports that a combination of factors is expected to contribute to the Canadian consumer food service industry’s modest growth over 2016-2021. As the economy is predicted to continue to grow over the near to medium term, resulting in higher employment and disposable incomes, consumers will likely spend more money on eating out. Demand for convenience will also be supported by the further adoption of digital ordering and payment platforms. Growth is likely to be linked to premiumization. It is expected that consumers will become increasingly willing to pay more for high-quality, healthy and ethical ingredients.

Post advises that both domestic and imported food products in the Canadian market may route directly to food service establishments but a number of the accounts filter through importers, brokers, food distributors, wholesalers and/or re-packers. These types of distributors are selling directly to the HRI accounts. The two largest, national food service distribution chains in Canada are Gordon Food Service and Sysco. However, there are a number of regional food service distributors that offer specialty products, such as meatless or organic food products. Large HRI chains may choose to purchase directly through customized growing agreements, contract purchasing, central procurement office or from a chain-wide designated distributor.

Best Prospects:

Best prospects for U.S. suppliers in the HRI 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. To take advantage of this trend, voluntary sodium reductions are taking place in processed products of all kind. 

Food-Processing Sector:

In 2016, the food and beverage manufacturing industry in Canada’s sales reached US$84.8 billion. In terms of value of production, food and beverage processing is the second largest manufacturing industry and it accounts for 2% of GDP. The industry is the largest buyer of agricultural production and supplies 75% of the processed food and beverage products available in Canada. The food and beverage processing is furthermore the largest manufacturing employer and employs approximately 246,000 workers. Within the food and beverage processing industry, meat product manufacturing is the largest segment with approximately one quarter of the market share, followed by dairy product manufacturing.

Canadian food and beverage processors utilize both raw and semi-processed ingredients from imported and domestic sources. No data exists on the total value of imported ingredients destined for the Canadian processed food and beverage industry; however imported ingredients are vital inputs to Canadian manufacturers. Imported ingredients cover virtually all food categories. For example, whole raw products such as strawberries, semi-processed products such as concentrated juices and fully prepared products such as cooked meat products have proven to be essential to processors in Canada. Some ingredients, such as tropical and sub-tropical products, are entirely imported while substantial imports of numerous other products may also be required. These products include spices, food manufacturing aids and flavorings. For example, 90% of the Canadian sugar supply is imported and 40% of the demand for flour, edible oils and breakfast cereals is supplied by imports.

Recent trends of consolidation of the Canadian food industry has eliminated numerous intermediary procurement processes:

  • Most food and beverage processing companies now prefer to import directly. Buying direct reduces handling, expedites shipments and generally reduces product costs, provided volumes are large enough to benefit from a full truck load or consolidated shipments
  • Small volumes (less than a truckload) are usually procured locally from a Canadian wholesaler, importer, broker or agent
  • Procurement methods do vary from company to company and from product to product
  • However, regardless of the method of procurement, all products must be in alignment with government import regulation and meet minimum Canadian standards

Consolidation of the Canadian retail and food service industry has meant that U.S. food and beverage processing companies face increasingly demanding buyers with significant market power. Aside from the continuous pressure on margins, processors are being asked to assist retail and food service companies to help define points of differentiation. New products that truly address specific consumer needs are the best means for processors to stave off the inevitable demand to produce private label product for retail and food service operators.

Processors should be aware that there is a heightened interest in food safety and information about ingredients including the origin of major ingredients and processing methods. Food service and retail operators are also seeking longer shelf life to deal with both the consumer trend toward fresh products and the geographic challenges of distribution in Canada. Opportunities are increasing in Canada for export ready processors able to meet the rapidly evolving consumer demands and having strong logistics capabilities.

Best Prospects:                                           

Best prospects for U.S. exporters in this sector include most of the materials that are used to create retail and food service products:

  • Mixes and doughs for beverages and bakeries, processed and fresh fruits and vegetables, flavorings and formulas and bulk ingredients of meats and dairy which enter into the processing of finished products, especially if they are healthy and convenient are at the top of the list
  • Dairy and poultry products which are under specific quotas are more difficult to succeed with in this market, especially if the importer is not in the food processing business and is allocating their quota to intermediate users
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