MNP/CTAC Executive Roundtable 2013 Access to Markets – Opportunities and Challenges

NOTE: This article originally appeared in French in the May issue of Food in Canada, in our supplement Accent Alimentaire sur le Québec.

Food in Canada magazine is pleased to present its first annual French-language Executive Roundtable in partnership with MNP LLP, the nation’s fastest-growing accounting, tax and business advisory services firm – according to the Bottom Line April 2013 Report – and the Conseil de la Transformation Agroalimentaire et des Produits de Consommation (CTAC). The round table is included in Food in Canada’s May supplement: Accent alimentaire sur le Québec.

Participating in the roundtable were: (Above, left to right) Andrew Raphael, MNP; Ezio Di Emanuelle, MNP; Sylvie Cloutier, president and CEO, CTAC; Louis Grossbaum, regional managing partner, Advisory Services, MNP; Henry Mizrahi, president, Les Aliments Lesters ltée; Henry Rosenblum, MNP; Éric Doyon, president, Aliments In Foods inc.; Liliane Colpron, presidente, Boulangerie Première Moisson; Pierre Turner, vice-president Assurance-qualité, A. Lassonde inc.; Stéphane Bouchard, vice-president, Sales, Distribution Régitan ltée; Nicole Lelièvre, presidente, OGEM ltée (Saint-Justin Water); Sheldon Krakower, MNP; and Isabelle Renaud, MNP.

This year’s roundtable theme was Access to Markets – Opportunities and Challenges. The event provided business leaders from various segments of the Quebec food industry with the opportunity to discuss key industry issues and share potential solutions. Here are your hosts:

Food & Ag Manufacturing Services Partner

MNP LLP officially opened its doors in Montréal two years ago with the mission of providing accounting and consulting services to Québec businesses. In actuality, our professionals have been here for over 40 years, under four different banners that eventually merged with MNP. Our firm has a number of services that cater specifically to the Food & Ag Manufacturing sector.

Louis Grossbaum

Regional Managing Partner, Advisory Services

MNP LLP

The Voice of the Industry
CTAC is a consolidation of forces representing the food industry. Its members account for 80% of sales in a sector that generates $23

Participants in the executive round table (from left to right): Éric Doyon, president, Aliments In Foods inc.; Henry Mizrahi, president, Lesters Foods Limited; Liliane Colpron, president, Première Moisson; Pierre Turner, vice-president, Quality Assurance, Lassonde Industries; Stéphane Bouchard, vice-president, Sales, Distribution Régitan ltée; Nicole Lelièvre, president, OGEM ltée (Saint-Justin water); and Claude Trottier, president and director of Operations, Brome Lake Ducks (not shown in photo).

billion per year, and represents 165,000 direct and indirect jobs. Since February 2013, food has become the primary manufacturing sector in Québec. This sector contributes $1 billion in taxes, duties, fees, charges and payroll taxes to the provincial government. We have a voice in the Québec economy and we are proud to make it heard.

Sylvie Cloutier

President and Chief Executive Officer

CTAC

Introduction

The Future Is Now: Recognition, Innovation and Collaboration

In collaboration with CTAC, MNP is honoured to provide Quebec food and beverage companies with a forum to share their insights with others in the industry. The 2013 Quebec Executive Roundtable participants’ diversity and frankness provided a timely perspective on the changing dynamics of Quebec’s food and beverage sector.

Recognition

A major theme that resonated with participants is the fact that food and beverage manufacturing is the largest manufacturing sector in Quebec and uses agricultural inputs from all over the province. Participants agreed that governments need to better recognize the sector for its significant contribution to Quebec’s economy and to the social fabric and heritage of its communities.

Innovation and Perspective

While participants noted that Quebec’s cost of doing business and regulations present challenges and must be reduced, they believe that innovation is the key to competitive sustainability. Quebec manufacturers need support, not protection, as they will increasingly have to compete with innovative food and beverage imports. Although it was noted that many Quebec manufacturers are small to medium size it was agreed that focus on more investment in innovative production, service, design and marketing will help Quebec food and beverage manufacturers compete in an increasingly complex global marketplace.

Collaborate to Compete

By articulating and then acting on common concerns through organizations like CTAC, companies can work together to develop innovative solutions and ultimately strengthen the sector as a whole. Several common concerns that can be mitigated by more collaborative responses were identified. These include promoting Quebec food safety protocols, ensuring food imports undergo the same food safety scrutiny as domestic products and ensuring skilled labour is available.

More collaboration within the food and manufacturing sector provides a better opportunity for collaboration with the rest of the agri-food value chain, and collaborating locally better equips Quebec companies to compete globally.

Quebec food and beverage manufacturers need to respond to an increasingly global marketplace with rapidly changing dynamics. Making informed decisions and moving beyond managing to anticipating change is key to survival and success. For over 70 years MNP has been part of Canada’s agri-food community and is proud to help Quebec companies succeed by delivering timely agri-food focused accounting, consulting, tax and corporate finance services. We look forward to continuing to provide knowledge beyond the numbers and to hosting more of these forums.

