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Canada: a market for high-value consumer-oriented food

Canada is major market for high-value consumer-oriented products. U.S. exports of consumer-oriented products to Canada hit $17.1 billion in 2020. This segment of agricultural and food products includes snack food, breakfast cereals, sauces, confectionery, pet food and wine, spirits, beer, and soft drinks. Canada’s 2020 food service sales amounted to $49 billion ($55 billion CAD), a 34 % decrease from 2019.

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A land of vast distances and rich natural resources, Canada became a self-governing dominion in 1867, while retaining ties to the British crown. Canada gained legislative independence from Britain in 1931 and formalized its constitutional independence from the UK in 1982 when it passed the Canada Act in 1982.

Economically and technologically, the nation has developed in parallel with the US, its neighbor to the south across the world’s longest international border. Canada faces the political challenges of meeting public demands for quality improvements in health care, education, social services, and economic competitiveness, as well as responding to the particular concerns of predominantly francophone Quebec.

Canada also aims to develop its diverse energy resources while maintaining its commitment to the environment.

Canada economy indicators

Canada’s three largest cities – Toronto, Montreal and Vancouver – are in the provinces of Ontario, Quebec, and British Columbia respectively, accounting for 75% of national economic activity and population.

Approximately 20% of Canada’s population is foreign-born. Canada has the highest immigration rate of any major economy; over 450,000 people from 175 countries immigrated to Canada in 2020. The top foreign countries where immigrants are originating from are India, China, Philippines, Nigeria, and the United States. Declining birth rates and an increase in life expectancy will push the median age up from 41 to 45 over the next 20 years (up from 37 years in 2000).

In 2020, food and beverage processing sales reached $91.7 billion with food processing accounting for 90% of total sales and beverage processing accounting for the remaining 10%. The leading food manufacturing sectors were meat processing ($22.9 billion) and dairy product manufacturing ($13 billion).

After transportation, food processing ranks as Canada’s second-largest economic sector. Across
Canada, 6,500 food and beverage processing establishments generated $84 billion of total food and beverage manufacturing sales in 2020 including $9 billion for beverage processing.

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5 Retailers commands 78% of the market

Canada’s food and beverage retail sales reached $109 billion in 2020, representing a 10% increase over 2019. Canada’s mature, consolidated market is dominated by five retailers (Loblaw, Sobeys, Metro, Costco, and Walmart) that commands 78% of the $109 billion market. Independent and regional retail chains’ growth over the last decade has prompted supermarkets to expand ethnic product ranges, form joint ventures with ethnic specialists, and develop new retail concepts. Regardless of size, Canadian retailers rely on imported food to fill their shelves.

The Canadian food market displays a dichotomy of demand: one for low priced quality foods and the other for premium and specialty food items. Companies offering natural, organic, or specialty foods tend to create product demand and to generate sales through smaller, independent retailers. COVID-19 accelerated the adoption of retail grocery e-commerce, driving increased use of delivery and curbside pickup. Research firm, Mintel Research revealed 22% of Canadians had bought their groceries on-line in 2020. In responding to the above-mentioned trends, retailers are making sizable investments to support the new sales format. Three leading grocery retailers announced new ‘supplier fees’ to offset capital investments, prompting federal politicians and food processors to call for a grocery industry ‘code of conduct.

CPG in Canada

Overview of the Canadian Foodservice Landscape

Canada’s 2020 total food service sales amounted to $49 billion, representing a 34% decrease from 2019. Food service sales are not expected to return to 2019 levels until 2022. The industry comprises of two major segments: Commercial and Non-commercial subsectors.

The commercial food service sub sector includes quick-service restaurants, full-service restaurants, caterers, and drinking establishments, representing 80% of total food service sales. In 2020, Statistics Canada reported commercial sales amounted to US$41 billion.

The non-commercial subsector, mainly driven by the tourism industry includes hotels and motels, health care facilities, universities, grocery retailers offering hot prepared foods to go and other food service operations reached over US$8 billion in 2020.

The Commercial food service sub-sector drives the market with sales of US$41 billion for 2020. Quebec was the hardest hit province with a 32% decrease in annual sales. All other provinces saw negative food service sales growth in 2020. Rising menu prices and pandemic restrictions checked consumer spending and food service sales in 2020. Overall, provinces with the highest number of confirmed COVID-19 cases generally saw the largest declines in economic activity.

