Food in Canada is once again pleased to partner with KPMG in presenting our annual industry roundtable. This year we asked executives from different sectors of the Canadian food and beverage industry how their companies successfully navigate the global food industry. Our participants this time include Willy Kruh, global chairman, Consumer Markets, with KPMG; Kenny Sadai, president and CEO of Guelph, Ont.-based Sleeman Breweries Ltd., a subsidiary of Japan’s Sapporo Breweries; Alain Brunet, COO and vice-president for the Société des alcools du Québec; Roger Dickhout, president and CEO of Brampton, Ont.-based Pineridge Foods Inc.; and Bill DiMento, corporate director of Sustainability at Lunenburg, N.S.-based High Liner Foods Inc.
2011 and Beyond: Growing and Succeeding in the Global Food Industry
The global food landscape is rapidly evolving as consumer needs and behaviours shift. Growing populations and consumer demands in emerging markets are creating opportunities for companies to export products or set up operations to help meet the needs of this rapidly expanding consumer base. The demand among North American and European consumers for greater variety and choice is leading some food companies to expand their offerings internationally. And consumers’ increased access to information the world over is putting companies under the microscope when it comes to sustainability practices.
Export opportunities. International sourcing. Sustainability. These are three themes that we believe are important to explore as global food companies look to grow and succeed in the rebounding economy of 2011 and beyond.
Expanding Opportunities: Launching into New M&A and Export Markets
By Willy Kruh
With the global financial crisis of the last two years still looming behind us, and the recovery progressing slowly across many parts of the world, food industry organizations are at a crossroads. Taking into consideration the competitive cost and other pressures they’re facing, many in the industry are looking at ways to grow their business and prepare themselves for possible continued turbulence and the eventual upswing.
Consolidation: Attaining Growth and Flexibility
Mergers and acquisitions (M&A) is an important strategy for consumer companies, both for growth throughout the business cycle and market entry. But, following a year in which both the number and the value of M&A deals were significantly down, it is far from clear what form M&A activity in the next 18 months will take and how much there will be.
We do have a few clues to ponder. The acquisition of U.K. confectionery maker Cadbury by Kraft Foods — one of the biggest recent consumer market deals concluded in early 2010 — suggests one emerging theme for consumer M&A — large companies with fairly strong balance sheets using their financial strength and stock market credibility to generate the growth that, in a depressed market, only acquisitions can deliver.
Another possible theme is around companies’ acquisitions of their suppliers in a bid to improve their ability to control costs. The downturn demonstrates that companies that are more vertically integrated have greater control over their margins. So, as companies refocus on growth they are considering vertical acquisitions that improve margins and provide greater flexibility in the supply chain.
Exporting: Go Where the Growth Is
Small food companies that want to stay small should find specific niche strengths that make a connection with customers and build on them to remain competitive and succeed. On the other hand, companies that want to grow and expand to compete should follow the consumer base. That means offering new competitive products that meet the needs and desires of growing populations within Canada, such as the increasing consumer demand for functional, natural health, or organic food products among aging baby boomers. Delivering on those needs often requires sourcing ingredients and/or production and expanding the supply chain internationally.
Following the consumer base can also mean going after the fastest-growing consumer populations globally, namely emerging markets such as Asia-Pacific and Central and South America.
High-Growth Trends: Private Labels, Health and Wellness
Two key food categories that have high potential for organizations wishing to export to new markets are private labels and healthy lifestyle products.
Private labels have become a popular trend in the last few years as cost-conscious consumers are choosing to eat at home more often and will often “trade down” to less-expensive food options. In Canada, according to Nielsen, 51 per cent of consumers say they have purchased more private label brands during the economic downturn, and, of those, 91 per cent will continue to purchase private labels when the economy improves. Private labels represent $11.2 billion in national sales, or 19 per cent of overall consumer packaged goods spend.
Wellness or healthy lifestyle foods are a significant global trend, as the growing number of middle-class and affluent consumers in emerging markets are looking to healthy choices in food products as the next step in their purchasing evolution. In developed markets, the focus on organic and natural ingredients and food products is expanding as aging populations and as the interest in sustainable food products continue to grow. In 2008, Agriculture Canada noted that the value of organic food products sold in this country through all retail channels was estimated at $2 billion, representing a 66-per-cent growth over the previous two years.
