Foreign Agricultural Service GAIN Report Global Agriculture Information Network Required Report - public distribution Date: 4/19/2000 GAIN Report #CA0047 Canada HRI Food Service Sector Hotel, Restaurant, Institutional Sector Report - Eastern Canada 2000 Approved by: Norval E. Francis, Jr. U.S. Embassy Prepared by: Faye Clack Marketing & Communications Report Highlights: Canada’s HRI sector enters Y2000 at a full gallop with gains in sales, units and customer reach. With Canada’s present economic climate nurturing business growth and instilling greater consumer confidence and spending, the foodservice industry, particularly in the hotel and restaurant sectors where the low Canadian dollar is expected to continue to attract tourists and business travelers, is projecting sales and unit expansion well into 2000. Best opportunities exist for ethnic foods, value-added frozen entrees, value-added fresh produce and frozen seafood. Includes PSD changes: No Includes Trade Matrix: No Unscheduled Report Ottawa[CA1], CA GAIN Report #CA0047 Page 1 of 45 Table of Contents I. Market Summary .............................................................. Page 2 of 43 II. Market Entry ................................................................. Page 7 of 43 Outlook for Y2000 ....................................................... Page 10 of 43 III. Competition ................................................................ Page 12 of 43 IV. Best Product Prospects - Canada ............................................... Page 14 of 43 A. Products in the Market which have Good Sales Potential .................... Page 15 of 43 B. Products not Present in Sufficient Quantities but which have Good Sales Potential ................................................................. Page 18 of 43 C. Products not Present Because they Face Significant Barriers ................. Page 18 of 43 V. Post Contact and Further Information ............................................ Page 19 of 43 Appendix A ................................................................... Page 21 of 43 Appendix B ................................................................... Page 38 of 43 Appendix C ................................................................... Page 40 of 43 Appendix D ................................................................... Page 41 of 43 Resources ..................................................................... Page 42 of 43 Related FAS/Ottawa reports ...................................................... Page 43 of 43 Find Us on the World Wide Web .................................................. Page 43 of 43 UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA0047 Page 2 of 45 I. Market Summary The HRI sector, after three years of declining real growth, grew by 3.1 per cent to reach $34.6B Cdn. Since the early ‘90s when HRI market share dropped to a low of 36.8 per cent, the industry has seen market share rebound, largely in the latter half of the decade (to 39.3 per cent in 1998 with 1999 projected at 40.0 per cent). This still falls well below the HRI’s peak market share of 42% achieved in 1989. The return of consumer confidence, a gradual increase in profit margins and a decline in restaurant bankruptcies – once the highest in the Canadian economy after personal bankruptcies – have helped fuel a more positive outlook for this sector in the coming years. Real, same-store sales rebounded in 1998, growing by 2.2 per cent – by far the largest gain in the decade. The low Canadian dollar and a booming U.S. economy has helped the HRI sector as Canadians stayed close to home and American tourists came to Canada in record numbers. Foodserviceice SalesSales vs.vs. GDPGDP andand Personall DisposableDisposable IncoIncome Real per Capita Growth 4% 2% 0% -2% -4% -6% Personal Disposable Income -8% Foodservice Sales -10% GDP (Gross Domestic Product) -12% 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998* *Forecast SOURCE: CRFA’s InfoStats, The Conference Board of Canada and Statistics Canada The macro economy plays an integral role in the foodservice industry. The two major economic variables influencing the restaurant industry are the Gross Domestic Product (GDP) and Disposable Income (DI). GDP, DI and foodservice sales are pro-cyclical i.e., as economic activity increases, sales tend to increase as well. Specific to DI, the Canadian Restaurant and Foodservice Association (CRFA) has calculated that a one (1) percent increase in disposable income will result in a 1.1 per cent increase in commercial foodservice sales. Simply put, the more money people have to spend, the more likely they are to spend the money in a restaurant. Other variables such as the Goods and Services Tax (GST) and the unemployment rate