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A comprehensive sector-by-sector snapshot of food
and beverage processing and manufacturing industry
performance and innovation
CANADIAN FOOD INDUSTRY REPORT
2014
Prepared by Sponsored by Member of Praxity, AISBL
Global Alliance of Independent Firms
For the full 44 page report, please visit
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3
EDITORCarolyn Cooper
(416) 442-5600 [email protected]
MANAGING EDITORDeanna Rosolen
(416) 442-5600 [email protected]
WRITER AND RESEARCHERDoug Burn
ART DIRECTORMelissa Crook
(416) 442-5600 [email protected]
PUBLISHERJack Meli
(647) 823-2300,[email protected]
ACCOUNT MANAGERDaniela Piccone (416) 510-6773
PRODUCTION MANAGERSteve Hofmann (416) 510-6757
Published in Canada since April 2008.
For subscription or research inquiries, please send a fax to (416) 510-6875 or call (416) 442-5600, ext. 3552 or 1-800-387-0273. Published by BIG Magazines LP, a division of Glacier BIG Holdings Company Ltd. 80 Valleybrook Drive, Toronto, ON M3B 2S9
Copyright © 2014
BIG Magazines LP
President of Business Information Group, Bruce Creighton
Vice-president of Canadian Publishing, Alex Papanou
Executive publisher, Tim Dimopoulos
Editorial director, Lisa Wichmann
ISSN 1188-9187
Contents of this publication are protected by copyright and must not be reprinted in whole or in part without permission of the publisher.
CONTENTS 4 Executive Summary
5 Economic Overview
7 Baked Goods Sector
10 Dairy Sector
13 Seafood Sector
16 Meat & Poultry Sector
19 Fruit & Vegetable Processing Sector
22 Confectionery Sector
25 Beverage Sector
28 Other Food Products Sector
31 Grain & Oilseed Milling Sector
34 Pet Foods Sector
36 The Top 10 Food Industry Trends Responding to the opportunities and challenges on the foodscape.
38 Is risk eating away your profits? Fill the gaps in your product safety plan.
39 More food production and processing regulation — ready or not here it comes.
40 Questions every growing food business should ask itself.
41 The Top five tips to get the most when the chance to sell arises.
42 Transfer pricing presents risks and opportunities for food manufacturers.
CANADIAN FOOD INDUSTRY REPORT
2014
MNP. A STAPLE INGREDIENT.Whether you are a manufacturer, distributor, retailer or investor in the food and beverage sector, MNP understands the challenges you face. From the farm gate to the consumer’s plate, MNP has invested more time and resources into understanding the Agri-food industry than any other chartered accountancy fi rm in Canada. With more than 15,000 Ag and Agri-food clients, MNP has the experience to fi nd the right solutions for you and your business.
For a recipe for success, contact Glenn Fraser, Vice President of Food & Ag Processing at 1.877.251.2922 or [email protected]
Lead sponsor for the 2014 Canadian Food Industry Report is: Partner sponsors are:
For the full 44 page report, please visit foodincanada.com/industryreport to order
4
for food and beverages in line with population growth. But Walmart Canada’s expansion of food-specific space in existing and new stores, and Target’s opening of former Zellers stores under its own banner space, significantly exceeded population growth last year and will again this year.
The mass merchandisers are expanding their fresh offerings to increase store traffic, sales and shopping frequency. Grocers and mass merchandisers are struggling for market share with deep and frequent Temporary Price Reductions (TPRs), partic-ularly for soft drinks, yogurt, packaged meats, breakfast cereal and other food categories that are sold primarily on price.
MERGERS & ACQUISITIONSThe big news was Maple Leaf Foods’ sale of Canada Bread to Mexico-based Grupo Bimbo for $1.9 billion this February. However, there were five other deals worth $100 million or more since last summer. Kelowna, B.C.-based Sun-Rype Products accepted a $100-million takeover offer from a member of The Jim Pattison Group of Vancouver, B.C. TreeHouse Foods Inc. of Oakbrook, Ill. acquired Mississauga, Ont.’s Associated Brands for $187 million. Canada Bread sold its Olivieri Foods fresh pasta and sauce business for $120 million to the world’s second largest pasta manufacturer, Madrid-based Ebro Foods S.A. Post Holdings, Inc. of St. Louis acquired Burnaby, B.C.-based Golden Boy Foods for $320 million. And earlier this year, Gruppo Campari of Milan acquired Grimsby, Ont.-based whisky maker Forty Creek Distillery Ltd. for $186 million.