Careful Planning can be Key
Before launching into an international M&A or export venture, companies should painstakingly plan and ensure they approach it in a thoughtful and deliberate manner, and that they understand the risks involved. Using appropriate advisors can be essential. Many companies prefer entering into export relationships or acquisitions in other countries through a joint venture with someone who has the government and regulatory experience. It can also be helpful to conduct research into the relationships that Canada has with other nations to find opportunities for global synergies.
Regardless of the regions you move into, there can be some challenges and risks. While exporting or making acquisitions internationally can be seen as the “big ticket” for expanding the business, they should not overshadow a detailed due diligence process to ensure the relationships will bring the value organizations want now and in the long term.
International Consumer Trends
• China — The health, organics and natural food markets
are growing in popularity in China as consumers become
increasingly aware of the benefits of healthy eating.
Other export opportunities include convenience foods,
healthy snack foods, fresh fruit, baby food and instant
formula, and frozen vegetables.
• Mexico — The demographics of the Mexican market are
changing. More disposable income and lifestyle changes
have resulted in demand for more ready-to-eat and
processed meals, meats, frozen foods and snack foods.
• Brazil — Healthy and functional foods with highvalue
ingredients are seeing increased consumer
demand in Brazil. Brazilian importers are looking for
high-end products and well-known brands, as well as
imports with packaging, status and innovation.
• Japan — Freshness and quality are important to the
Japanese market and, combined with an aging population,
demand is growing for health food and functional
and organic products. Additional export opportunities
include ready-to-eat food products, berries, cereals and
• Europe — Fresh foods and produce are common in
EU diets. However, the demand for prepared and
convenience food is increasing. Additional opportunities
include yogurt, desserts, ice cream, pasta, soup, cheese
• Africa — Western African countries are among the fastest
growing on the continent. Senegal, in particular, has a
growing Canadian business presence in the country. Promising
areas include agricultural commodities, including
wheat and dried peas, and packaged/processed foods.
Willy Kruh is global chairman, Consumer Markets, with
KPMG. Contact him at (416) 777-8710, or [email protected]
Roger Dickhout is president and CEO of Brampton, Ont.-based Pineridge Foods Inc., a producer of bakery products, dairy and natural foods. Food in Canada spoke to him about his company’s experience with exporting.
Food in Canada: What portion of your business involves exporting, and to which markets?
Roger Dickhout: We export about 10 per cent of our sales in our food manufacturing businesses. We sell yogurt and frozen baked goods principally to the U.S. market. We entered the U.S. market about 15 years ago to pursue growth opportunities.
FIC: How have these markets changed in recent years?
Dickhout: The U.S. food retailing sector has evolved to become more differentiated, with discount and specialty formats. This evolution has created opportunities for us to sell niche products to support our customers’ strategies. The development of the U.S. in-store bakery created the opportunity for us to sell niche frozen bakery products like ring danish from Oakrun Farm Bakery. Our bakery companies have also followed the foodservice operators they serve in Canada into their operations in the U.S.
FIC: What challenges is your company currently facing in regard to exporting?
Dickhout: Our volatile and appreciating currency is the most significant challenge. As a result, we design and operate our export business for a parity dollar. The other challenge is non-tariff import barriers.
FIC: What opportunities are you seeing?
Dickhout: We see an enormous opportunity to continue to expand our U.S. business by focusing on selling niche products to mid-size customers that are seeking to differentiate themselves. While most of our emphasis is there, we are also nurturing the small beachhead that we export to further afield.
Leading Global Sourcing, Marketing, and Relationship Management Practices: What Can Help You Succeed
By Tom Vandeloo and Jérôme Thirion
With more access to information than ever before, consumers in today’s global economy are demanding more — more variety, more convenience, more healthy choice, and more environmental and fair trade accountability along the value chain. Global food and beverage manufacturers are adapting their business to meet these demands. While the international scale of operations can offer significant benefits for sourcing ingredients and outsourcing labour or product development — including access to new markets and suppliers, operational efficiencies, and tapping into foreign knowledge — there can also be risks and costs associated with taking advantage of global supply chain opportunities.
Do the benefits outweigh the risks? We spoke to industry leaders about how they are addressing the need to continually adapt to changing consumer demands. They discussed some significant lessons that all food and consumer products companies can learn from: don’t be afraid to search far and wide for the best products, the freshest ingredients, or the most cost-effective manufacturing sites; build long-term relationships with suppliers; and focus on quality to build the brand and help mitigate risks.
