Foreign Agricultural Service GAIN Report Global Agriculture Information Network Required Report - public distribution Date: 12/23/1999 GAIN Report #CA9142 Canada Retail Food Sector Western Canada Retail Food Sector Report 1999 Approved by: Norval E. Francis, Jr. U.S. Embassy Prepared by: Brian Woodcock/USA Food Export Report Highlights: The Food Sector Report fir looks at a review of the size and importance of the Western Canadian region in the food industry. Within the Retail Food Sector total Canadian grocery industry sales in 1998 were US$35.9 billion(Canadian Grocer). This represents a 3.7% growth rate over 1997 well above the 5 year average annual growth rate of 2.7%. Regionally Western Canada represented 33.7% of national grocery sales. Includes PSD changes: No Includes Trade Matrix: No Trade Report Ottawa[CA1], CA GAIN Report #CA9142 Page 1 of 19 Table of Contents Section 1. Market Summary - Western Canada ................................. Page 2 Value of Overall Retail Food Sales in Canada ............................ Page 2 Western Canada Retail Food Sales ..................................... Page 2 Summary of the Retail Food Sector Strengths ............................ Page 3 Retail Food Sector Structure ......................................... Page 3 Food Trends and Demographic Factors ................................. Page 5 Section 2. Road Map For Market Entry ...................................... Page 6 Supermarkets – Chain/Independents ................................... Page 6 Market Structure ................................................... Page 6 Company Profile Detail ............................................. Page 7 Canada Safeway .............................................. Page 7 Loblaws Company’s Ltd. ( Westfair ) ............................. Page 8 Overwaitea Food Group (OFG) .................................. Page 8 Federated Co-op Stores - Co-op Banner ........................... Page 9 IGA ........................................................ Page 9 Warehouse Clubs .................................................. Page 9 Other Non Grocery Sub-sectors - Trends and Company Profiles ............ Page 10 Section 3. - Competition .................................................. Page 12 Section 4. - Purchase Trends .............................................. Page 14 The Top Performing Product Categories in 1998 ......................... Page 14 Hottest Food Trends today in Western Canada .......................... Page 14 Section 5 - Resources & Contacts ........................................... Page 15 UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA9142 Page 2 of 19 Section 1. Market Summary - Western Canada A) Value of Overall Retail Food Sales in Canada The Food Sector Report first looks at a review of the size and importance of the Western Canadian region in the food industry. Within the Retail Food Sector total Canadian grocery industry sales in 1998 were $US35.9 billion (Canadian Grocer). This represents a 3.7% growth rate over 1997 well above the 5 year average annual growth rate of 2.7%. Regionally Western Canada represented 33.7% of national grocery sales, with the other regions being Ontario at 32.4%, Quebec at 25.1%, and the Atlantic region at 8.8% If we combine both the retail food sector and the food service sector total food sales in Canada in 1997 were $US 54.5 billion, split Retail 60% and Food Service 40% (Statistics Canada). Canadian $ US % Grocery Sales Billion Growth 1994 32.7 3.4 1995 33.0 0.8 1996 32.8 (0.5) 1997 34.6 5.6 1998 35.9 3.7 1999Forecast 37.1 3.2 B) Western Canada Retail Food Sales Western Canada represents 33% of the Canadian population (10 million /30 million) and 33.7% of retail food sales. Total retail food sales in western Canada were $US 12.1 billion in 1998. This is broken down into individual provinces as follows. < BC $US 5.4 billion with an average annual growth of 3.0% in the last 5 years < Alberta $US 4.1 billion, average 5 year growth of 2.7% < Saskatchewan $US 1.3 billion, average 5 year growth of 5.2% < Manitoba $US 1.4 billion with an average annual growth of 1.8% in 5 years. Province 1998 Population 98 Grocery Sales 5 year food # of and 2 year growth ( $ US ) growth stores British Columbia 4.1 Million +3.3% $5.42 Billion 14.8% 1928 Alberta 2.9 Million + 4.8% $4.06 Billion 13.6% 1854 Saskatchewan 1.0 Million +0.6% $1.26 Billion 26.2% 912 Manitoba 1.1 Million +0.6% $1.36 Billion 8.9% 1276 UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA9142 Page 3 of 19 C) Summary of the Retail Food Sector Strengths - the Opportunities and Challenges that are faced by US Exports in Western Canada. Advantages Challenges Large Market of 10 Million Consumers in Western Canada (90% A high level of retail concentration