PREMIUMIZATIONTrends that had been building for several years came to a head in 2013. Consumers abandoned diet soft drinks and diet meals in favour of healthier beverage options such as enhanced waters, and meal options focusing on the pluses of natural ingredients and health benefits rather than weight control.
The most successful new products were those that were premium priced. Sales of natural and organic salted snacks grew by double digits, as did premium chocolates, craft beers, and pet foods.
THE DOLLARThe decline in the Canadian dollar by nine per cent between the first quarter of 2013 and the same period this year has been good and bad for food manufacturers, depending on their cost structure and sales geography. It is beneficial to the extent their costs are Canadian and competitors are American. All manufacturers that compete at home or in foreign markets with U.S. plants benefit from the effective nine- per-cent reduction in the wages they pay.
TRADE DEALSMeat packers, seafood processors and dairy food manufacturers will be the most significant winners and losers from recent trade negotiations. The U.S. Congress passed a new Farm Bill in January that retained the worst features of the Country Of Origin Labeling (COOL) rules that have discouraged American retailers and meat packers from buying Canadian beef and pork.
Last October Ottawa reached an agreement in principle for the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), which will significantly improve access for Canadian beef, pork and seafood to the European market. Dairy processors will be disadvantaged with the increased tariff-free access for EU cheese because they pay much more for raw milk under our supply management regime.
In March Canada concluded the long stalled Canada-South Korea Trade Agreement. The deal was needed as much for the future losses it prevented as for the potential gains.
RETAIL COMPETITIONLast summer Loblaw Companies Ltd., Canada’s largest super-market chain, acquired Shoppers Drug Mart Corp. for $12.4 billion. Meanwhile, Sobeys Inc., Canada’s second largest chain, acquired the Canadian supermarket operations of Safeway Inc. for $5.8 billion, including 213 supermarkets in Western Canada.
Until recently retailers were expanding square footage
The OutlookConsumers in Canada and the U.S. are feeling more comfortable
as the economy improves, and may be more interested in value
than in price this year. That means they may be more responsive
to new products featuring relevant benefits such as natural and
organic ingredients. The weaker dollar will also put upward pressure
on prices for ingredients. As more than 80 per cent of organic
products and ingredients are imported, according to associate
dean of the University of Guelph Sylvain Charlebois, Canadian
sources for ingredients, and particularly certified organic ingredients,
should be investigated and developed.
EXECUTIVE SUMMARYIn 2014, the dollar dropped and
trade deals were signed. Grocers
acquired grocers and other
retail chains. Supermarket and
mass merchandisers added more
food and beverage space than the
market could absorb, leading to price
wars and demand for manufacturers to
cut prices. Consumers abandoned diet meals and diet sodas
and embraced pricey natural snacks and craft beers. The year
ahead will be more profitable for exporters and smaller firms in
healthy niches, particularly artisan, organic, local and gluten free.
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INTERNATIONAL TRADEIn the last decade imports have grown their share of the domestic market to 28 per cent from 20 per cent in 2004. Over the same period the U.S. has increased its share of our imports to 61 per cent (from 57 per cent) as manufacturers have consolidated production on a North American basis. In 2013 our imports from the U.S., Italy and France grew by an average of seven per cent, while those from China (our other $1-billion supplier) grew by only two per cent. Our imports from Mexico grew by 15 per cent, while those from Brazil declined by 13 per cent.
Canada’s food and beverage exports today account for 27 per cent of our shipments, compared to 25 per cent in 2004. Over the decade China and Hong Kong have overtaken Japan as our second largest export market after the U.S, which accounts for 69 per cent of our exports.
THE INDUSTRYFood and beverage industry employment declined by 3,300
persons (1.4 per cent) to 245,500 in 2013, as the industry continued to consolidate and rationalize. Capacity utilization remained unchanged at 74 per cent in the beverage sector, while declining in the food industry generally to 76 per cent. Capital investments rose seven per cent to $1.8 billion in 2013 after a four-per-cent rise in 2012. Statistics Canada reports that investment intentions of food and beverage manufacturers are for a further increase of five per cent in 2014.