Kenny Sadai is president and CEO of Sleeman Breweries Ltd., a subsidiary of Japan’s Sapporo Breweries. Based in Guelph, Ont., the company’s brands include Sleeman, Upper Canada, Okanagan Spring and Sapporo. It also owns Quebec microbrewery Unibroue.
KPMG: The Sapporo cans are very distinctive. How is the packaging of the Sapporo beer handled?
Sadai: The Sapporo Silver 650-mL beer cans are manufactured in Japan and are the icon of the Sapporo brand everywhere in the world. The manufacturer is the only one that currently satisfies our high-quality standard for this uniquely shaped can, which contributes to the Sapporo brand strength. At Sleeman Breweries Ltd., here in Guelph, we have a dedicated line for filling the Sapporo Silver Cans. From a cost and quality standpoint, our brewery is the best place to brew, package and ship Sapporo globally.
KPMG: How is the Sapporo brand handled globally?
Sadai: Ownership of the brand sits with Japan and we try to work with that core brand identity to effectively communicate it to our consumers in different countries to encourage them to try our product. We’ve established a Sapporo marketing committee to try to harmonize the Sapporo brand equity between Japan and North America. For example, Sapporo is traditionally associated with eating sushi. We need to change that perception to motivate people to go beyond sushi and order a Sapporo with their hamburger.
KPMG: How do you get the Sapporo brand to go beyond sushi in Canada?
Sadai: The driving force for introducing new consumers to Sapporo is through on-premise sales. We want the clientele of restaurants and pubs to order Sapporo, whether it accompanies their sushi or salad or they’re just enjoying it on its own. Marketing is critical to achieve this goal. We did a lot of consumer research and testing before airing the current Sapporo TV commercial. This is the first time we have used this medium for bringing Sapporo to the attention of our Canadian consumers.
KPMG: SAQ has more than 2,500 suppliers in 60 countries. What are some of the challenges you face in developing relationships with so many producers in so many countries?
Alain Brunet is COO and vice-president for the Société des alcohols du Québec (SAQ), which provides a major income stream to both the Quebec and federal governments.
Brunet: We have to improve our operational flexibility and adapt systems and processes in order to address new markets. New parallel supply chains pose a challenge because we have good systems for sourcing and distributing regular products, but for specialties, such as vintage and high-end wines, we have to adapt the logistics chain.
KPMG: How has sustainable development impacted your business?
Brunet: We’re working to adapt and improve our purchasing policy in a sustainable way. We have four sustainability criteria right now for suppliers: case weight; existence of sustainable development procedures; environmental certification or use of recycled containers and packaging; and organic certification of the product. They are not mandatory, but for the next two or three years we will continue to enhance it and make it mandatory. We want to be leaders in this area and ensure our suppliers comply.
KPMG: What are the key elements for success in an international environment?
Brunet: Good communication with suppliers and good understanding of the other country you’re working with. It’s another world, and if you don’t have good communication or good understanding, you will make mistakes. You have to step back and listen, especially at the beginning of the relationship. We’ve been in business since 1921 and we put a lot of energy in partner management because it’s a key to success. And risk management is a big component of any sourcing effort.
One common theme both leaders cite is understanding the consumer. Sadai says Sapporo tackles the issue through consumer research and understanding cultural differences among their customer base. Japanese consumers prefer beer that’s brewed using the more expensive European aroma hops, whereas North American beer drinkers enjoy beer made with regular hops. Sapporo and Sleeman respond with different products in their respective markets.
At SAQ, Brunet says the company’s new colour tag system for product classification makes it easier for consumers to choose a wine from the more than 10,000 products on their shelves. Helping consumers select from among four varieties of red wines and four varieties of white also helps create a better customer experience. But the system also helps SAQ determine the tastes of their consumers so that they can constantly fine-tune their inventory to deliver the products their consumers want now and those they are likely to want in the future.
Tom Vandeloo is partner, Advisory Services, KPMG. Contact him at (416) 777-3909; [email protected] Jérôme Thirion is national leader, Business Effectiveness Services, KPMG. Contact him at (514) 840-2316; [email protected]
Surviving Together: Sustainability and the Global Food Industry
By Phil Ludvigsen and Katie Dunphy
Sustainability. Traceability. Environmental responsibility. These are all words that the global food industry has become more familiar with in recent years. As the world’s population and food consumption continues to rise, while natural resources such as fish and seafood shrink at an alarming rate, consumers are becoming increasingly concerned with the practices surrounding the harvest and processing of the food they consume.
