Canada Country Profile

Market Overview:

Euromonitor reports that Canada’s economy is growing sluggishly as the energy sector struggles. Temporary shutdowns in oil production reduced output in 2016. The Canadian economy’s performance reflects a highly imbalanced regional situation. Real Gross Domestic Product (GDP) grew by 1.3% in 2016 after gains of 1.1% in 2015. Growth of investment in non-energy activities provides support. Increased spending on infrastructure will be another driver. Exports will continue their decline, though a weaker currency and a stronger U.S. economy should eventually reverse the contraction. Annual rates of growth should reach 2% by the end of the decade.

Canada’s population is growing at a decelerating pace, reaching 35.3 million in 2016. The country’s median age is also rising. It was 40.5 years in 2015 – 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. Approximately 20% of Canada’s population is foreign-born and roughly two-thirds of the foreign-born (regardless of when they entered the country) live in Canada’s three largest metropolitan areas – Toronto, Montreal and Vancouver. 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% of total population will be over 65 years of age compared with 6.1% in 2015.

In 2016, U.S. agricultural exports to Canada totaled US$20.2 billion, a modest decline of 4% but enough to allow China to regain its status as the top destination once again at US$21.4 billion. Canada accounted for over 15.9% of total U.S. food and agricultural product exports of US$134.8 billion. Canada remains the top market for U.S. exports of consumer-oriented products. U.S. exports of these products reached a US$16.1 billion in 2016, a decrease of only 4%.  

That amount is more than 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 2% but still totaling more than US$12.8 billion in 2016, again more than twice the value of Mexico. Top U.S. processed food exports to Canada in 2016 included non-alcoholic beverages, food preparations, snack foods, chocolate and confectionery, condiments and sauces, prepared/preserved meats, pasta and processed cereals and prepared/preserved seafood.  

The Office of Agricultural Affairs (OAA) in Ottawa hereinafter referred to as “Post” advises us that the U.S. and Canada maintain the world's largest bilateral trading relationship. During 2016, two-way merchandise trade of all agriculture and manufactured goods was valued at US$543.9 billion. For the 50 U.S. states, on average 35 of them count Canada as their number one export market. Comparatively, total bilateral agricultural products trade between the U.S. and Canada reached US$41.7 billion in 2016, translating to approximately US$114 million of agricultural products crossing the border daily, and both ways, about US$4.7 million per hour.

Trade with Canada is facilitated by proximity, common culture, language, similar lifestyle pursuits, and the ease of travel among citizens for business and pleasure. U.S. products have an increased competitive edge over goods from other countries as the result of the North American Free Trade Agreement, NAFTA. Since 1993, all U.S. exports to Canada have grown by 201%. 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 foods. 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 critical to a successfully launching a product here and in any foreign market.

In 2015, the U.S. dollar averaged 28 cents more against the Canadian dollar and in the last 11 months of 2016 (January-November) the U.S. dollar traded on average at US$1 to CN$1.32, increasing the cost of U.S. products. In the coming year, Canadian economists are forecasting the Canadian dollar will remain depressed. Despite, the strength of the U.S. dollar, Canadian buyers continue to rely on U.S. growers and food processors. As a result, buyers are working closely with their U.S. suppliers as they find innovative strategies to maintain U.S. supply in Canada. During this time, U.S. exporters are encouraged to select those items/stock-keeping units (SKUs) that can effectively compete in the marketplace and establish an effective marketing plan that will help to encourage long-term Canadian sales.

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. There are also 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$40.3 billion in 2016. That ranks Canada as the 11th largest foreign market in the world. That also represented a growth rate of nearly 10% or over US$3.6 billion from 2012. They also forecast growth in this category to reach over US$46.1 billion by 2021. This is an increase of US$4.4 billion, and a period growth of 10.6% from 2016. High growth categories in the forecast include savory snacks, sweet biscuits, snack bars and fruit snacks, confectionery, baby food, rice, pasta and noodles, dairy, and sauces dressings and condiments.  

Euromonitor reports that in 2015 grocery retailers registered 2% current value growth in Canada, reaching C$140.3 billion. Overall grocery retailing in Canada was active. One factor driving growth was the growing focus on health and wellness, which supported value sales. Retailers struggled to provide consumers with a distinctive consumption experience as the competition intensified.