COSTS & PRICESCosts and prices moderated in 2013. Beef, chicken and turkey prices increased by less than two per cent, while pork prices increased by less than five per cent. Prices for all of the major grains and oilseeds declined by one to nine per cent. Crude oil prices averaged US$98 per barrel (a four-per-cent increase) while natural gas prices rose 36 per cent to US$2.98 per mil-lion BTU. Budget conscious consumers and intensified compe-tition among grocery retailers held food price increases to 1.1 per cent in 2013 — compared to 2.3 per cent in 2012 — and
SHIPMENTS, IMPORTS, EXPORTS & DOMESTIC MARKET FOR THE CANADIAN FOOD & BEVERAGE INDUSTRY, 2007 – 2013, PLUS JANUARY ESTIMATES FOR 2014
2007 2008 2009 2010 2011 2012 2013 JAN.’14
SHIPMENTS $ MILLION $81,900 $84,600 $86,000 $87,200 $91,200 $93,300 $94,100 $7,400
CHANGE (%) $5.2% 3.4% 1.6% 1.2% 4.9 2.2% 0.9% 6%
IMPORTS $ MILLION $18,000 $20,300 $21,200 $21,000 $23,200 $25,000 $26,300 $2,000
CHANGE (%) 9.1% 12.6% 4.1% -0.5% 10% 7.9% 5.5% 5%
EXPORTS $ MILLION $18,400 $20,500 $19,300 $20,800 $23,400 $24,600 $25,400 $1,900
CHANGE (%) 1.5$ 11.7% -6.2% 7.7% 12.5% 5.3% 3.1% 7%
DOMESTIC MARKET $ MILLION $81,500 $84,400 $87,900 $87,400 $91,000 $93,700 $95,000 $7,500
CHANGE (%) 6.9% 3.6% 4.1% -0.7% 4.3% 2.9% 1.6% 6%
EXPORT INTENSITY (1) % 22% 24% 22% 24% 26% 26% 27% 26%
DOMESTIC MARKET SHARE (2) % 78% 76% 76% 76% 75% 73% 72% 73%
1. Export Intensity = Exports/shipments. 2. Domestic Market Share = (Shipments – exports)/domestic market. Source: Industry Canada, Trade Data Online (North American Industry Classifications) supplemented with shipment data from Statistics Canada, CANSIM Table 304-0014 Manufacturers’ sales, inventories, orders, by North American Industry Classification System (NAICS) Canada.
The value of shipments of Canada’s food and beverage manufacturers increased by $1.1 billion (1.1 per
cent) to $94.3 billion in 2013, following a $2-billion increase in 2012. Adjusted for price increases, the
real value of shipments remained unchanged in 2013, following a one-per-cent decline in 2012. Real
value added declined by one per cent in 2013 to 2011 levels after holding steady in 2012.
Food and beverage shipments accelerated in the last quarter of the year and began 2014 on a
strong note. The value of shipments increased by six per cent for the four months to January 2014
compared to the year earlier period.
Three quarters of the increase in shipments were exported. Exports expanded by $800 million
(three per cent) to $25.4 billion. Imports increased by $1.3 billion (five per cent) to $26.3 billion, to
increase the trade deficit to $900 million. The increase in imports captured most (86 per cent) of the
$1.5-billion (six per cent) growth in the domestic market to $99.2 billion. The trade deficit rose to $900
million in 2013, from $400 million in 2012.
ECONOMIC OVERVIEW
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that pressure, in turn, held prices paid to food manufacturers to a 1.2-per-cent increase versus 2.9 per cent in 2012.
CONSUMER DEMANDThe foodservice sector led domestic demand growth for the second year in a row, as consumer spending on away-from-home meals grew by five per cent in 2013 to $55 billion. The foodservice industry spends roughly one third of its receipts on food purchases, or about $20 billion annually. The retail value of food purchased from stores rose two per cent in 2013 to $112 billion, after the same increase in 2012.
Over the last decade supermarkets have lost market share of food and beverage spending to mass merchandisers. A decade ago they captured 87 per cent of spending, as compared to 81 per cent in 2013. Mass merchandisers have grown their share to 14 per cent from eight per cent. In 2013, food and beverage sales through supermarkets increased just 0.5 per cent to $90.4 billion, while food and beverage sales through mass merchandisers rose by 8.6 per cent to $16.2 billion.