As a result, companies everywhere are coming under increasing scrutiny from customers over the role they play in the global community. Consumers are more aware of corporate impacts on the environment and are judging companies accordingly. They are also challenging companies to improve their environmental performance and are spending their money with those that do.
A 2010 survey of consumer perceptions of corporate social responsibility by market researcher Penn Schoen Berland found that 70 per cent of consumers are willing to pay more for a $100 product from a company they regard as responsible. And 72 per cent say they will make some sacrifices in their spending or in their salary to support social responsibility. This commitment from consumers is not lost on the food and beverage industry. Even with the downturn in the economy, companies are continuing to invest in sustainability practices to enhance their reputations with consumers and take advantage of the cost savings that come with waste and energy reduction.
We spoke with Bill DiMento, corporate director of Sustainability at High Liner Foods Inc., about his views on the affects sustainability practices have had on one of the largest processors and marketers of frozen seafood in North America. High Liner is based in Lunenburg, N.S., and its main products include raw and frozen fillets and shellfish.
KPMG: What are some of the specific sustainability issues you’re working on throughout your supply chain?
DiMento: High Liner Foods’ customers, like Sobeys, Loblaws, Aramark and Sodexo, have embraced sustainability across their supply chain. They have asked High Liner Foods to partner with them in their efforts by providing sustainable seafood solutions for their customers. We’ve spent a lot of time assessing our product line and raw materials to see where they sit in the sustainability life cycle chain, and whether the fisheries are certified or under assessment by the Marine Stewardship Council (MSC). We’ve shared this with our suppliers and we’ve established a relationship with the Sustainable Fisheries Partnership. They are working with us to conduct an analysis of all the different fisheries we deal with around the world. We’ve identified some gaps and we’ve invested in fishery improvement projects around the globe to ensure these fisheries become certified.
KPMG: Have you developed any codes of conduct that you request your suppliers to comply with?
DiMento: The World Food and Agriculture Organization has developed a Code of Conduct for Responsible Fisheries being used by the MSC. Along with this code of conduct, the MSC uses its own stakeholder-developed standards to inspect and certify fisheries. The MSC also takes a look at the policing of these fisheries in various countries. The Code of Conduct and standards are there to ensure that governments are managing fisheries in their economic zones and enforcing them properly to protect against illegal fishing and overfishing, and to find new fishing methods that are less detrimental to the environment.
KPMG: Are you seeing any quantifiable benefits from your sustainability efforts?
DiMento: We don’t see the economic benefits immediately, but I’m sure long term we will. The main benefit we’re seeing now is greater engagement with our customers. We’re taking a leadership role to help educate our customers about sustainability and our customers are now coming to us, looking to gain the knowledge to conduct their businesses in a responsible and sustainable manner.
KPMG: What are the key challenges High Liner has faced in implementing sustainability programs and achieving objectives?
DiMento: Companies now have to know exactly where the raw materials or fish are coming from. That’s a challenge because we’re going back to our suppliers and saying, it’s no longer acceptable for you to tell us that the fish comes from Russia. We need to know the water and the harvest area that the fish is being taken from, that it’s being taken in accordance with local government regulations. The challenge is if there is illegal harvesting going on, how do you ensure your supplier is not buying any of that illegally harvested fish and processing it for you? This is where we would actually police our policy and work with our suppliers to ensure they are not participating in illegal practices. Right now we employ third-party food safety auditors around the globe for all our suppliers, and many of these audits incorporate sustainability practices on our behalf.
DiMento adds that High Liner’s focus on customer and consumer education is an integral part of its sustainability practices. High Liner recently launched a website (www.highlinersustainability.com) dedicated to providing customers with more information on sustainable seafood. They’ve also joined forces with the National Fisheries Institute’s Sustainability Council to create a forum for sharing ideas and successes. The aim of the forum is to help ensure the seafood industry as a whole is moving forward with improvement projects in a co-ordinated manner. By working with its customers and consumers, High Liner believes the seafood industry can achieve a sustainable future for all.
Phil Ludvigsen is director, Climate Advisory Services, KPMG. Contact him at (416) 777-3049; [email protected] Katie Dunphy is manager, Climate Change and Sustainability Services, KPMG. Contact her at (416) 777-8932; [email protected]
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