Canada’s big supermarket chains are using their clout to
squeeze suppliers hard and many Canadian companies can’t stand up under
competition from giants in the United States.
The answer is for Canadian manufacturers of packaged
groceries to increase their volumes so they can lower their prices and the way
to increase volumes is to export more to the United States, according to a
report by grocery-chain analyst Kevin Grier of the George Morris Center.
He looked at data from Statistic Canada and the United
States to find that Canadian companies have increased exports to the U.S., but
have lost market share in Canada to U.S. imports.
Canadian exports are often private-label products; U.S.
imports are usually manufaturers’ brand name products, Grier says.
Canadian
manufacturer exports of consumer packaged food goods to the U.S. increased from
25 to 30 per cent in the four years from 2009 to 2013.
Meanwhile, the U.S.
share or the Canadian market increased from 23 to 30 per cent in the 10 years
from 2004 to 2013.
These statistics were gathered before Kelloggs closed its plant in London and Heinz its ketchup plant in Leamington. Canadians will now be supplied from U.S. plants.
Between 2006 and
2014, 143 Canadian food plants closed, 63 new plants opened and 67 announced
major investments.
Americans were more
likely to close the plants they own in Canada and consolidate operations in the
U.S., but Canadian companies were more likely to either consolidate Canadian
plants or invest in existing facilities.
As for the big supermarket squeeze, Grier writes that “Canadian
retailers are good buyers and they like to maximize their buying options."
I would choose an adjective other than "good" to describe the buyers for Loblaws, Sobeys and Metro; "ruthless" is more like it.
“Canadian retailers will use U.S.-sourced product as a tool
to leverage against vulnerable Canadian producers, who have fewer selling
opportunities than their larger U.S. competitors.”
He writes that “It should also be pointed out that a lot of
Canadian capacity in the consumer packaged goods categories is used for private
label production, sold either in Canada or the U.S.. Most big brands are U.S.
based and supplied in Canada from U.S. production facilities.
“The Canadian consumer is indifferent or unaware of
manufacturing source, whether branded or private label,” Grier says.
One of the challenges Canadian manufacturers face is being
able to supply enough to meet nation-wide demand in the much bigger U.S.
market, Grier says.
This is becoming a greater challenge as the U.S. retailers have
“shifted . . . from regional supermarkets . . . into national mass
merchandisers, club stores, and dollar stores. Thus Canadian plants, once built
for domestic consumption, lack the scale to supply those outlets in any
meaningful way. Yet the U.S. manufacturers typically have the scale to supply
Canada.”
Grier says “it
matters that Canada maintains a robust consumer packaged goods manufacturing
sector.
“In order to do so,
companies need to grow beyond the traditional Canadian supply for Canadian
consumption model. Those days are over.
“Indeed, Canadian
retailers cannot and will not buy locally if quality and price do not meet U.S.
offerings.
“Nor will Canadian
consumers behave that way,” Grier writes.