Sales growth in the non-commercial food service segment was down in 2020 by 40% from the previous year due to a reduction of food service operations in institutions. For example, international travel dropped by 52% leaving hotels virtually empty of customers. Total non-commercial food service sales in Canada for 2020 reached C$11 billion (US$8b), accounting for 20% of the food service industry. The sector consists of hotel/motel food sales, institutional, retail onsite, and other food service institutions, e.g., health care facilities.

Strong retail food service sales are forecast to continue as more convenience stores and grocery stores compete with restaurants to offer prepared hot meals and snacks convenient and affordable for consumers.

Market Trends in Foodservice Sector

In 2019, on-premise orders accounted for more than half of total restaurant sales. In April 2020, they dropped to 4%. The pandemic dramatically changed consumer spending behaviors.

The pandemic led to a major increase in sales through off premise channels. By the end of April 2020, the drive-thru channel accounted for nearly half (47%) of all revenue at quick-service restaurants.

Meanwhile, takeout and delivery generated 27% and 24% of total quick-service restaurant sales, respectively. Drive-thru sales were 16% higher in April 2020 than the previous year, while delivery sales more than doubled during that same period. Full-service restaurants saw a 68% increase in takeout sales, which surged to 28% of total sales.

Imported CPG in Canada

Best products and Imports

As part of Canada’s growing health consciousness, consumers are increasingly wary about the food and beverages they consume, particularly in terms of the quality of ingredients and the incorporation of unwanted, unnatural, or artificial agents.

Moreover, as consumer awareness of the need for sustainably produced and packaged products increases, they are more inclined to seek organic options. These two trends are particularly relevant to a younger demographic with increasing spending power.
In the quest for healthy eating, there is increased demand for more plant-based protein options. Research by Restaurants Canada shows that 63% of Canadians aged 18 to 34 and 42% of those 50 years of age or older are at least slightly interested in ordering plant-based burgers and sausages.

According to Mintel research, 75% of consumers would like to include additional plant-based protein products in their diets. Today’s consumers are trending toward reducing the amount of red meat they consume.

Restaurateurs are always looking for products that save them time and money and ultimately increase profit margins. As minimum-wages have recently increased across Canada, restaurateurs have become more price-sensitive and will continue to look for lower priced products to meet their needs while maintaining food quality.

Producers and exporters from the United States have captured a large share of the Canadian prepared foods market with more than 80% of total imports. This important category consists of products such as flavoring extracts, cocktail mixes, syrups, single fruit juices, pastry, pizzas/quiches, and dough mixes – all essential products to the food service industry.

Another area in which foodservice operators rely on imports is red meats, of which U.S. imports have captured almost 70% of the share of total imports.

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Route-to-market

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.

The bulk of Canadian food service products are imported by large importers, brokers, food service distributors, or through intra-company sales among international restaurant chains.

Perishable and specialty items, such as fresh meat products and fruits/vegetables, are imported and distributed by food service distributors. Below is a list of the top companies importing and/or distributing commodities and products in the Canadian food service sector.

Major Distributors
Sysco
Gordon Foodservice International
Associated Food Distributors
Colorbar Foods
Flanagan Foodservice
Bemont Meat
Beverage World
Source: Euromonitor,

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

It is recommended that small- to medium-sized companies form a partnership with a Canadian food broker/distributor/importer. Canadian distributors prefer to warehouse products that have a steady turnover rate.

According to the Canadian Society of Customs Brokers, close to 80% of Canadian imports are cleared by a customs broker. These companies assist exporters in complying with Canadian import requirements, handling border transactions, and ensuring the release of goods from Canadian Customs.

Foodservice brokers do not take possession of the goods but act as sales representatives and work at pioneering the product and establishing new food service accounts with restaurants, hotels, and other institutional buyers. They establish a distribution network throughout the country or designated region.

Food brokers take a percentage of the product sales revenue ranging generally between 3 and 6%. The percentage is determined by several factors, including product category, market niche potential, expected sales volume, and additional requested services (e.g., data collection). A broker may request a monthly retainer fee as they pitch the product to prospective food service operators.