also contribute some explanatory power to the commercial foodservice industry. Tourism, especially in the Atlantic region, has been a key factor in the HRI industry. Canada’s low dollar has attracted tourists from other nations, especially the U.S. As the Canadian dollar fell below $0.70 U.S. in value, many Canadians have opted to travel and explore their own country. UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA0047 Page 3 of 45 There are a growing number of women in the workforce and two-income families. In addition, people are spending more time at work. A growing number of Canadians are in the “sandwich generation”, balancing full-time jobs with caring for their children as well as their aging parents. All of these factors are contributing to the consumer time-crunch, making it increasingly difficult to find the time to cook. As a result, people are becoming more reliant on the foodservice industry to handle their nutritional needs. This has shown up particularly in the breakfast segment, which has seen strong growth in the past couple of years. With a view into Y2000, sales are projected to cool somewhat as consumers rein in their spending in the face of high debt loads, heavy tax burdens and the likelihood of higher interest rates as the year progresses. Today’s time-starved, value-conscious consumer will undoubtedly continue to drive the demand for quick and convenient meals, giving rise to more demand for drive-through service, home delivery, home meal replacement and more innovative ordering systems. As well, another growing consumer segment continues to search for high-quality, entertainment-oriented dining experiences at a reasonable price, driving the growth and diversity of restaurant concepts offering more than just a good meal. At the same time the North American food industry is being influenced by changing trends such as vegetarianism, immigration and the increasing prominence of ethnic foods, as well as the demand for healthy yet tasty foods which allows for the occasional decadent splurge. More recently, consumer demand for greater input in the food production process is even beginning to affect how products are grown and sourced, as issues such as irradiation, bioengineering, food safety, product labelling and organic farming come under greater public scrutiny. Finally, competition has become increasingly fierce in the HRI sector with independents, chains and even grocery stores competing in and vying for a bigger slice of the consumer food dollar. UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA0047 Page 4 of 45 Sales and Growth in Sales by Sector ($ millions of dollars) Type of Establishment 1995 1996 1997 1998 1999 2000f Full Service Restaurants * $11,44 $11,919 $12,132 $12,879 $13,320 $14,106 1 year over year % change 8.2% 4.2% 1.8% 6.2% 3.4% 5.9% Limited Service $7,837 $8,382 $9,151 $10,146 $10,592 $11,334 Restaurants * year over year % change 12.7% 7.0% 9.2% 10.9% 4.4% 7.0% Total Restaurants $19,27 $20,301 $21,283 $23,025 $23,912 $25,440 8 year over year % change 10.0% 5.3% 4.8% 8.2% 3.9% 6.4% Caterers * $1,702 $1,758 $2,085 $2,162 $2,243 $2,337 year over year % change 6.6% 3.3% 18.6% 3.7% 3.7% 4.2% Taverns * $1,309 $1,369 $1,577 $1,805 $2,030 $2,097 year over year % change -7.1% 4.6% 15.2% 14.5% 12.4% 3.3% Total Commercial $22,28 $23,428 $24,945 $26,992 $28,185 $29,874 Restaurants * 9 year over year % change 8.5% 5.1% 6.5% 8.2% 4.4% 6.0% Institutional ** $2,214 $2,665 $2,463 $2,303 $2,299 $2,298 year over year % change -2.0% 20.4% -7.6% -6.5% -0.2% -0.1% Accommodation *** $3,327 $3,398 $3,400 $3,737 $3,852 $3,986 year over year % change 10.7% 2.1% 0.1% 9.9% 3.1% 3.5% Note: f = forecast Sources: * Statistics Canada ** KPMG *** Pannell Kerr Forster UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA0047 Page 5 of 45 Who Gets the Foodservice Dollar? Commercial – 76% Non-Commercial – 24% Restaurants (full and limited-service establishments) Accommodation Foodservice (hotels, motels – 66% and resorts) – 10% Social and Contract Caterers (caterers for social Institutional Foodservice (in-house catering in events, and contract caterers serving offices, hospitals, residential care facilities, schools, institutions and remote feeding facilities) – 6% prisons, factories and offices) – 7% Pubs (bars, taverns and night clubs) – 4% Leisure Industry Foodservice (clubs, theatres, stadiums and refreshment stands) – 3% Other Retail Foodservice (snack bars in convenience, discount and other retail stores) – 2% Vending (food and beverage machines) – 1% Department stores (department store cafeterias and restaurants) – 1% Definitions: Accommodation – Foodservice facilities that are contained within a hotel, motel or resort. Full service restaurants – establishments that may