in Western Canada within 100 miles of the border) Sophisticated distribution infrastructure The higher value of the US dollar adds costs to US exports in Canada Imports are well accepted fact of life for Canadians as Canada has Retailer power and the difficulty and high cost associated with a short growing season and a high dependence on international gaining entry/ listings, and sustaining retailers support. trade - especially with it’s number 1 trading partner - the USA. A common culture, with common eating habits and food trends ( Higher level of Private Label development and the lower number of with a few notable differences mentioned in this report ) branded product Stock Keeping Units in the average Canadian store NAFTA, free trade, and the elimination of tariffs on most food Packaging requirements around Bilingual ( French and English ) products labels and Metric measurements US high value food products are well accepted by retailers and consumers especially those filling unique needs and leading current food trends. D) Retail Food Sector Structure The western Canada retail food sector has two dominant and unique features. The first is the segmentation of the industry into it’s two key components traditional grocery stores and non grocery stores. This segmentation will be discussed in detail in the following section of this report. The two key segments are as follows : - Traditional grocery (chains and independents) dominates in western Canada with 81.1% of retail food sales in 1998. - Non grocery at 18.9% is comprised of membership clubs (Costco) 9.4%, mass merchandisers 3.0%, specialty 2.3% and all other non grocery (including gas bars) 2.2%. (Source - NPD Trade Track). The second unique feature of the western Canadian retail food sector is it’s high level of concentration of ownership. The 1998 statistics (CCGD/FMI Industry Report) show that in each Western province 4 or 5 retailers control over 90% of total food distribution. Retail Concentration by Province: BC - 90% ( Safeway, Ovewaitea, Loblaws, HY Louie, and Thrifty’s). Alberta - 96% ( Safeway, Overwaitea, Loblaws, Sobeys West, Co-op ) Manitoba/Saskatchewan - 92% ( Safeway, Loblaws, Sobeys West, & Co-op) With this high level of concentration, retailers have disproportionate power that has manifested itself in several ways. Including higher levels of private label sales (now 23% of combined grocery category sales), focus on category management, fewer stock keeping unit listings, higher listing fees, and tighter control over in store merchandising. Given this situation, the role of a well planned entry strategy presented by a strong sales force or broker/agent is increasingly important. UNCLASSIFIED Foreign Agricultural Service/USDA GAIN Report #CA9142 Page 4 of 19 Distribution segmentation and Key trends A) Traditional Grocery Super Markets - Chains and Independents ( 81.1% ) The vast majority of high value food products are sold through traditional grocery supermarkets. This segment accounts for over 81% of western Canadian consumer’s grocery basket purchases (see A.C. Nielsen Trade Track - table 1). Traditional grocery includes four major corporate chains who market across western Canada. These major players include - Canada Safeway (24.9%), Loblaws Companies (19.8%), Overwaitea Food Group (13.7%), and Federated Co-op (7.9%). Supermarkets across western Canada vary in size from the large format stores such as the Real Canadian Superstore ( RCSS) at more that 100,000 square feet to some of the very small IGA independents at 10,000 to 15,000 square feet. Up until approximately 5 years ago the trend was to the larger format stores led by the Loblaws Company (RCSS banner) and the Overwaitea Food Group (Save-On-Foods banner). More recently a renewed focus has been placed on ‘neighborhood’ stores that are 30,000 to 35,000 square feet. Recent trends in this channel has included the focus on the ‘fresh departments’ (meats, produce, and bakery) as well as natural food sections and deli and take out sections all typically located around the perimeter of the store. These trends, especially in the new smaller foot print stores, have placed a significant amount of pressure on the space allocated to the grocery departments in the center of the stores. B) Warehouse Clubs ( 9.4% ) - The warehouse club channel (Costco Wholesale) has grown significantly over the last five years and now accounts for over 9% of western Canadian grocery basket purchases. With over 25 locations across the west, continued growth through new outlets will be difficult (most major and minor markets have been covered). As a result, it is suggested that future growth will be focused on same store increases. This will be achieved through a continued focus on private label (Costco’s,