MNP thanks co-host CTAC and all participants for sharing their informative insights, which were much appreciated and will help ensure Quebec’s food and beverage manufacturing sector’s continued success.

Andrew Raphael, Partner and Director, Food & Beverage Manufacturing, MNP LLP

Sylvie Cloutier: Before we get to the heart of the matter, could each of you take a few minutes to introduce your company?

Pierre Turner – Lassonde Industries is headquartered in Rougemont, Québec. We operate 14 plants in Canada and the United States and employ approximately 2,000 people. We are a North American leader in the development, production and sale of a wide range of fruit and vegetable juices and beverages marketed under the Everfresh, Fairlee, Fruité, Graves, Oasis and Rougemont brands, as well as private labels. We also produce juices, drinks and cranberry-based sauces, as well as apple cider and wine-based drinks. We produce specialty food products under the Antico and Canton brands as well.

Éric Doyon – Aliments In Foods is a young company that has been in business for less than three years, but whose management history includes experience at the renowned Europe’s Best company. We specialize in the development and marketing of innovative products made with simple and healthy ingredients. We currently offer two product lines: InSnax pita chips and InCuisin frozen side dishes, which include mashed potatoes and risotto. Our products can be found in most major supermarkets nationwide, and we are working on positioning ourselves as a consolidator in Québec over the medium term.

Henry Mizrahi – Lesters Foods was founded in 1931. We are now into the third generation of owner-operators. We manufacture approximately 250 different products with the help of about 250 employees. We are directly associated with Montréal’s history, in particular with the smoked meat and ‘steamie’ hotdogs that people love so much. Our products are sold across Canada by major distributors and large food retailers.

Liliane Colpron – Première Moisson has 22 stores in the greater Montréal area. We manufacture 90% of what is sold in our stores,

Liliane Colpron, president, Première Moisson

which is our company’s primary mission. We have also become producers and distributors of bakery products for major chains throughout the entire province. We have nearly 1,200 employees across our network and operate three plants: one for meat, another for bread and yet another for pastries. Since founding our company 22 years ago, we have focused on healthy food products.

Stéphane Bouchard – Distribution Régitan is a food distribution company established in 1920. It consists of three entities: Distribution Régitan (distributor to small, medium and large stores), Allied Foods (importer of kosher products) and Troïka Foods (distributor of frozen foods). As distributors to more than 2,000 food retailers, we are now one of the largest private distributors in Eastern Canada. Our clientele covers all market segments, from small pharmacies to large grocery stores and convenience gas chains. We focus on retail, grocery products, wine, confectionery and frozen products. We are the link between the manufacturer and the retailer.

Nicole Lelièvre – Office Général des Eaux Minérales (OGEM) was founded in 1971 by my husband. The water we bottle is Saint-Justin carbonated natural mineral water from a village of the same name in the Mauricie region. Saint-Justin water is unique because of its high sodium bicarbonate content, glass bottling at the source, naturally clay-protected environment, and digestive properties. Our water is available at all major retailers (including Metro, Loblaws, Sobeys and Costco), in natural product stores, and in hotels, restaurants and institutions. We are currently looking to increase our presence in Ontario, Western Canada and the United States.

Claude Trottier – Brome Lake Ducks is the largest Canadian producer of ducks, breeding approximately two million ducks per year.

Claude Trottier, president and director of Operations, Brome Lake Ducks

The company has been producing Peking ducks for the past century. The Canadian market represents over 80% of our sales. We are present in the retail and hospitality sectors, and in Chinese neighbourhoods of major Canadian and U.S. cities. We employ 200 people and operate two shops; one in Lac Brome and the other in Montréal. We export to the United States, Japan, the Caribbean, Colombia, Tahiti and other countries.

Ezio Di Emanuele, Senior Advisor, Food & Ag Manufacturing team at MNP: What are the three main challenges for food and beverage companies in Québec? Do you think the issues are different from the major issues impacting the rest of Canada?

N. Lelièvre – The positioning of Saint-Justin water is one of our main concerns in terms of differentiating ourselves from large multinationals and other foreign investment banks which own water brands. All of these brands have the financial means that we do not to negotiate shelf space and distribution to hotels, restaurants and institutions, among others. Government recycling fees also represent a challenge because our product is bottled in glass, although the glass is 60% locally recycled.

P. Turner – At Lassonde, one of our concerns is customer consolidation. We are not immune to a Canadian customer being bought out

Pierre Turner, vice-president, Quality Assurance, Lassonde Industries

by an American customer and having decisions made outside of the country. Our second challenge is to monitor consumer trends and then innovating in terms of content and packaging. Our innovations are designed to respond to consumers’ increasing awareness of the link between diet and health. We also face a third challenge in terms of consolidating suppliers, which includes finding new supply sources, as we did in Mali for mangos, as one example.

C. Trottier – Imported products are definitely the biggest challenge we face, as products from foreign countries do not currently meet the same standards of excellence required of a Canadian producer subject to federal inspection. In addition, imported products are not subject to the same inspection standards as our export products leaving Canada. Approximately 10% of incoming products are inspected, whereas all outgoing products are inspected. Consequently, a second challenge is to innovate in order to differentiate our products from imported products or those made from imported ingredients that end up next to our products on the shelves. The third challenge is to educate consumers about the true meaning of a ‘Canadian product’.

