Food_Retail_Sector_in_Canada

The Canadian Food Retail Sector. Opportunities for Swiss Companies. February 2011 osec.ch The Canadian Food Sector 1 Content Leader: Garen Roukhkian, MSc, MBA Swiss Business Hub Canada uses primary, secondary sources and tertiary sources of information to produce a variety of reports on the Canadian market for small to medium sized Swiss enterprises. For further information on our services, please contact: Elias Bardouniotis, MSc, MBA Director and Trade Commissioner Switzerland Trade and Investment Promotion Swiss Business Hub Canada 154 University Avenue, Suite 601 Toronto, ON M5H 3Y9, Canada Tel. : +1 416 593 5288 Fax : +1 416 593 5083 elias.bardouniotis@eda.admin.ch While this report is intended to provide an overview of this specific market and its opportunities at the time of its edition, each individual manufacturer, exporter or company may have to conduct their own analysis to get a better understanding of the possibilities and opportunities available to them. You are encouraged to explore and develop your opportunities based on research and in-depth analysis. Readers should take note that the Government of Switzerland does not guarantee the accuracy of any of the information contained in this report, nor does it necessarily endorse the organizations, associations, companies and individuals listed herein. Readers of this report should verify the accuracy and reliability of the information contained herein before making a business decision. © Swiss Business Hub Canada 2011 The Canadian Food Sector 2 Table of Contents. Introduction Market Dynamics Canadian Food Retail Trends in the Retail Food Industry Organic, Natural, & Functional Foods Regulatory Environment Market Entry Appendix 4 5 13 21 26 29 31 32 The Canadian Food Sector 3 Introduction. This report will provide information to Swiss businesses considering Canada as an export destination for food retail products. This report provides insights into the Canadian food retail market, consumer behavior, attitudes and perceptions toward food products and provides a brief regulatory overview. • Industry sales for food retail stores is an estimated $84 billion in 2010 and is projected to grow at a rate of 4.6% annually through 2014, as more Canadians choose to eat at home. The grocery market is highly concentrated and vertically integrated into food distribution, with the top five retailers accounting for 80% of total food sales. The retail environment is dominated by big box stores accounting for approximately 70% of food sales. The increased importance of disease prevention through healthy diets has boosted demand for innovative food products with health benefits. Canadian consumer food preferences are shifting toward healthier, less processed foods prepared and delivered in an environmentally-friendly fashion and a convenient format including more natural and organic products. In response to growing consumer demand a growing both chain and independent stores, are adding organic, natural, and functional products to their shelves. Swiss food products that offer benefits beyond basic nutrition, such as functional foods, premium and specialty products with specific quality and authenticity characteristics differentiated from the mass-market appeal of a supermarket may have greater resonance with educated and affluent Canadian consumers. The food regulatory environment in Canada is highly complex and evolving, and must be carefully assessed by exporters as part of their market entry strategy. • • • The Canadian Food Sector 4 Market Dynamics. The Canadian Food Retail Market Overview. The Canadian food retailing sector worth an estimated $84 billion, accounts for over 20% of total retail sales in Canada and is expected to grow 4.6% (CAGR) between 2010 and 2014, to over $100 billion by the end 2014. The Canadian food retail industry is comprised of over 21,200 food stores divided into chains, comprised of large conventional supermarket and convenience store formats, and independents, which are either franchised or unaffiliated. Total chain and independent food sales have maintained a consistent market share of 60% and 40% respectively over the last 10 years. Canadian Total Food Store Sales 2000-2010. Total sales (C$000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009E 2010F 56,592,300 58,858,400 62,049,700 65,592,200 68,260,900 72,163,800 73,596,570 76,310,523 79,277,293 81,493,241 83,856,545 3.80% 4.00% 5.40% 5.70% 4.10% 5.70% 2.00% 3.70% 3.90% 2.80% 2.90% % change Chain sales (C$000) 32,363,765 34,051,112 37,712,891 39,695,744 41,425,461 43,815,400 44,184,069 45,642,613 47,829,010 48,862,353 50,481,640 57.20% 57.80% 60.70% 60.50% 60.70% 60.70% 60.00% 59.80% 60.30% 60.00% 60.20% % of total Independent sales (C$000) 24,228,535 24,807,288 24,336,809 25,896,456 26,835,439 28,348,400 29,412,501 30,667,911 31,448,283 32,630,888 33,374,905 42.80% 42.20% 39.30% 39.50% 39.30% 39.30% 40.00% 40.20% 39.70% 40.00% 39.80% % of total Source: Statistics Canada, Canadian Grocer The rapid growth witnessed in early 2000 growth has slowed to an estimated 2.9% in 2010, due to increasing competition, aggressive pricing, and continuing reliance on special promotions and discount programs to keep the consumers spending as economy crawls out of the recession. The two most populous provinces – Ontario and Quebec account for more than half of Canadian retail food sales, and operate approximately 60% of the nation’s stores. The Canadian Food Sector 5 Retail: Total Sales and Market Share by Region. $11.33 (13.9%) Yukon N.W.T Nunavut Alberta $11.06 British Columbia (13.6%) Manitoba Ontario $24.19 (31.8%) Quebec $20.35 (25%) Saskatchewan Atlantic Provinces $6.79 (8.3%) Source: Canadian Grocer 2011 *Supermarkets and convenience/specialty food store sales; *does not include sales through department stores, specialty stores $6.01 (7.4%) Total Food Stores 2009. Atlantic Provinces Quebec Ontario Manitoba Saskatchewan Alberta British Columbia, Yukon, N.W.T. & Nunavut 1,071 1,044 2,167 6,164 6,387 2,268 2,141 Number of Food Stores Source: Canadian Grocer 2011 The Canadian Food Sector 6 Canadian Demographics. Canada is the second largest country in the world, with 6 time zones, 10 provinces, and 3 territories, and has a population of over 34 million dispersed over a large (9,093,507 sq. km) geographic area. Most of the population tends to live in the more southern, urban part of the country, and 17 of the 20 largest Canadian cities are located within a 90-minute commute to the US border. Approximately two-thirds of the Canadian population lives in the provinces of Ontario (13.2 million or 39%) and Quebec (7.9 million or 23%). Not surprisingly, these two provinces, together with natural resource rich Alberta account for 75% of Canada’s GDP. Expenditure-based GDP contribution, by province, 2009. 3.70% 12.51% 16.19% 3.34% 0.31% Ontario Quebec Alberta 0.27% 0.13% 0.10% British Columbia Saskatchewan Manitoba Nova Scotia New Brunswick 1.64% Newfoundland and Labrador Prince Edward Island Northwest Territories Yukon Nunavut Source: Statistics Canada 2.25% 1.80% 2.45% 19.89% 37.87% Immigrants to Canada tend to settle in larger urban areas, such as Montreal, Toronto and Vancouver. The population which is growing at 1.2% per year is driven by immigrants who generally settle in the metropolitan areas. Further, the total visible minority population is over 5 million. After having experienced an astounding growth rate of 38% since 2001, in 2006 South Asians surpassed the Chinese as the largest visible minority, at 1.3 million representing close to 25% of all visible minorities living in Canada today. Notably, the Canadian population is aging, with baby boomers expected to pull the median age from current 40 to 44, over the next 20 years. Median Age of Total Population. 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% 2006 2007 2008 2009 2010 2011 2016 2021 2026 2031 45 44 43 42 41 40 39 38 37 36 Median age of total population % of total Source: Statistics Canada The Canadian Food Sector 7 Median after-tax income for Canadian families of two or more persons was $63,900 in 2008, unchanged from 2007 and the first year since 2003 without a notable increase. The province of Alberta had the highest median income of $77,200. Just over 3 million Canadians, or 9.4% of population, live below low income cut-off, which was also unchanged from the prior year. Consumption and Expenditures. Since the 1980’s, Canadian consumer food preferences have evolved to include more fresh fruits, yogurts, cheeses, creams, red meats, exotic juices, low-fat milk, wine, and spirits, and less cereal, sugar, oils, fats, and eggs. Consumption of dairy products in particular yogurt has increased a staggering 370% the last 20 years but ice cream has decreased 60% as consumers have switched to healthier alternatives such as frozen yogurt and smoothies. Annual Food Consumption (kilograms per person) 1981-2009. 