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Food Marketing in Quebec

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Food Marketing in 2009
Today’s Reality and Tomorrow’s Trends How to Carve a Niche in the Market
Marie Claude Marie-Claude Michaud
Business Strategy Consultant www.dancause.net

FCC – SIAL Montréal April 1, 2009

Retail food market

INDUSTRY EVOLUTION AND TRENDS

Evolution of the food distribution industry
!

In recent decades, the food distribution industry has undergone a significant wave of consolidation.
• Increase in average sales per company from $4 to $11 billion

!

Ten years ago, there were 45 public companies in the North American food distribution sector.
• Now – just over 20

Quebec’s retail food sales market is dominated by three distributors
Company C

Market Share
Quebec
Supermarkets All Food

Canada
Supermarkets All Food

Loblaws (Provigo) 36% Sobeys (IGA) Metro (A&P) Safeway Overwaitea Wal-Mart a at Costco Other
Source: CIBC World Markets

30% 93% 26% 22% 5% 9% 8%

41% 78% 20% 15% 8% 6% 10%

33% 76% 15% 12% 7% 5% 6% 7% 15% 60%

30% 27% 7%

But the food supply has become more fragmented… fragmented
!

Supermarkets are losing market share
Estimated retail food sales by network Canada – 2007-2008 Type of business Supermarkets Pharmacies Ph i Warehouse clubs Discount stores Convenience stores Other TOTAL
Sources: CIBC World Markets, Statistics Canada

Sales S l
($ million)

Market M k t share 80.4% 2.1% 6.7% 5.4% 4.8% 0.5%

Growth 4% 7% 5% 11% 2% 14% 5%

$61,390 $1,630 $1 630 $5,100 $4,115 $3,680 $415 $76,330 $76 330

Competition is increasing
!

In Ontario, supercentres have transformed the competitive landscape. landscape
Increase – In-store food purchases Canada 7.7% Growth in food sales* Canada 3.3% Ontario 3.2% Quebec 4.2%

Per capita food store spending 2007 Canada Ontario Quebec 8.5% 6.8% 9.9% 9 9% 2008 8.4% 6.7% 10.1% 10 1%

* Supermarkets and convenience stores

Source: Canadian Grocer, February 2009

But the current crisis should be good for grocers
!

Net income for the major chains increased significantly in the last fiscal quarter Consumers are eating out less However, consumers who didn’t eat out before the crisis will also try to reduce spending and, more than ever, will be looking for bargains Sales are expected to increase 3.1% in Canada in 2009*


! !

!

How much will profits increase?

*Canadian Grocer, February 2009

Explosion of private labels
!

The increase in the number of products carried under private labels, particularly in the premium segment, has clearly improved the position of the major chains. Trying t T i to compete, M t and S b t Metro d Sobeys h have been particularly b ti l l aggressive.
• Sobeys launched 4,800 new Compliments-brand products in its 2008 fiscal year.* • Metro announced that it will launch over 2,000 new products in the next year.
Faced with category leaders and private labels, what niche can Quebec SMEs carve?

!

*12 months ending May 3, 2008

Fragmentation of consumption
!

Consumers are increasingly unique! gy q
• • • • Educated, informed and busy Care for their health AND want good food Concerned about the environment Worried about pesticides, GMOs, food poisoning, heart disease, cancer, etc. • D i f organic f d products Desire for i food d t • Price sensitive

!

They want customized products and services and selection
The one-size-fits-all approach to food marketing no longer works for them.

The traditional supermarket is adapting slowly
!

Major chains are not as well positioned to serve this “new market”:
• They don’t have the flexibility to adapt their product and service line-up quickly

!

“Micro-segments” are generally less attractive to the big industry players
• Big companies—both retail and manufacturing—are structured to produce and distribute large volumes

!

“The consumer is the boss.”

The retail food industry is polarizing
Specialty stores
CUSTOMER focus

Big box stores
PRICE focus

Bikes $6,000 $

Bikes $150

• Specialty and exclusive products •V l Value-added products and services dd d d t d i • Attentive to the customer • Customer intimacy

• Volume and standardization • Commodities • Price wars • Standard courtesy

Opportunity for small players
!

Like other retail sectors, the retail food sector is restructuring:
• Rebirth of specialty shops

!

Market maturity and diversification of consumer tastes mean that the “categories” of growth products are generally smaller. ll Small businesses are energized by the “new consumer” and are t i to be innovative and exclusive. trying t b i ti d l i

!

Small businesses – stores of the future?
!

Neighbourhood grocery stores and specialty food stores are closer to their customers and better positioned to meet their expectations and create a close relationship with them Two main factors are fostering the growth in the number of small specialty shops
• Information technology • Demographic shifts

!

Small businesses

A FEW STRATEGIES FOR BREAKING INTO THE MARKET…

Develop a unique feature
!

Develop a unique expertise or p p q p product that cannot be reproduced on a large scale
• Complexity of implementation and impossibility of industrial production protect small from big players

!

This strategy has two constraints:
• Places the company in market segments that value this type of product and involves specific and selective marketing • Mandates a high price strategy

Increase the barriers to entry
!

! ! !