Wal-Mart Canada is the leader in modern grocery retailers, due to its dominance of hypermarkets, in which it held a 69% value share in 2015, up 2% from 2014. The company keeps converting its mass merchandiser formats into hypermarkets, adding grocery shopping into its stores, as the hypermarkets format has proven successful in the Canadian market. Wal-Mart Canada’s aggressive expansion, particularly in hypermarkets with its Walmart Supercenter banner, establishes it as the one single critical driver for the overall growth of modern grocery retailers. Meanwhile, the company has remained true to its core value of offering low prices, also with a price matching policy.

While this remains true, Wal-Mart is increasingly adding higher-priced ranges, such as its private label Our Finest (relative to its economy range Great Value), which competes in growing categories such as Greek yoghurt and fine chocolate. Trade sources believe that this move is not a signal of any major shift in the company’s competitive strategy, but rather an initiative to capitalize on the customer traffic it has been successfully gaining, and to meet the needs of a wide array of consumers, particularly those who frequent Walmart stores and do not shop elsewhere for groceries. However, the price point of its “premium” range is not as high as other premium brands, such as the similar President’s Choice range from Loblaw.

Sobeys, owned by Nova Scotia-based Empire Co, experienced a significant transition towards the end of 2015. Sobeys’s corporate activity extends beyond the acquisition of Safeway in 2013 and Co-op Atlantic in 2015. In 2015, Sobeys and LoyaltyOne, owner and operator of the Air Miles reward program, expanded their relationship in the province of Ontario. Beginning in March 2015, shoppers were able to earn Air Miles reward miles at Sobeys, Sobeys Urban Fresh and Foodland stores in Ontario. The expansion also included the launch of the Air Miles programs instant redemption feature, Air Miles Cash, for in-store savings at the checkout, making Sobeys the loyalty programs first Canadian grocery sponsor to issue reward miles across Canada.

In May 2015 Co-op Atlantic sold its food and fuel wholesale and retail businesses to Sobeys. The deal could bolster the position of Sobeys by making it a bigger supplier to grocers in the region, giving it more influence in determining pricing and product offerings. Co-op Atlantic’s exit from food and fuel is expected to help the organization stem the ongoing financial challenges in an increasingly competitive retail food and fuel market.

Metro also has a clear and consistent message as “best seller of local and fresh products” in its stronghold of Quebec. With the competition in Quebec intensifying, the company was very active in maintaining its share, with the latest move being to acquire La Premiere Moisson, which is growing rapidly. It also ventured into ethnic grocery retailing by taking over Marché Adonis in 2011; a move similar to Loblaw’s bid for T & T, growing these stores with significant investment. Moreover, Metro benefited from the growth in discounters, and converted a handful of underperforming conventional supermarkets into its discount banner, Food Basics, at the beginning of 2015.

Whole Foods remains the largest player in the organic and natural food arena. In 2014 the company opened two more stores in Canada, and in 2015 it announced its plan to open three new stores (expected to open in 2016 and 2017). Whole Foods has a nationwide presence, and has the highest brand recognition in terms of natural grocery stores. The company is committed to expanding in Canada and elsewhere, even though the competition in both the specialty and general grocery businesses is intensifying and eating into margins. The high-end organic grocer has tried lowering prices in an effort to attract traffic and compete with mainstream grocery players such as Wal-Mart Canada. The ongoing trend of interest in health and wellness in Canada also helped the growth in sales for Whole Foods.

According to Euromonitor hypermarkets registered the fastest growth of 9% in current value terms in 2015. On the one hand, Walmart showed aggressive expansion in Canada in 2015, showing consistent strong growth in the number of outlets. It also planned to add 29 new Walmart Supercenter stores in Canada, which is expected to cost C$340 million and create 3,700 construction jobs, 1,000 in-store jobs and 300 new positions at distribution centers in 2015. This expansion includes 13 former Target Canada stores, which Walmart bought after Target exited Canada, as well as a distribution center in Cornwall, Ontario. Target Canada’s exit left a large amount of real estate unoccupied in a weak macroeconomic environment, presenting Walmart with the chance to purchase a number of stores at a discount. On the other hand, other hypermarket operators, such as Loblaw (operating the Dominion, Atlantic Superstore, Loblaw’s and The Real Canadian Superstore brands) showed a relatively stable performance, as the channel became more competitive and saturated.