L. Colpron – Our biggest challenge is competition, often against people we trained. However, the wide range of products we offer is an advantage which we leverage, always keeping diversity and quality in mind. For us, innovation and creating new products are both a challenge and a strategic asset. We must also respond to the challenge of trends, such as the current push for gluten-free products.

E. Doyon – In addition to the challenges of consolidating retailers and innovation discussed previously, I would add that with tighter

Éric Doyon, president, Aliments In Foods Inc.

innovation cycles, the time available to demonstrate the attractiveness of a new product is much shorter, because there is always a new kid on the block who wants his turn on the shelves. However, this is also an opportunity for a flexible and innovative company like ours.

H. Mizrahi – Our three main challenges are food safety, managing our costs (considering the significant fluctuation in the price of raw materials) and the shortage of skilled labour (making youth aware of our sector). The safety challenge probably drives most of our efforts. We have invested millions of dollars in equipment to maximize food security. Having visited many plants in the United States and Europe, I can assure you that Canadian consumers are among the best protected in the world.

S. Bouchard – I feel there is a true opportunity in uniting Canadian food retailer associations. The legislative weight is a burden that needs to be lightened. We need to create a central body of impartial resources where everyone can access unbiased information on product recalls, packaging, promotion and government management. I see this as an important challenge that would benefit all industry players, and ultimately the consumers.

S. Cloutier: What impact will the proposed Canada-European Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union have on your business?

N. Lelièvre – What I cannot understand is how a product from Europe can be sold for less here than in its country of origin. We believe

Nicole Lelièvre, president, OGEM ltée (Saint-Justin water)

some countries subsidize the transportation of their products, which does not help make competition fair, both here and for exports. Apart from any concerns regarding inequality in transportation costs, it would be good if trade were handled equally, transparently and fairly.

C. Trottier – Last week while I was travelling in Japan, I also heard about transportation subsidies for exports. At least if the products were systematically inspected upon arrival here, we could compete on an equal footing. Since we export around the world ourselves, I would say Canada is the only country where 90% of imports are not inspected. Free trade agreements can never be fair under these conditions, and they will always cost jobs in Québec and Canada.

E. Di Emanuele: At MNP, we have found that many of our customers across the country are concerned about two important issues, namely succession and risk management. What is your position on these issues?

P. Turner – As a public company, our succession plans are reviewed periodically and are fully integrated into our operations. In terms of risk management, I would say this is where we have seen the biggest changes in the last three years, as much with our insurers, financial partners and board of directors, as with our customers.

L. Colpron – For us, succession was taken into consideration as soon as we founded the company. The second generation has been in place from the beginning, and the third generation – which is currently in school – has already expressed an interest in taking over.  Regarding risk, as we have always been financed by traditional institutions, caution has always been top-of-mind.

E. Doyon – As a young company, the question of succession is particularly interesting to us.  Since our mid-term objective (5 to 10 years) is to position ourselves as a consolidator in the industry in Québec, followed by Canada, we are open to considering acquisition proposals that would allow us to keep local talent and ensure the sustainability of companies. This could involve acquisitions, but also strategic alliances.

S. Cloutier: Mergers in the Canadian retail sector, the impact of Walmart and the arrival of Target in the country are changing the supermarket landscape. What impact do these new realities have on your business?

S. Bouchard – The food industry will inevitably experience significant changes in Québec over the short and mid-term. New market

Stéphane Bouchard, vice-president, Sales, Distribution Régitan ltée;

niches will emerge, major retailers will increase their offerings, and all parties will need to be strategic to gain shelf space. Target and Walmart are not the only new players in the food industry. Pharmaprix and Jean-Coutu already represent over 2.5% of food sales in Canada, and this percentage is rising. Niches are overlapping and complexity is increasing. The definition of the ‘One Stop Shop’ is changing.

C. Trottier – We experimented with Walmart’s grocery section when they established themselves in Québec. Given the nature of our specialty products, the volumes were not very high in relation to the costs incurred. Niche products, which are often bought on impulse, are probably more out of place in this type of business than high-volume products.

S. Cloutier: Other than putting lots of money on the table, how can Québec products win space on the shelves?

C. Trottier – The first step will certainly be trying to convince buyers of both the value of our products and the importance of giving them visibility.

E. Di Emanuele: As the last question in this round table, what do you think the Québec food and beverage processing sector will look like in five years?

H. Mizrahi – I am positive about the future. We are evolving in a dynamic sector, which has led to numerous innovations. I think we

Henry Mizrahi, president, Lesters Foods Limited

have a lot to offer domestic and international markets. As we have done in the last ten years, we will seek out customers who are not satisfied with the products or services they are receiving – which often happens with companies that have become too big – and we will take care of them in an exemplary manner.

N. Lelièvre – With water, we have no choice but to move toward diversification. We plan to add new flavours and review our containers. We also plan to further inform consumers about the difference between a true sparkling mineral water and spring water to which carbon dioxide has been added; a differentiation which has created much confusion. We hope people will be more informed and can make choices that are consistent with their values.