This strategy is based on developing a protected brand that gy p g p guarantees origin or quality of the product based on rigorous specifications Means of controlling th number of potential entrants M f t lli the b f t ti l t t Focus on consumer recognition and value of the label Examples:
• Agneau de Charlevoix: protected geographical indication (PGI) approved • I cider: approval pending Ice id l di

Set yourself apart
!

In mature markets or undifferentiated product categories, focus on innovation
• Trademark
– Bella tomatoes by Demers or Veau de Charlevoix y

• Different, attractive and/or practical packaging
– La Tomate’s tubes

!

Inject energy into a product category lacking in innovation
• E.g.: Europe Best (frozen fruit) a few years ago…

!

Dare to go where the big players never invest…
• Nutra-Fruits cranberry-based product line

Cultivate a regional identity
!

Avoid spreading resources thin by focusing most p g y g development activities in region of origin Maximize benefits of proximity:
• Reduce advertising costs through local word of mouth • Knowledge of customer needs and habits • Personal business relationships rather than formal or contractual ones • Ability to respond quickly and adapt to change

!

Build partnerships
! ! ! ! !

With a customer
• E.g.: La Meunerie Milanaise and Première Moisson

With another processor
• Distribution - manufacturing – sale of complementary products

With a distributor or retailer
• Exclusive or customized products

With producers
• Regional label products

With regional businesses or organizations
• Develop a label, portal-type Web site, shared booths at regional events

Looking ahead…
!

Basic trends favour small producers and food processors
• Consumers are looking for premium, different, Quebec-origin products… • Small retailers can set themselves apart by offering unique, innovative, quality products from here… • Growth in food sales in specialty, gourmet, organic, regional, health niches, etc. is higher than the industry average… • Specialty neighbourhood shops are booming…

Medium and large businesses

WHAT IS THE RIGHT WAY?

Forced to innovate…
!

Between the inevitable rise of private brands…
• In the U.S., just 9% of consumers believe that national brand products are better than private labels and 60% believe that they are manufactured in the same factories as national brands.*

!

… and the trend pushing consumers towards food products perceived as better quality,* all brands combined Despite the current economic context that slows but does not change these basic trends

!

*The Hartman Group, Contemporary Food Trends, 2008

New definition of quality
!

Products with a “history” – origin, producer/manufacturer or method of production Packaging that signals quality (transparent, matte finish, etc.) Products manufactured using fewer, better-quality ingredients i di Products for the more adventurous palate Products that seem less industrial, less mass-produced

!

!

! !

Source:The Hartman Group, Contemporary Food Trends, 2008

SIAL Paris 2008

TRENDS IN INNOVATION

Trends in food innovation
MAJOR CATEGORIES
43%
PLEASURE

24%
CONVENIENCE

17%
HEALTH

14%
FITNESS

1%
ETHICS

Fun Exoticism Sensory variety Sophistication

Time-saving Handling Portability

Natural Vegetarian Medical

Slimness Energy / Well-being W ll b i Cosmetic

Environment Citizenship

SIAL Paris – 2008; Identified by XTC

Trends: product handling – time saving – sensory variety
SIAL - Paris 2008 Selections
Roast veal in juices

Individual sauce packets Ready after 10 seconds in the microwave

Other examples of the 350 innovations selected at SIAL Paris 2008
Slimness - Sophistication Product handling – Sensory variety For co-branding and ne format co branding new

Italian french fries with 1% virgin olive oil, bake in the oven. Breaded hi k B d d chicken or ham sticks stuffed with h ti k t ff d ith La Vache Qui Rit cheese

Grand Prix 2008 – SIAL Paris 2008
Pastry dough… in sweet or salty flavours! y g y
Selected for the flavours that provide a base for new and original pie recipes

Innovation Sensory variety – Time saving

Taste f P T t of Provence – t tomato and oregano t d Chocolate

NAVIGATING THE PRESENT AND CHARTING THE FUTURE…

Don’t minimize the importance of marketing
!

Follow up, be proactive and innovate
• Identify opportunities and risks • Reassess your p y price strategies regularly g g y • Increase product development initiatives

!

Get to know the consumer better*
• • • • 68% change brands regularly 5% are loyal to one brand 73% shop in at least five types of stores 26% are loyal to one merchant in particular

*U.S. data

Source: GMA - Deloitte,Shopper Marketing 2007

“Shopper marketing” or the importance of the store store…
! ! ! !

70% of buying decisions are made in the store. 68% of in-store purchases are unplanned. The shopper is not necessarily the consumer… “Shopper marketing” still a vague concept but growing in importance:
• In recent years, U.S. manufacturers and retailers have increased marketing spending by 2%.* • Increased spending on “shopper marketing”:
" Manufacturers: +21% " Retailers: +26%

* Estimated average annual growth rate 2004-2010

Source: GMA - Deloitte,Shopper Marketing 2007

Rethinking your marketing mix?
!

Get started or solidify a base in “shopper marketing”
• You don’t need to do it all, but do something • Know your customers and their strategies and become their partner
" Retailers are becoming more effective and sophisticated marketers g p

Invest in your consumer and shopper knowledge ! Align your initiatives with the retailer’s objectives and marketing plan l ! Develop innovative marketing plans tailored to every major customer
!

Questions? Comments?
Marie-Claude Michaud
Business Strategy Consultant www.dancause.net

FCC – SIAL Montréal April 1, 2009

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