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 1981 1986 1991 1996 2001 2005 2006 2007 2008 2009 Sugars and Syrups Poultry Red Meats Fresh Fruits Cereal Products Fresh Vegetables Source: Statistics Canada Annual Beverage and Dairy Consumption (liters per person) 1981-2009. 500.0 450.0 400.0 350.0 300.0 250.0 200.0 150.0 100.0 50.0 0.0 1981 1986 1991 1996 2001 2005 2006 2007 2008 2009 Ice cream Distilled spirits Yogurt Wines Total juices Tea Fluid milk Soft drinks Coffee Source: Statistics Canada The Canadian Food Sector 8 To identify emerging growth opportunities, however, it is more prudent to review consumption trends in the near term. From 2005 to 2009, categories that registered most drastic increases were: wine, yogurt, and tea. On the other end of the spectrum, consumption of ice cream, soft drinks, fish, and juices, oils and fats experienced a decline . On same per capita basis, the intake of vegetables, poultry, sugars and syrups has remained relatively flat, while coffee, fresh fruit and nuts registered moderate gains. Canadian calorie consumption, of approximately 3,645 per day, is in line with OECD averages, lagging far behind the US and some European countries. It is important to keep in mind that this data set is taking into account consumption patterns only, and does not necessarily reflect profitability and general market attractiveness. Changes in Consumption per capita 2005 - 2009. Wines Yogurt Tea Fresh fruits Coffee Pulses and nuts Cheese Poultry Sugars and syrups Fresh vegetables Distilled spirits Red meats Cereal products Fluid milk Oils and fats Total juices Fish Soft drinks Ice cream -50.00% -40.00% -30.00% -20.00% -10.00% 0.00% 10.00% 20.00% Source: Statistics Canada Neilsen has compiled a report on growth of categories across all channels which provides more granularity of the sub-category performance of a variety of products (see page 10). From 2000-2007 consumers allocated 9.1% of total personal expenditures towards food, one of the lowest percentages of overall household expenditures in the world. Through the recent recession, this number has dropped to 8.1%, but is expected to recover to 9.20% in 2010, in line with previous years. Also, total personal expenditures on consumer goods and services declined 0.3% in 2009 following the economic slowdown that began in the fall of 2008 as consumers postponed discretionary spending. The recession has changed consumer spending behavior as more consumers dine out less and eat at home more. A recent survey by Fresh Intelligence found that consumers intend to spend more on food at home and less on eating out. The Canadian Food Sector 9 Physical Growth: Food Categories. Declining -4 to -10% Baby Food Breast Pumps Accessories Diaper Presoakers Static -2 to +3% Baby Lotions Baby Oils Baby Pacifiers Baby Powders Diaper Rash Products Gripe Water Instant Formula Growing +4 to +10% Infant & Toddler Snacks Baby Seats & Accessories Cotton Swabs Diapers Disposable Pants Infant Cereal Nursing Pads Premoistened Towelettes Diaper Disposable Systems Flavored Soft Drinks Flat Water Hot Chocolate Juices & Drinks - shelf stable Low Alcohol Beverages RTD - Iced Tea Cans Vegetable Juices Meat Sticks & Beef Jerky Popping Corn Puffed Cakes RTE Gelatin Snack Foods Snack Pudding Snacking Fruit & Nuts & Seeds Dessert Powders Glazed Fruit Graham Crusts Graham Wafers & Crumbs Lard & Shortening Milk Pie Crust Mixes Pie Fillings Powdered Milk Rolls-Commercial Sugar Remaining Drinks Lemon & Lime Juice Coffee - Roast & Ground Iced Tea Baby Care + 3% Beverages +1% Carbonated Water Extreme Energy Drinks Flavored Drink Mixes Coffee Substitutes Hot Instant Tea Tomato Juice Cocktail Mixes Coffee - Instant Coffee Whiteners Cordials & Syrups Drink Powders Liquids - Cold Confectionary, Snacks & Dessert +/-0% Gum Ice Cream Cones Marshmallows Lunch Kits Marshmallow