Euromonitor reports that Canadian discounters continued to see growth within grocery retailers in 2015. The consistent slow economic performance helped the development of the discounter’s channel, as many Canadian consumers shifted their shopping habits in favor of the lowest-cost options. As the economy improved slowly, many consumers returned to their pre-recession habits, but discounters managed to hold onto many consumers who became accustomed to the very low prices offered.  

Major companies have acknowledged this trend. For instance, Metro benefited from the growth in discounters, and converted a handful of underperforming conventional supermarkets into its discount banner, Food Basics, at the beginning of 2015. Sobeys has yet to expand Freshco outside of Ontario; after its Safeway integration is finished, increasing Freschco’s geographic footprint should see a higher priority. Canadian consumers are expected to increasingly look for discounts and promotions as the key incentive to shop. This will contribute to the growing popularity of discounters, led by banners such as No Frills and Maxi, Food Basics and Super C, and Freshco, from the three major grocers in the market respectively – Loblaws, Sobeys and Metro.

Grocery retailers are also facing competition from non-grocery channels such as chemists/pharmacies. For example, in order to expand the product variety of Shoppers Drug Mart, a fresh food pilot was launched in September at six Toronto stores. To make room for foods such as fruit and fresh meat, underperforming categories such as photo-finishing and books were removed in some cases, and seasonal goods and magazines were relocated. Putting fresh food into Shoppers Drug Mart outlets, many of which are in urban locations, will help its new owner, Loblaw, to penetrate big-city neighborhoods where it is difficult and expensive to operate large-format grocery stores. Products from Loblaw’s President’s Choice private label range are also being added to Shoppers Drug Mart. There are plans for President’s Choice to eventually replace the Simply Food and Nativa Organics private label brands from Shoppers Drug Mart, since President’s Choice has a wider range of products, a better profile and a different price format.

Convenience stores and forecourt retailers continue to face strong competition from other channels such as supermarkets and hypermarkets, which provide consumers with a wider product profile, and now also a better price offering. Convenience stores and forecourt retailers were previously able to capture traffic through having extended opening hours, but now as grocery stores expand their opening hours and the lines between channels have begun to blur, for example even pharmacies have started selling food, convenience stores and forecourt retailers have had to adapt. For example, Couche-Tard has changed the focus of its stores to put an emphasis on offering consumer foodservice options such as coffee in the mornings and a variety of snack foods and beverages in the evening. Today, Couche-Tard stores have a large selection of fresh coffee, grilled hotdogs, sandwiches and pastries, as well as rows of packaged snack foods.

Another challenge to convenience stores is quick-serve restaurants such as Tim Horton’s, as well as bakeries and cafés. One way in which convenience stores can fight back is through co-branding deals with restaurants, which allow restaurants that would ordinarily be competitors to sell their products inside the convenience store. Examples of co-branding include Tim Horton’s coffee counters in Esso’s On the Run convenience stores, Mr. Sub outlets in Needs convenience stores and A&W burger stands in Petro-Canada stores. This trend is found in both forecourt retailers and convenience stores. It provides benefits to both participating parties, as it could attract more consumers and stimulate impulse consumption in stores.

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:

Restaurants Canada, the national association for the industry estimates total food service sales at the end of 2016 will reach to C$78 billion (US$58 billion), an increase of 5.3% from 2015. The industry is important to Canada’s economy as the sector accounts for 4% of the national GDP and employs 1.2 million Canadians. For many young Canadians, the food service sector offered them their first job experience. There are slightly over 94,000 food service units across the country with 18 million visits to restaurants by Canadians per day. The expected growth for the industry in the coming years is promising as steady growth is predicted.

Both Ontario and Quebec combined represents 57% of the total food service sales, with C$23.5 billion (US$17.4 billion) and C$10.7 billion (US$8 billion) respectively for each province. Combined, these two provinces reflect the largest share of the market. In the last 12 months, British Columbia and Ontario posted increased revenue sales of over 5%, leading the country in sales growth.

Canada attracts over 16 million international visitors from around the world with 75% of them from the U.S. The growing number of visitors help fuel the growth of food service in this sector. The Hotel Association of Canada reports there are 8,178 hotels, motels and resorts that generated revenues of close to C$17.5 billion (US$13 billion) in 2015 and accommodation food service sales reached C$6 billion (US$4.5 billion). The weak Canadian dollar has caused more Canadians to travel domestically and international tourists to visit popular Canadian destinations.