ECONOMIC VARIABLES RELEVANT TO FOOD & BEVERAGE SHIPMENTS, TRADE & CONSUMPTION 2006 – 2012
UNITS 2007 2008 2009 2010 2011 2012 2013
F&B EMPLOYMENT (1) PERSONS 252,907 250,500 247,881 249,560 251,810 249,104 245,532
CHANGE % -2% -1% -1% 1% 1% -1% -1%
F&B HOURLY PAY (2) $/HOUR $17.21 $16.88 $17.17 $17.76 $18.04 $18.42 $17.96
CHANGE % 9% -2% 2% 3% 2% 2% -3%
F&B GDP (3) $ BILLION (2007) $25.7 $26.5 $26.4 $26.6 $26.8 $26.8 $26.5
CHANGE % -0.3% 3.1% -0.3% 0.7% 0.8% -0.2% -0.9%
CAPACITY UTILIZATION FOOD (4) PER CENT 80.1 77.7 81.7 79.7 79.8 76.8 75.8
CHANGE % 0% -3% 5% -2% 0% -4% -1%
CAPACITY UTILIZATION BEV (4) PER CENT 72.5 65.3 74.4 71.9 73.5 74.1 74.4
CHANGE % -5% -10% 14% -3% 2% 1% 0%
F&B CAPITAL EXPENDITURES (5) $ BILLION $1,516 $1,605 $1,612 $1,933 $1,609 $1,669 $1,777
CHANGE % -1% 6% 0% 20% -17% 4% 7%
FOOD IPPI (6) INDEX 2010=100 94.5 98.7 99.9 100 105.9 109 110.3
CHANGE % 3.6% 4.4% 1.2% 0.1% 5.9% 2.9% 1.2%
CPI FOOD (7) INDEX 2002=100 110.8 115.2 121.5 122.7 127.9 130.9 132.3
CHANGE % 2.7% 3.9% 5.5% 1% 4.2% 2.3% 1.1%
F&B SPENDING IN STORES (8) $ BILLION $89.8 $95.5 $100.6 $105.4 $107.9 $110.2 $112.2
CHANGE % 5% 6% 5% 5% 2% 2% 2%
F&B SPENDING AWAY-FROM-HOME (9) $ BILLION $44.6 $46.8 $47.1 $48.6 $50 $52.6 $55
CHANGE % 3% 5% 1% 3% 3% 5% 5%
CANADIAN GDP (10) $ BILLION (2007) $1,566 $1,583 $1,537 $1,587 $1,626 $1,654 $1,681
CHANGE % 2.2% 1.1% -2.9% 3.3% 2.4% 1.7% 1.6%
1. CANSIM Table 281-0023 Employment (SEPH), unadjusted for seasonal variation, by type of employees for selected industries. 2. CANSIM Table 281-0030 Average hourly earnings for employees paid by the hour (EPH) for selected industries. 3. CANSIM Table 379-0027 Gross Domestic Product (GDP) at basic prices, North American Industry Classification System. 4. CANSIM Table 028-0002 Industrial capacity utilization rates, by North American Industry Classification System. 5. CANSIM Table 029-0009 Capital and repair expenditures, industry sectors 31-33, manufacturing, annual. 6. CANSIM Table 329-0057 Industry price indexes, by North American Industry Classification System (NAICS). 7. CANSIM Table 326-0020 Consumer Price Index (CPI), 2011 basket. 8. CANSIM Table 080-0022 Retail commodity survey based on North American Industry Classification System (NAICS). 9. CANSIM Table 355-0006 Monthly survey of foodservices and drinking places annualized. 10. CANSIM Table 380-0084 Gross domestic product at 2007 constant prices, expenditure-based.
The OutlookCanada’s exports have been held back, until now, by a relatively
high value for the Canadian dollar and weak economic growth in
most of our export markets. This year promises to be significantly
better, as the Canadian dollar is forecast by BMO Nesbitt Burns to
average US$0.89, down eight per cent from 2013. Meanwhile, the
OECD forecasts the U.S. economy to grow by three per cent in 2014,
as compared to a weak 1.6 per cent in 2013. The Chinese market
has slowed and the Japanese market is forecast to decline in 2014,
but growth rates in the European Union and Mexico should improve.
On the domestic front, Canada’s economy slowed to 1.6-per-
cent growth in 2013, but the OECD forecasts growth to recover to
the 2012 pace of 2.2 per cent this year. The Canadian dollar in the
first quarter averaged US$0.91, making our exports seven per cent
more competitive than the US$0.97 average for 2013. Consumer
confidence remains at last year’s levels after improving by seven
per cent in 2013.
ECONOMIC OVERVIEW
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