Treats Pudding - RTE Family Size Candy Confections Chocolate Cookies Crackers Single Serve Fruit & Apple Sauce Lunch Packs Candied Snack Foods Dry Foods Nutritional Portable Foods Dry Groceries +1% Baked Desserts Commercial Baking Gum Baking Mixes - Puddings Baking Soda Corn Starch Maraschino Cherries Muffin Mixes No-bake products Puddings Sugar Substitutes Biscuit Mixes Cocoa Powder Baking Chocolate Baking Extracts Baking Nuts Baking Powder Bread - Commercial Bread - Dry Bread/Rolls/Pizza Mixes Bread Crumbs & Corn Flakes Cake Mixes Cookie Mixes Croutons Baked Desserts - Frozen Breakfast - Frozen Dinners & Entrees - Frozen Dough & Pastry - Frozen Frozen Foods - Remaining Fruit - Frozen Baking Aids Baking Chips Baking Mixes - Remaining Cake Décor Toppings - Powdered Coconut Cornmeal Flour Food Colorings Icing Products Semi-Moist Fruit Stuffing Mixes Tortilla/Wraps Commercial Frozen Foods +1% Fish & Chips - Frozen Meat - Frozen Fish - Frozen Fruit Beverages - Frozen Ice Cream & Related Products Meat Patties - Frozen Pizza Snacks - Frozen Potatoes - Frozen Vegetables - Frozen Yogurt - Frozen Rice - Regular Rice - Specialty RTE Cereals Sauce & Gravy Mix Seafood Side Dishes Soup Soup Mixes - Dry Tomatoes Tuna Vegetables - Dry Wheat Germ Confections - Frozen Water Based Freezable Confections Pizza & Subs - Frozen Prepared Foods +1% Fondue Products Meat Pasta Peas Pizza Mixes / Kits Stew & Meatball Entrees Apple Sauce Beets Chili Con Carne Fruit Instant Breakfasts Meat Spreads Mushrooms Potatoes Salmon Toaster Pastries Tomato Sauces Vegetables Baked Beans Batters & Batter Mixes Beans - Remaining Coating Mixes Grated Cheese Products Gravy Kidney Beans Mexican Salsa Dips & Garnishes Mexican Seasonings Oriental Noodles & Instant Lunches Pasta Sauce Peas & Beans Butter & Dairy Spreads Coffee Type Drinks Cottage Cheese Cream Cheese Weight Asian Noodles Bouillon Products Couscous Hot Cereals Mexican Dinner Kits & Shells Oriental Fondue & Bouillon Pancake & Waffle Mixes Pasta - Dry Pizza & Lasagna Sauce Tomato Paste Retortable Pouches Dough - Refrigerated Entrees - Refrigerated Meat Pies - Refrigerated Milkshakes & Eggnogs Pasta - Refrigerated Processed Cheese Spreads Toppings - Whipped Source: Nielsen MarketTrack All Channels, 52 Weeks ending December 19, 2009 Refrigerated & Dairy +3% Margarine Milk Rice Drinks Sour Cream Soya Drinks Coffee Creamers (exlcl. Flavored) Cream Eggs Liquid Coffee Creamers Natural Cheese - Exact Weight Pasta Sauce - Refrigerated Processed Cheese Slices Processed Loaf Whipping Cream Yogurt Products Refrigerated Pizza Crusts - Refrigerated RTE Pudding & Gelatin Refrigerated The Canadian Food Sector 10 Consumer Spending by Category. 4% 8% 43% 54% 55% 41% 33% 36% 46% 41% 56% 42% 11% Groceries Home Cooking Eating Out 16% Vacation Travel 21% 9% Alcohol Clothes and Shoes 34% Spend More Spend Same Spend Less 50% Source: Canadian Grocer, Fresh Intelligence Corp, Macquarie Research (2010) In 2009, food was the third largest household expenditure after shelter and transportation. The fraction of disposable income spent on food may also vary on household type, with lone parent females and home owners at opposite ends of the spectrum. Food Expenditures by Households (% of total). Home owners Couples with children Population centres households One person Rural households Senior couples, both 65+ Renters Lone parent female 9.6% 9.8% 10.1% 10.7% 11.4% 12.7% 12.8% 13.1% Source: Statistics Canada Consumer Behavior. In a recent survey by Nielsen, consumers reported a better outlook for their job prospects and personal finances compared to the global average, ranking Canada as the 10th most confident market. However, given the relatively high level of unemployment, the slowing of disposable income growth rates, and an increased household debt, it should not be surprising that more consumers are focused on value, shopping more at discount retailers and buying more on promotion. Household attributes towards spending vary by household size, age and income, with larger families and independents with sole responsibilities being the most price-sensitive. The Canadian Food Sector 11 Household Attributes towards Spending. Household Attribute Low # of persons 2-3 member Medium 1 member 4+ member Age 65 Gross Income Stage