In the first six months of 2016, visitors from the U.S. rose by 10.7% and those from other countries rose by 8.4%. As a result, tourism spending on food and beverage services increased to C$6.3 billion (US$4.6 billion). With the Canadian dollar expected to remain depressed, industry specialists are forecasting 2017 will be a healthy year for Canadian tourism. Some of Canada’s most profitable hotel chains are, Four Seasons Hotels and Resorts, Fairmont Hotels International, Starwood Hotels & Resorts Worldwide, Marriott Hotels of Canada (acquired Delta Hotels), Wyndham Hotel Group, Invest REIT, and Best Western International.

Post reports that Canada is home to 94,292 restaurants, bars and caterers who generate C$60 billion (US$45 billion) in annual sales. The 2015 growth rate in this segment was 4.3%. 56% of the establishments are independents while 44% are franchised or part of a national or local corporate chain. Restaurants Canada reports chain restaurants command 79% share of the dollar revenues, a percentage that has steadily risen in the last five years with independents representing 21% of the dollar share. Lunch continues to be the meal occasion most often consumed away from home, accounting for 25% of the restaurant visits. More recently, snacking has developed into an eating occasion for consumers away from home. The rise in independent and chain coffee establishments is partly responsible for creating an ideal venue for Canadians to meet friends for a quick snack occasion and in some circumstances even serve as a work space for a number of small businesses. This in turn has spurred the demand for lite and healthy food service options.

Quick-service restaurants (QSR) continue to show growth in this commercial segment as they are the most popular units with a 5.1% increase in 2015. The fast casual dining format, is a bit more upscale then other QSR units as they provide a high-quality menu with healthier and fresher choices to the wellness conscious consumer that is willing to pay more for their meals. Market research firm, Techonomic reports this sector grew by 8.4% in 2015 and is expected to continue to grow in the coming years. Certain formats, such as the pizza fast-casual have done exceedingly well with a growth rate of 121% in the last 12 months. Online ordering and takeout meals have traditionally been dominated by take away franchise operations, such as QSR pizza delivery and fast food chains, accounting for 28% to 46% of these types of restaurant sales. However, with the introduction of UberEats in Toronto last December, more and more restaurants, including fine dining establishments are starting to cash in on the home delivery segment.

Another factor changing the restaurant industry landscape is the growth in home-meal replacements (HMR). HMR sales have grown by 17% in the last five years as reported by trade journal, Foodservice and Hospitality. The lines between the grocer and restauranteur continue to blur as more and more retailers become ‘grocerants’, and restauranteurs begin to offer take- away meals and even retail products, such as consumer packaged bar-b-cue sauces and condiments for sale in their units.

Post advises that both domestic and imported food products in the Canadian market may route directly to foodservice 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 Hotel, Restaurant, and Institutional (HRI) accounts. The two largest and national foodservice 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.

The Canadian food service industry generally prefers to use Canadian product whenever possible but it is open to new and innovative products whether local or imported. The food service markets in eastern and western Canada have different orientations when it comes to import sourcing. In eastern Canada the product sourcing is a combination of Europe and the U.S. with a strong U.S. preference. In the west there is little orientation to Europe and a much closer relationship with U.S. market sourcing.

U.S. dominance in the Canadian market can be attributed to several factors: Proximity (90% of the Canadian population lives within 100 miles of the U.S. border), similar culture, eating habits and food trends, common restaurant and hotel chains, generally higher levels of food production efficiency in the U.S., and NAFTA, which resulted in the elimination of import duties for most qualifying products.

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. Voluntary sodium reductions are taking place in processed products of all kind to take advantage of this trend. 

Food-Processing Sector:

At last report Post indicated that opportunities exist to expand U.S. food product sales to Canada's food and beverage processing sector. In this approximately US$65 billion industry, demand is increasing for many U.S. raw and processed horticultural products, other processed ingredients and food flavorings.  Food and beverage processing is an important contributor to the Canadian economy. It employs approximately 265,600 workers. In 2011, Agriculture and Agri-Food Canada (AAFC) estimated that the Canadian food and beverage processing industry supplied approximately 80% of the processed food and beverage products available in Canada. Beverage processing includes soft drinks and bottled water manufacturing, wineries, breweries and distilleries.

Canadian food 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.

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 that 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 industries 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, food 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 foodservice products. Mixes and dough’s 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 find success within 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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